State Treasurer Ron Crane’s saga: Investments gone bad

Idaho Treasurer Ron Crane
Idaho Treasurer Ron Crane

Ron Crane’s 16-year tenure as Idaho’s state treasurer hasn’t been without its share of kerfuffles. He came under scrutiny in the past few years for using limousines for business travel in New York City and for using a state credit card to buy fuel for commutes to and from Boise in his personal car.

The latest flap came this month, when an independent state audit said Crane’s office “inappropriately transferred investments ... resulting in a disproportionate share of investment losses incurred by the state.”

Those losses amounted to $10.2 million, according to the audit by April Renfro, manager of the Legislature’s audits division and a certified public accountant. What’s more, Renfro said, Idaho still holds some of the investments, at the time worth about $17 million less than what Idaho paid for them. (They are now about $14 million underwater, having gained $3 million in value.)

The trouble started with a “securities lending” agreement Crane’s office signed in 2000.

Under that agreement, which is still active, a subsidiary of Key Bank loans out securities that belong to Idaho. The borrower of those securities puts up cash as collateral, and the Key Bank subsidiary — working as a “lending agent” — turns around and buys new securities with the cash. Those new securities are held in an account with two owners — one is the state, one is local governments.

Securities lending has caused problems in other states, with some pension funds suffering major losses in securities lending after Lehman Brothers crumbled in 2009. But 26 states had securities-lending programs as of 2012, the latest year surveyed by the National Association of State Treasurers. Most of them, including Idaho, put administration in the hands of a bank.

The program has made Idaho a considerable amount of money in the past, Crane told the Idaho Statesman. But it also led Idaho to invest in troubled mortgage-backed securities, which plummeted in value during the housing bust.

It was the actions Crane’s office took, handling those securities and the program overall, that the state auditor faulted.

Crane says anyone knowledgeable in the “complex investment vehicle” of securities lending would think his office made the right decisions, and that viewing any losses to the state in hindsight is unrealistic.

But Crane said in an interview that he does not fully understand securities lending, either.

“We concur that securities lending transactions do include some complexity; however, in these situations, the securities lending transactions were simply the vehicle used to inappropriately transfer securities and the associated risks from the LGIP to the Idle Pool,” Renfro wrote in response to Crane’s comments about the audit.

“I feel like the criticism has been unfair, I really do,” Crane said in a recent interview.


The Idaho state treasurer is the chief financial officer and banker of money collected by Idaho. The office takes in and disburses public funds. It invests idle state-owned funds, invests local government and agency money and plays other roles related to government finances.

One of Crane’s duties is to oversee investments for two funds known as the Local Government Investment Pool and State Idle pool.

The Local Government Investment Pool, or LGIP, is made up of money from cities and districts including school, highway, hospital, fire, and sewer and water. The pool is subject to credit ratings by agencies such as Standard & Poor’s and Moody’s Investors Service. Those ratings determine how cheap or expensive it is to borrow money — much as a person’s credit score affects his ability to get a low interest rate on a mortgage.

The State Idle Pool is made up of state money that doesn’t need to be spent immediately. It is not subject to credit ratings. It’s a mandatory investment pool for idle money, so the state has never sought to have its creditworthiness rated.

According to state law, the state treasurer doesn’t have to always make a profit on State Idle investments. The statute says Crane should “use the idle moneys in the state treasury to buy, sell — including selling before maturity at either a gain or a loss — retain or exchange any of the investments described in this section, considering the probable safety of the capital, the probable income to be derived, and the liquidity of the assets.” A “liquid” asset is one that is readily sellable.

Crane’s staff of 26 employees currently manages portfolios worth $2.73 billion, according to the treasurer’s office website.

“The Idaho State Treasury is dedicated to looking after the hard-earned dollars of our citizens,” the website says. “Our primary goal is to promote public confidence in the Treasury through prudent administrative and investment policies.”


Renfro’s audit didn’t take issue with the securities-lending program itself — or with the fact that investments were sold for a loss.

Instead, the audit pointed to a lack of internal controls that should have kept state and local funds separate — thus making it less likely that anyone would have to choose between the best interests of the state or the best interests of local governments.

In the decade between when Crane’s office started the securities-lending deal, and when the transfers flagged in the audit occurred, very few people had a role in decisions about those investments.

Crane says that has been remedied. He has new people on staff with oversight duties, and he plans to get Idaho out of the securities-lending business.


In 2009, several years into the securities-lending agreement, Standard & Poor’s warned Crane’s office that the local-government fund could suffer a credit-rating downgrade because the joint pool in which the LGIP had a stake was holding those mortgage-backed securities.

“The only risk we knew of at this point in time was there was a danger of losing the AAA rating, which would harm the (local-government fund),” Crane said.

But Crane’s office decided it wasn’t time to sell the securities, because “we were assured by the lending agent that the security was going to perform just fine,” he said.

Mortgage-backed securities supported by bad loans were becoming widely suspect as early as 2007. They contributed to the financial crisis in fall 2008.

“It’s with hindsight that you look back and say, ‘Oh, (mortgage-backed securities), that’s a bad deal,” Crane said.

The securities had good ratings prior to 2009, so they didn’t raise any red flags as the underlying mortgages began to sour, the chief deputy said.


Crane’s office thought about the ratings downgrade and decided to ask the lending agent to keep the mortgage-backed securities — but to make sure they only showed up on financial statements for the State Idle pool.

At the time, none of the troubled securities had been assigned to any one investment pool, because money from local and state pools was commingled for the purpose of securities lending.

“If it all played out as we thought at the time, there would have been no losses to either pool by doing that, but we would have been able to maintain the rating,” said Crane’s chief deputy, Laura Steffler. “In hindsight, it did not work out how we had hoped.”

When some of the securities recovered their value, they were sold — resulting in the $10.2 million loss the audit found.

Crane and Steffler said the securities paid interest in the meantime, though, making a small profit for the state. When asked whether it would have been better to wait and sell when they had regained more value, to make a larger profit, Crane said he wanted “opportunity” money as soon as possible to reinvest in something better.

Steffler said the state still has some of those securities — named “VFNC Trust Note” and “Gryphon Funding LTD P-T NT” — but they are paying principal and interest on schedule. They mature in about 23 years.


While he quips that his job title is “Buck Stops Here,” Crane said the investment decisions weren’t his alone. A previous employee, Liza Carberry, was in charge of the securities-lending investment practice, he said.

Carberry no longer works for Crane. Her departure was totally unrelated to events described in the audit report, Crane said. Carberry could not be reached for comment, as no working phone number could be located, and Crane’s office could not provide contact information.

Crane said he changed how things are done in the office, even before the audit.

“We are shutting down our securities lending program and just doing away with it, so this never happens again,” he said.”

Crane restructured the office to give more people, including two CPAs and two investment managers, a say in investment decisions. He also recently hired FTN Financial Main Street Advisors for $48,000 a year as an investment consultant, providing outside views and making strategy recommendations.

Crane is waiting for the mortgage-backed securities still held by the state to gain value before selling them. They gained about $3 million in a recent six-month period, but they’re still about $14 million underwater.

Legislators and others have grilled Crane over the report, building on the auditor’s critique of Crane’s decisions as “inappropriate” for reasons including:

- The office reported the face value, not the market value, of the securities when it assigned them to the state fund.

- The transfer went against Crane’s legal duty to ensure “undivided loyalty” to the state and local funds.

- Crane’s office overrode policies that should have kept the transfer from happening in the first place.

Crane and Steffler dispute those findings.

Crane also told the auditor the Idaho attorney general signed off on the security transfers. In response to Statesman requests for public records, neither Crane’s office nor Idaho Attorney General Lawrence Wasden’s office could find documentation of that approval. The audit said no documentation was provided to Renfro.

Steffler said losses are going to happen. “It’s unrealistic to expect us to never purchase an investment vehicle that never has a loss,” she said.

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

Related stories from Idaho Statesman