Investigation Uncovers Breaches in Alaska Investment Decisions
Last summer, an investigation prompted by Governor Mike Dunleavy found that former Alaska Revenue Commissioner Adam Crum strayed from established national guidelines. The inquiry revealed he skipped crucial due diligence when allocating millions from state savings into private equity funds.
WilmerHale, a law firm based in Washington, D.C., conducted the investigation and noted “serious concerns” regarding Crum’s fulfillment of his fiduciary duties mandated by state law. It came to light that he had enlisted outside legal counsel for representing the state on these investments without proper approval from the attorney general, which constitutes a clear violation of state regulations.
The report highlighted that Crum’s selection process for investing in the Digital Bridge Fund, along with two other private equity funds, lacked rigorous examination. He didn’t adhere to the Department of Revenue’s protocols aimed at ensuring that he met his fiduciary responsibilities regarding these investments.
Ultimately, about $50 million from the state’s main emergency fund, known as the Constitutional Budget Reserve, was invested in Digital Bridge. Interestingly, Crum had initially aimed to invest $75 million.
The details of this investment emerged shortly after Crum stepped down to pursue a gubernatorial run. The state eventually sold its stake in Digital Bridge to an Israeli insurance company, incurring a loss of approximately $859,000, as communicated to the state’s finance committees. However, the uninvested part of the $50 million did earn $325,000 in interest, which somewhat mitigated the loss.
State Senator Bart Stedman of Sitka remarked, “Clearly, this was a poor investment for the Constitutional Budget Reserve. There’s no question about it. The former commissioner failed in his fiduciary duty.” Stedman subsequently introduced legislation aimed at prohibiting the state from engaging with digital bridges in the future.
The investigation, costing the state an additional $350,000, did not find any evidence of criminal conduct or self-dealing. It noted that while Crum, as revenue commissioner, held the authority to invest in such funds, he should have conducted the thorough due diligence required by law—a claim the report casts doubt on.
In a conversation, Crum defended his actions by stating that his intent was to enhance the returns on savings and promote local investment. He described his communication with the Department of Justice and the governor’s office as efforts to ensure compliance with legal obligations around the investment.
Nevertheless, the investigation pointed out that he neglected to share vital information with the Governor’s Budget Office, the General Assembly Auditor, and other legislative members as mandated by state policies. Furthermore, Crum filled out a checklist related to extraordinary investments but failed to confirm whether the Department of Justice validated his fiduciary responsibilities under state law.
Crum characterized the highlighted issues as “procedural,” insisting that it wasn’t incumbent upon him as revenue commissioner to delve into specifics. “It’s not about being technically proficient in every detail; rather, it’s about grasping the overall concept,” he stated. He emphasized the necessity of relying on staff to manage specific expertise.
The report also included four recommendations aimed at preventing similar pitfalls in the future. Following its release, Governor Dunleavy announced an administrative order that would introduce additional oversight on the Revenue Commissioner’s investment authority in non-traditional assets, arguing that these changes seek to enhance transparency in investment decisions.
