Two of Fairfax County's three employee pension funds were exposed to the bankruptcy of cryptocurrency firm Genesis Global Holdco on January 19.
Genesis Global Holdco LLC, the holding company of troubled cryptocurrency lender Genesis Global Capital, filed for Chapter 11 bankruptcy protection in New York after being exposed to the collapses of cryptocurrency investment firms Three Arrows Capital and FTX. . Genesis Global Capital also filed for bankruptcy.
Genesis Global Holdco owes its top 50 creditors a combined total of more than $3.5 billion, according to a Techstory.in report. One such creditor is global asset manager VanEck's New Finance Income Fund, with a $53 million claim against Genesis.
This fund was launched in December 2021 to form short-term loan agreements with digital asset entities such as Genesis Global Capital. Last July, VanEck made headlines when Fairfax County Employee Retirement Systems (ERS) and Police Officer Retirement Systems (PORS) invested a combined $35 million in the VanEck fund as part of a then-new strategy, which also included an investment in Parataxis Capital, a hedge fund with a strategy similar to VanEck's New Income Finance Fund.
These decisions have received criticism from various other media outlets. One vocal critic has been Edward Siedle, a former SEC attorney who investigated several public pensions and was an expert witness in several Bernie Madoff litigations.
โโฆthe pension of the employees of the county [ERS] it had over 10% of its assets invested in crypto at its peak and an even larger amount committed, yet to be invested. County police pension [PORS] it had more than 13% invested at its peak committed,โ said Brian Morales, chief investment officer for the Retirement Systems Department. Morales was a source cited by Siedle in his article published in forbes.com December the 28th. In a statement published on Jan. 3, Jeff Weiler, executive director of the Fairfax County Department of Retirement Systems, claimed that ERS had, at its peak, 5.98 percent invested in blockchain technology and related venture capital. with FinTech. In the same statement, PORS was claimed to have 11.13 percent in similar assets at its peak.
The Fairfax Retirement Systems Department has also maintained the position that they cannot publicly disclose information related to their properties. Under the Virginia Freedom of Information Act (VFOIA), local pensions are exempt from disclosing investment matters that could have an "adverse impact" on the value of an investment.
"These provisions are promulgated to protect the investments of the Retirement Systems, and therefore their participants and beneficiaries," Weiler said in his Declaration of January 3. โThese provisions, however, do not preclude Retirement Systems personnel, Boards of Trustees, or county officials from reviewing such materials and stock. As noted above, staff conduct a rigorous due diligence process, conduct independent operational due diligence reviews, and ensure that comprehensive legal reviews are completed prior to engaging any investment manager. Staff continue due diligence during the time each investment manager is retained; specifically as to its investment philosophy and process, the construction and holdings of the underlying portfolio, and periodic reviews.โ
โOur nation's state and local government pensions are supposed to be the most transparent in the world. State FOIA laws were put in place to ensure public scrutiny of public money,โ said Siedle, who sees no reason to take the Department of Retirement Systems at its word.
โTelling the public where some or most of the pension assets are invested, but keeping your riskier investments, such as cryptocurrencies, secret is not reassuring for stakeholders such as taxpayers and pensioners,โ Siedle said. On his December 28 forbes.com article, noted: "After all, any asset you cannot identify and locate may not exist."
According to the US Courts website, cases filed under Chapter 11 of the United States Bankruptcy Code are often referred to as "reorganization" bankruptcies. In this case, Genesis will likely remain in possession of its assets and continue to operate while it undergoes a major reorganization to find ways to pay off its creditors, including VanEck and, by extension, ERS and PORS.
Andrew Spellar, chief investment officer at ERS, declined to comment. Brian Morales and Katherine Molnar, PORS's chief investment officer, did not respond to questions from the Fairfax County Times.
