Conflict of Interest Surrounds Another Obama Associate

Chicago developer Allison Davis, a one-time former boss and political contributor to Barack Obama, is embroiled in a debate about whether it presents a conflict of interest for him to serve on the Illinois State Board of Investments and the board of an investment firm that was awarded state employee pension money.  Davis, some may recall, was a business partner of the now-indicted Tony Rezko.  Both Davis and Rezko once benefited from a political favor from Barack Obama in their successful effort to win state money for the development of an apartment complex. 

A troubling question with regard to the pension board conflict of interest is how Davis ended up on the board of RREEF America REIT II Inc:

In July 2004, state pension board member Allison S. Davis voted to turn over as much as $100 million in state workers' retirement cash to an investment management firm.

Months after it won the lucrative deal at Davis' urging, that investment firm hired Davis.

RREEF America REIT II Inc. agreed to pay the Chicago developer $30,000 a year to take a part-time post on its board of directors, even as Davis continued to serve on the Illinois State Board of Investment.

Davis' dual board membership was allowed upon receipt of a legal opinion that he could serve on both boards as long as he recused himself from votes pertaining to the investment firm:

But the state board got a legal opinion that Davis could hold both posts as long as he didn't vote on any future state deals for RREEF, a real estate investment trust.

It's an unusual situation. Davis -- who was appointed to the state pension board by Gov. Blagojevich at the behest of since-convicted gubernatorial adviser Tony Rezko -- is the only member of the state's two main pension boards to also serve as a paid board member of a firm that handles state employees' retirement money.

In a letter that June, Davis notified the pension board of his appointment and said, "To avoid any potential for, or appearance of, a conflict of interest, I will recuse myself from any vote of ISBI having to do with RREEF II."

That was all he needed to do, according to another pension board member, Illinois Appellate Court Justice Thomas E. Hoffman, who was the board's ethics officer. In fact, Hoffman thought Davis' role "was to ISBI's advantage," according to the minutes of the pension board's June 22, 2005, meeting.

Even so, some believe the dual service to be a distinct conflict of interest:

"It's extremely uncommon to have a [pension] board member serve on the board of a portfolio adviser," says Edward Siedle, a former U.S. Securities and Exchange Commission lawyer. "It raises a lot of serious conflict-of-interest questions."

Siedle, the former SEC lawyer, questions why the pension board would want Davis on the investment firm's board. The state pension system's staff could monitor the investment as well as Davis could, says Siedle, who heads Benchmark Financial Services, a Florida firm. Also, Davis could not pass along any sensitive information to the state about RREEF without violating his fiduciary duty as a RREEF board member, he adds.

"Serving on the two boards simultaneously may create conflicting fiduciary duties and other dangers. . . . I can't see any benefit that would justify the risks," Siedle says.

This story is highly significant, as Illinois state government has been exposed as rife with "pay-to-play" politics.  Despite bold statements that he would clean it up, Governor Rod Blagojevich has taken it to a whole new level.  Even with the obvious conflict of interest in the Davis situation, Governor Blagojevich has not taken action to replace him, despite the fact that Davis' term has expired:

Davis' term on the State Board of Investment expired in January 2007. He continues to serve because Blagojevich hasn't reappointed or replaced him.

Politics in both Chicago and Illinois state government are brimming with corruption.  Voters need to be aware that Barack Obama cannot be considered as somehow being an outsider to this culture.  This is the culture in which he cut his political teeth, and he would likely bring to the White House the lessons he learned in Illinois on how power is obtained and used.  These are not good lessons.

This post is a continuation of a series that will focus on Obama coverage in the Chicago media. 

Update on Thursday, June 26, 2008 at 12:57PM by Joe

Meanwhile, Obama clearly sees the need to distance himself from his political home.  Will he throw Chicago under the bus in the same way he did to Reverend Wright?  Senator Obama issued this challenge to reporters:

"You will recall that for my entire political career here, I was not the the endorsed candidate of any political organization here," the Democratic presidential hopeful said at the Westin Hotel downtown. "I didn't go around wielding a bunch of clout. My reputation in Springfield was as an independent. There is no doubt I had friends and continue to have friends who come out of the more traditional school of Chicago politics but that's not what launched my political career and that's not what I've ever depended on to get elected, and I would challenge any Chicago reporter to dispute that basic fact."

Obama seems to be parsing the issue here.  Even assuming he may not have depended on the assistance of corrupt elements to get elected (doubtful) does not mean he didn't cut deals while in office.  In any event, Obama has thrown down the gauntlet before Chicago journalists and has dared them to look more deeply into his relationships and dealings.  Let's see if they answer the challenge.