Demoted for being lied to.

Whistleblower issue #1

Renae Randall is demoted because co-manager/partner of $2.5 billion Core Equity fund, Jan Zeeck, lied to her about a Yen currency derivative trade. It is an internal control problem if anyone in an institutional money fund is caught lying about investments/trades. It is an absolute collapse of internal controls for managers to be doing it. It’s the CIO’s job to make sure it doesn’t happen and it’s the Board’s job to make sure the CIO does his job.

• Renae won’t approve of trade initially because of her concern about carry losses (money you have to pay just to hold the position). Renae has never traded a currency and not an expert in that area, but pretty sure there is a carry cost on the yield differential.

• Jan promises Renae there is no carry cost and demands we trade immediately because no time for Renae to confirm that there is no carry. Jan is senior to Renae and told Renae she had traded currency lots of times, so Renae trusts Jan.

• Other staff concerned currency model may not work very well because it’s saying the Fair Value of the Yen is 87 (price of Yen at time is 130), but Matt/Jan confirm currency model is sound and Jan goes forward with trade with Renae’s approval contingent on promise that there is no carry cost.

• 1 year later, carry cost is around 6% on $50 mil derivative. Yen is in the 150ish range. Jan holding out for 87 on Yen. Renae growing more concerned and sends Jan an email with strong evidence currency model isn’t sound.

• 2 years later, carry cost is around 3.5% on $50 mil derivative. Yen is still in the 150ish range. Jan holding out for 87 on Yen. Renae even more concerned because it seems like Jan is really going to hold out until Yen hits 87, which could be never and would lead to perpetual losses forever. What are we doing?

• Renae puts more pressure on Jan to get out of massively money losing position. Jan defends with her scenario analysis that says Yen is really cheap.

• Renae continues to find ways to put a limit to losses on Yen trade. Compromise to exit Yen trade by end of 2025 to limit carry trade losses, but Jan can decide when to sell out. Jan sends email to the others she convinced to make this trade that we will be looking for an exit.

• Renae and Jan get in argument about trust issues Renae has with Jan and whether Jan didn’t know about carry costs and told Renae she did or did Jan lie to Renae about the carry costs. Jan claims she never wanted to do the trade and Renae is the one that traded it and wanted to do the trade.

• Renae tells Matt that Jan lied to her about Yen trade and has proof, as Renae is not the trader on the trade tickets.

• Matt says he won’t look at the proof and Renae can’t accuse Jan of lying because she doesn’t have any proof. Matt demotes Renae off Core portfolio with management responsibilities to Emerging Markets portfolio, a non-managed index portfolio. Matt tells Renae that he will fire her if she tells anyone why she got demoted off Core. Renae is not allowed to talk to any staff about anything but Emerging Market investments but isn’t really allowed to talk to Emerging Markets team either, and Matt monitors all Renae’s office communications to make sure she doesn’t talk about what happened.

• As Renae is collecting evidence for whistleblowing, she notices a new disclosure on Currency model output “Currency Adjusted PPP Model” back in February. There was never a meeting about this and no one would know that it means the currency model doesn’t take into account the carry costs unless they were informed of that. Renae is shocked Matt is sabotaging his own staff to cover up mistakes.

• Jan was made secret interim-CIO if something ever happened to Matt from a succession plan board meeting shortly before Renae gets fired.

• This incident is what Renae is calling a “collapse in Internal Controls.”

• For non-finance experts: SDIC CIO and staff are fiduciaries to a trust, similar to your banker or financial adviser. Would you be ok with the managers of your bank/investment funds lying to each other about the investments they make and the boss rewarding that behavior? If all financial institutions allowed this behavior it would lead to a breakdown of the free markets.