Claim: Idaho treasurer Crane fired worker for exposing ‘waste of public funds’

Idaho State Treasurer Ron Crane, battered in recent years by charges of padding expenses, excessive state-funded travel and mismanagement of state investments, now faces a wrongful-termination claim that alleges a former deputy was fired for trying to stop some of the office’s excesses.

Christopher Priest’s notice of claim, filed Thursday with the Secretary of State’s office, says Priest’s termination from the Investment Division last November violated the state’s whistleblower law.

The claim says Priest “was terminated in direct retaliation for communicating in good faith the existence of extensive waste of public funds/manpower and illegality” in the office.

Employed since 2006, Priest and another employee in the Investment Division, Travis Schaat, were fired last November, two weeks after all five members of the division were formally put on notice for insubordination. The Nov. 5 memo to the five from Chief Deputy Treasurer Laura Steffler reads: “It is our perception that the investment staff does not support the Treasurer’s decisions, and is possibly working with others outside of the office to provide opposition to his decisions.”

Priest’s claim, which seeks upwards of $200,000 for prior and ongoing lost wages, describes a dysfunctional, unsupervised office where Crane seldom worked and where politics and avoiding bad publicity drove management and decision-making.

Among his sharpest accusations: Priest says that Crane, in early 2012, essentially signed away the state’s right to pursue damages against an outside investment firm for losses related to the 2008 financial collapse. Crane did this by signing off on an agreement that was “highly favorable” to the outside firm.

“Ron isn’t responsible enough to have that office,” Priest said Thursday in an interview with Schaat at Priest’s lawyer’s office. “When I brought the problems up and kept trying to address them, then they let me go, they kicked me to the curb. ... They’re proud of the fact that we are at-will employees and they can fire us for any reason, or no reason at all, and they did.” Schaat said he supports Priest’s account, but didn’t join in the claim.

Crane, in an emailed response to the Statesman, said the claim “is detailed and I have not had an opportunity to review it in depth.” He said he “cannot comment on personnel issues or former employees due to restrictions on disclosure of employment information.” He also said he “cannot comment on pending litigation or tort claims.”

Steffler also declined comment, citing the litigation.

MONEY FOR OUTSIDE ADVISERS

Priest’s claim alleges that Crane’s office needlessly spent hundreds of thousands of dollars on outside bankers and advisers to do what the office’s own investment division could do in-house, or in some cases already did. Those providers were hired without competitive bids, Priest said. When investment division personnel periodically raised the issue, Steffler told them the decision was “not open to discussion.”

Like most states, Idaho issues tax anticipation notes to provide income before tax revenues are received. According to the claim, the state paid banks and advisers tens of thousands annually related to underwriting or managing the bond proceeds. Idaho Trust Bank, for example, for a time was paid an annual fee of “approximately $75,000” for “minimal transactions and accounting” that could be done in house, Priest’s claim says.

For nearly 30 years, the state has paid Utah financial adviser Cheryl Cook and her firm, C2 Financial a similar management fee. No contracts for the banking or advisory services were put out to bid, according to the claim. Cook’s fees are included in the cost of issuing the notes and are paid from the proceeds. Priest’s claim does not cite an exact figure for her fees.

When the investment division in 2014 recommended competitive bidding to Crane, Crane agreed but told them to wait “until after his re-election campaign in the fall of 2014,” according to the claim. After he won re-election, Crane allowed the bidding to go forward except for Cook’s financial adviser role. According to Priest’s claim, Crane told the division he “could not offend Cheryl Cook” and her “political support was essential.”

Crane told staff that emailed bid responses should be forwarded to him unopened. But investment division staffers who wrote the bids privately reviewed them, anyway. The bids, according to the claim, showed “drastically divergent” structure at lower cost. Crane gave the contract to the same underwriter the state had used for years “despite the existence of numerous, more cost-effective bids.”

Priest and the investment division objected but Crane declined to reconsider his decision. Later, Crane told the division to forget bidding the advisory work. Crane told Priest that Cook would not bid and “would not support (Crane)” if the contract she held were put out to competitive bid.

Reached Friday, Cook, who lives in Salt Lake City, said she hadn’t seen the claim.

“Apparently, it’s a personnel matter,” she said. “I don’t know anything about it, so I really wouldn’t have much to comment on.”

Additional claims

▪  Handling of distressed assets: The 2014 legislative audit turned up the office’s move to reallocate distressed assets from one portfolio to another to preserve government credit ratings. Priest’s claim revisits the matter, noting that the action was taken despite advice from an outside fund manager that it violated standard accounting principles. The investment division, according to the claim, also expressed concerns and urged Crane to seek an opinion from the Attorney General’s Office. Crane declined. The distressed assets were moved to an investment portfolio of state agency funds. Ultimately, state agencies shared a $9 million hit when the loss was finally booked in June 2015.

Todd Dvorak, spokesman for the Attorney General’s office, said the office would not comment.

▪  PR consultant contract: Crane has long used Mike Tracy to handle the office’s public relations at a cost of $4,000 a month. The Investment division recommended putting the PR contract out to bid, but Crane declined, according to Priest.

▪  Delay in approving audit: Crane in 2014 delayed signing off on a routine outside audit by accounting firm Eide Bailly, fearing its subsequent public disclosure could affect his forthcoming election, the complaint said.

▪  More travel, expense questions: The complaint alleges excessive travel expenses and the fudging of records to conceal where limits were exceeded.

▪  Investing endowment funds: The Treasurer’s Office was investigated in August 2015 by the state Division of Financial Management, an arm of the governor’s office that oversees state budgeting. The division looked at investing done by the Treasurer’s office for the Endowment Fund Investment Board, which manages proceeds from the state’s endowment lands. State code bars the Treasurer’s Office from investing EFIB funds. Priest’s claim says he recommended the office divest from EFIB funds, but Steffler “disregarded Idaho Code and instructed Mr. Priest to do the same.”

▪  Legislative audit answers: Priest and others suffered retribution for “truthfully and honestly” answering questions during the legislative audit, Priest’s claim says. Priest said Steffler told him that “above all else, the Investment Division was required to support and protect Treasurer Crane and make him look as good as possible.”

Insubordination charged

Matters came to a head last November when the entire division was put on notice of possible termination. The immediate cause: Division personnel were supporting Schaat, who was resisting Crane’s instructions to revise minutes of the Investment Advisory Board “in order to more favorably portray Treasurer Crane.” Schaat and Priest were put on two-week administrative leave on Nov. 6. Both were gone by Nov. 20. The three other division employees remained: Paul Stewart, Shawn Nydegger and Jace Perry.

Priest’s termination, the claim alleges, violates Idaho code that protects employees from employer retribution for exposing waste, fraud or mismanagement. Priest was “stymied at every turn and ultimately terminated solely and directly because he engaged in activity protected” by the state whistleblower law.

This story was originally published May 13, 2016 at 1:40 PM with the headline "Claim: Idaho treasurer Crane fired worker for exposing ‘waste of public funds’."