A multi-million-dollar investment made by a Texas state university went to one of Republican Gov. Greg Abbott’s top campaign donors, apparently violating federal securities rules, The Young Turks has learned.
Under Securities and Exchange Commission rules, financial executives can not both donate to politicians and manage investments for state bodies those politicians oversee.
But EnerVest CEO John Walker and his wife have been big donors to both Abbott and his predecessor, Rick Perry, now secretary of the Energy Department, at the same time EnerVest was managing a $7 million investment from the University of Houston. The university’s regents were all appointed by Perry and then two were re-appointed by Abbott.
The investment was made on May 21, 2015, by the university’s endowment. Prior to the investment, the Walkers had contributed $131,000 to the campaigns of both Abbott and Perry.
Five weeks later, on June 29, 2015, Walker donated an additional $25,000 to Abbott’s campaign. Walker has since donated an additional $80,000 to Abbott, for a total of $105,000 for Abbott’s current race. Neither EnerVest nor Abbott responded to TYT's requests for comment.
Abbott is up for re-election on Tuesday against former Dallas County Sheriff Lupe Valdez. Abbott has had a wide lead in the polls. Despite his lead, he has spent $35 million on his campaign this year. Valdez, in contrast, has only raised $1.4 million for her entire campaign.
While Abbott had not appointed any of the university regents at the time of the investment, Abbott later reappointed two regents in September of that year.
Arthur Levitt, who chaired the Securities and Exchange Commission during the Clinton administration, told TYT that the donations “seem to violate the pay-to-play rule.”
Craig Holman, an ethics lobbyist at Public Citizen, agreed. “These donations would appear to run afoul of the SEC pay-to-play rule. If they're making donations to Perry and Abbott and they make appointments that have authority over the investment of public funds in the private equity firm, that would run afoul of the rule,” he said.
“There's a good reason why there's a pay-to-play rule” Holman said. “Private equity funds have been falling all over themselves in trying to influence the awarding of financial contracts via campaign contributions. It's a very simple and necessary way to prohibit those receiving those contracts or investments from donating.”
Holman said, “They've found this to be such a problem that the SEC has zealously enforced it. If the SEC gets wind of these they may step in--and they should.” In July, the private equity firm EnCap was fined $500,000 by the SEC for campaign contributions to Abbott and others that violated the pay-to-play rule.
EnerVest has attracted controversy for being the first private equity firm in a generation to have have a fund lose all of its value. Walker told the Wall Street Journal last year that he was “not proud of the result.” While the fund that the University of Houston invested in has performed better, according to data from the Florida State Board of Administration, it still only returned 6.8% annually (under the generous Internal Rate of Return model), as opposed to 11.36% annually for the S&P 500 index of major stocks.
This is not the first time that EnerVest has been implicated in pay-to-play activities. In September 2017, Maplight and the International Business Times reported that a New Mexico pension fund had invested $37.5 million with EnerVest after EnerVest and Walker steered over $61,000 to Gov. Susana Martinez (R-NM) and committees affiliated with her. That included a direct campaign contribution of $5,200 to Martinez’s campaign.
In the aftermath of the report, Sen. Tom Udall (D-NM) told IBT and Maplight that “[w]e have to make sure that the campaign-finance rules that are still on the books are updated to reflect these new and dangerous circumstances—to ensure that no one is able to circumvent these laws by using super PACs, dark money groups or other campaign spending vehicles… [t]he public deserves to feel confident that decisions made with public money are not being influenced by big money donors.”
EnerVest has also faced an FBI investigation for allegations that it illegally sold drilling rights in Ohio.
Perry and Abbott have appointed Walker, the EnerVest CEO, to serve as a regent of Texas Tech University, his alma mater, since 2012. In January 2018, the San Antonio Express-News reported that of the 889 appointees that Abbott has made to state boards and commissions, 259 of them had made donations to Abbott’s campaigns, totaling $14.2 million. In May 2017, the Texas House passed legislation to bar donors who gave more than $2,500 in campaign contributions to the governor from serving on state boards and commissions, but the bill died in the Senate.
In August, Abbott donor George McMahan told ABC affiliate KAMC that “You make a large donation to the governor, and in turn you are eligible for appointment to the Board of Regents.” McMahan was referring specifically to Texas Tech, where EnerVest’s Walker is a regent.
EnerVest’s PAC and employees, including Walker, have made over $180,000 in federal contributions this campaign cycle, with nearly all going to Republicans. That includes nearly $50,000 to the National Republican Congressional Committee.
TYT and The Intercept reported last month that the CEO of the private-equity firm Cerberus donated to a pro-Trump super PAC run by Gov. Rick Scott (R-FL) around the same time the Florida pension fund made a $200 million investment with Cerberus. In October 2017, Politico reported that enforcement activity has “plunged” at the SEC since Trump took office.
Matthew Cunningham-Cook writes on pensions and the retirement crisis. He has written for The Nation, Al Jazeera, In These Times, Salon, and Jacobin.