Churning of Co-workers’ Pension Accounts

The five-year contract for the San Francisco Employees’ Retirement System (SFERS) deferred compensation savings plan is up for bid again. Over the past 22 years, this voluntary $3+ billion savings fund made available to city public employees to supplement their eventual pension upon retirement, has twisted (a.k.a., churned) through annuities at Hartford Insurance to Aetna Insurance to ING Insurance to Great West Insurance to Prudential Insurance.


Taxpayers should take note that SFERS’ and the Retirement Board’s inability to navigate political pressure and complex products does not bode well for the larger $20+ billion public employee and taxpayer-funded pension that is drenched with SFERS’ self-praise, while stigmatized by subpar performances.”

Unlike a 401k plan, the deferred comp plan isn’t subject to ERISA law and its protections; thus, churning between insurance annuities doesn’t come within direct federal oversight. If an insurance agent had churned an IRA account this many times, their license would have been revoked years ago. Unfortunately, the local insurance oversight agency has mistakenly assumed that public employee retirement boards always put the customers’ interests first.

At 2:11 into SFERS’ September 12 Retirement Board meeting, president Brian Stansbury made a startling comment, “Especially considering the politics surrounding this [deferred comp bidding].” At the September 19 Deferred Comp Committee meeting, Stansbury double-downed by requesting a 30-60 day extension to evaluate the bidding process because he had been approached by certain labor organizations who have expressed their concerns about the bidding process.

Fiduciary responsibilities and politics are mutually exclusive. To the extent politics infect any bidding process, the Retirement Boards’ fiduciary care is inversely compromised, and board members are civilly liable.

It didn’t go unnoticed that public comments during SFERS’ September 12 Board meeting was dominated by pubic employee union officers: Rudy Gonzalez, representing the San Francisco Labor Council; Tracy McCray, Sergeant at Arms of the San Francisco Police Officers Association (POA); Tom O’Connor, president of the Firefighter’s union; and Vince Courtney, Sr. on behalf of IFPTE Local 21 all spoke in favor of retaining the Prudential group annuity for the deferred comp plan.

Is SFFD’s Tom O’Connor privy to the fact that fireman/Retirement Board commissioner Joe Driscoll broke SEC laws to misrepresent Prudential investment accounts as “mutual funds”? Is O’Connor aware that despite Prudential’s group annuity structure, Driscoll has declared annuities are “inferior investments”?

Similarly, McCray testified she didn’t know of any complaints the POA received about Prudential Insurance. Yet, at the May 2018 Retirement Board meeting, fellow POA member and Retirement Board president Brian Stansbury claimed he gets questioned on a weekly basis why SFERS’ deferred comp account hasn’t been audited.

Is McCray cognizant that for years, the POA’s Health & Welfare employee blindly accepted that it was normal, and published in error, that 75% of Prudential’s investment options lost money over a ten-year period?

I’m not challenging the genuineness of the union officers’ September 12th speeches, or disrespecting the benefits they’ve achieved for their memberships. The issue is whether information flowing up from the trusted self-proclaimed “financial experts” within the union, to the union leaders, is accurate and free from conflicts of interest. To the extent the union leaders are receiving false information about Prudential, the unions’ decision-making process is adversely affected.

If the assessment Prudential is utilizing the SFERS contract provision to invest public employees’ funds in alternative investments is correct, termination of SFERS’ deferred comp contract would create tremendous pressure on Prudential to liquidate up to $3+ billion in exotic investments to make the money available for the next deferred comp provider. In the same situation in 1998, Hartford Insurance came up $10 million short, followed by ING insurance’s $100+ million shortage ten years later Barron’s, April 6, 2009.

During my November 21, 2016 meeting with SFERS’ Executive Director Jay Huish, he said he didn’t believe there was a need for an audit of deferred comp because every five years, when SFERS changed insurance companies, the money SFERS floated to the insurance annuity surfaced — except for the $10 million and $100 million disappearances noted above. Perhaps this liquidity crush is the impetus for Prudential orchestrating the public employee union heads’ recent public endorsements.

With hundreds of potential financial firms eligible to compete for SFERS’ deferred comp plan contract, SFERS and its outside consultant, Callan, confined the final three bidders to insurance annuity companies: Prudential Insurance, as the incumbent, and two previous deferred comp providers, Great West Insurance now called Empower, and ING Insurance now called Voya, both of which SFERS previously fired.

The deferred comp bidding process does appear political. In 2014, SFERS awarded Prudential Insurance the deferred comp contract because they would be able to increase participation rates by city employees, had a better website, and charged lower fees. Increased participation rates are of absolutely no benefit to city employees. Prudential’s fees were actually more expensive than the previous insurance company (page 15 ). So we have to conclude that in 2014, a $3 billion account was churned by SFERS because of a better website.

Likewise, SFERS’ Deferred Compensation manager Diane Chui Justen stated in a September 19, 2018 memo that the new deferred comp provider would be scored by: Organization 10%, Administration and Technology 25%, Communications 10%, Fees 25%, and the semifinalists’ presentations 30%. Based upon these arbitrary and unquantifiable measurements, SFERS’ staff and Callan are recommending the previously-fired ING Insurance (renamed Voya) for the Retirement Board’s approval.

When suspects run from the police, they frequently discard their outer layer of clothing to throw off arriving backup officers. Similarly, ING Insurance — the wolf — is now wearing Voya’s sheep’s clothing.

As SFERS’ previous deferred comp provider, ING published a Stable Value Fund Fact Sheet, dated September 30, 2008 that listed $711 million in city employee assets. In the same month, SFERS’ board members were already discussing a $60 million deficit, a deficit that would eventually exceed $100 million. How many of the city employees fleeing the spiraling financial crisis to the perceived safety of ING’s Stable Value fund purchased 85 cents worth of assets for a full dollar, because they were conned by ING’s blatant misrepresentation of asset values?

By January 2009 Great West Insurance, as the new deferred comp vendor, had to lend the Stable Value Fund the missing $100+ million that ING had misinvested. Great West then reduced interest paid on the Stable Value fund for subsequent city employees until the ING loss was repaid. Conceivably, ING’s status as the largest donor to the POA contributed to the union’s silence about this Ponzi scheme.

If Callan’s and SFERS’ staff’s decision is ratified by the Retirement Board, it will make Voya (formerly named ING) the sixth deferred comp provider in the past 22 years. Folks, this squarely meets the legal definition of illegally churning

It’s also unconscionable that Callan and SFERS’s staff are weighing ING/Voya’s smiling presentation skills as 30% of the selection process, while giving absolutely no weight to ING’s culpability in causing $100+ million of city employees’ assets to disappear.

Believe it or not, San Francisco’s city employees’ $3+ billion in deferred comp assets is currently cornered between two insurance annuity vendors:

1) Promoted by the unions, Prudential, structured so that no one at SFERS or the Retirement Board knows what city employees are actually invested in, or where the assets are held.

2) Endorsed by the SFERS administration, Voya/ING, who has a track record of misrepresenting asset values and blowing $100 million of city employees’ assets.

With the Retirement Board’s index finger raised to gauge the political winds, SFERS deferred comp participants should expect the adjacent, longer finger to be the one the board reserves for them (again). Taxpayers should take note that SFERS’ and the Retirement Board’s inability to navigate political pressure and complex products does not bode well for the larger $20+ billion public employee and taxpayer-funded pension that is drenched with SFERS’ self-praise, while stigmatized by subpar performances.

Lou Barberini’s family lives in the West Portal area. He has an MBA in taxation, worked for investment companies, and a Big Four CPA firm. Lou is a SFERS participant. He currently provides fiduciary, investment, and tax planning services through Nich Capital Partners ( He can be reached at

November 2018

SFERS: An Underfunded Mess?

Just after a new $298 school parcel tax was added to San Franciscans' property tax bills, the odds are increasing that a future parcel tax may become necessary to bail out the deficit in the San Francisco Employees' Retirement System (SFERS) pension fund. This is not a commentary on the viability of public pensions, but a discussion of the consequences of SFERS' consistent effort to fund the $20+ billion pension with the least transparent and most expensive products.

The Underfunded SFERS' Public Pension

When the stock market crested in 2007, if an investor had ignored the Financial Crisis crash and merely just held a stock index portfolio, today that portfolio would have doubled in value. Meanwhile, during that same robust period, SFERS' public employees' $20+ billion pension fund declined from being 110% funded to approximately 88% funded today. If the SFERS' pension' funding level dropped over 20 percentage points during the longest bull market in U.S. history, how does that bode for the pension fund if the economy stalls and it becomes more difficult to meet the required minimum annual 7.5% return just to keep the pension funding level from dropping further?


… unwavering defense of the unnecessarily complex Prudential annuity … to accommodate the rich financial product salespersons' wallets, rather than San Francisco taxpayers who may face a future parcel property tax.”

Is a Wall Street Journal Subscription More Valuable Than SFERS' Consultants? And Its Staff?

One way to measure SFERS' pension performance is to measure how the $20+ billion pension performed compared to how an individual city employee did.

SFERS' calculates the performance of the $20+ billion public pension and posts the fiscal year results on SFERS' website. SFERS also calculates and posts the performance of each city employee's deferred comp performance on individual quarterly statements. Deferred comp is a voluntary and supplemental savings plan available to city employees. SFERS only retains the last four years worth of individual statements.

When I compared my recent four-year performance on the SFERS deferred comp platform versus the SFERS $20+ billion pension, SFERS determined I earned an average of three-percentage points more per year on my deferred comp savings. That equates to a 39% greater return. Essentially, as a low-level city employee armed only with a Wall Street Journal subscription, I achieved superior returns than SFERS' globetrotting analysts, Retirement Board trustees, and the three highest-paid city employees who all work at SFERS.

To provide context of what an extra 3% would have meant to the SFERS' $20+ billion pension, three additional percentage points translates to an extra $600 million in revenue annually — $600 million that could have covered the entire annual budget for the San Francisco Police Department. Heck, applying the ROI on four years of my deferred comp returns could have made the $20+billion pension fund approximately 100% fully-funded today. Taxpayers would be off the hook for the pension deficit and public employees would have larger paychecks because of reduced pension contributions. How could the professionals at SFERS create a deferred comp platform for employees that can generate better ROI, but grossly underperform on the employees' larger pension fund?

Caveat: My previous articles have questioned the ambiguity of the deferred comp plan, but I have no issue with the hypothetical performance of the Prudential annuity's mutual fund clones. My concern remains that over a five-year term, San Francisco employees float their $3+ billion to Prudential with a contract that allows Prudential to substitute anything for city employees' deferred comp investments. Anything, from futures on Turkish Lira to options on Russian gold mining stocks. Without an audit, SFERS is unable to accurately account for what Prudential has done with city employees' money, what the underlying risks are, or what the actual fees are.

Hedge Funds Have Been a Poor Solution

The Retirement Board's solution to the underfunding problem for the public employees' $20+ billion pension fund was a June 2015 vote to re-allocate a significant percentage of the pension fund's assets to a magic bullet called hedge funds. The Retirement Board was unmoved by famed investor, Warren Buffett's, constant public warnings that the excessive fee structure of hedge funds prevents them from competing with an autopilot index funds.

In June 2018 SFERS released the first report card on the Retirement Board's hedge fund decision. The report conveys that for the 20-month period ending May 31, 2018 the SFERS hedge funds' cumulative return was 11.3% versus a 24.9% return that would have been achieved through investments in a passive S&P 500 Index fund. Warren Buffett's recommendation would have more than doubled the results than the Retirement Board's hedge fund re-allocation.

SFERS claims: "The (hedge fund) benchmark is not the S&P 500 Fund." Actually, when SFERS decided to shop for a house in the hedge fund neighborhood instead of the Warren Buffett stock index neighborhood, they made a conscious decision to defy the wisdom of the world's smartest investor. Now the hedge fund enablers — Chief Investment Officer Bill Coaker and the affirmative votes by Retirement Board Trustees Brian Stansbury, Joe Driscoll, Wendy Paskin-Jordan, and Malia Cohen — want you to grade them only on how they performed versus other hedge funds as the benchmark yardstick. Since the option to invest like Buffett was available when the hedge fund decision was made, the forfeiture of a 120% greater return must measure the cost of the Retirement Board's mistake.

If four years ago, the aforementioned enablers had campaigned to convert the entire $20+ billion pension to an S&P 500 Index fund, the pension would be approximately 100% funded today.

In January 2015, prior to the hedge fund vote, I authored an op-ed in the San Francisco Police Officers Association (POA) The POA Journal arguing against hedge funds. Adjacent to my article was a three-times larger article by POA attorney Mike Hebel, wherein he boasted about being the only person advocating for hedge fund investments out of 30 people offering public comments during a Retirement Board meeting.

Hebel, who is compensated by the POA to provide objective pension analysis to its membership, omitted that he was the only one of the 30 presenters who benefited financially from going along with the Retirement Board's decision. Hebel's disability law side practice is dependent upon maintaining the good graces of SFERS and the Retirement Board so that they can reward him favorable disability decisions for his clients. Hebel's conflict of interest not only taxed police union members for his objective advice, but his presentation contributed to depriving all city workers of approximately $81 million in potential Warrant Buffett-style returns — just to juice his side law practice.

Commissioner Joe Driscoll Conveys "Incorrect Information"

At the May 2018 Retirement Board meeting, Commissioner Joe Driscoll attacked the integrity of my articles and the editorial quality of the Westside Observer, claiming I was disseminating "incorrect information" and "misinforming the people." I served Joe Driscoll and Chief Executive Officer Jay Huish with a public records request asking them to cite the authority for Driscoll's claims.

Huish never responded to the public records request. Driscoll's 49-day overdue response confirmed that he has no written documentation — "no responsive records" — to support the statements he made in the public board meeting. Apparently, no Prudential attorneys were available to spoon-feed Driscoll a rebuttal. Of greater concern: The public records response indicates Joe has never sought a second opinion from any financial professional to determine the validity of the serious issues I have raised as to the whereabouts of city employee $3.0+ billion in deferred comp assets.

Essentially Driscoll, a San Francisco fireman for 45 years who maximized his pension (percentage-wise) 15-years ago, performed absolutely no fiduciary due diligence on behalf of his coworkers, while slandering me and blindly defending Prudential. Driscoll's public records response confirms that it was Driscoll who "misinformed" the public and "incorrectly" labeled an insurance annuity product as a mutual fund.

Driscoll's Attitude Is Emblematic of SFERS' Culture

It should not instill city employees' confidence in the Retirement Board that when Driscoll conducted his fictitious and slanderous ramble promoting Prudential, no board member understood the Prudential annuity well enough to interrupt — and correct — his false nonsense. One question is: Are the blind leading the blind?

Yet, Driscoll's unwavering defense of the unnecessarily complex Prudential annuity is frighteningly similar to CIO Coaker's, board members', and Mike Hebel's campaign to steer the larger pension fund to expensive and opaque hedge funds — to consistently accommodate the rich financial product salespersons' wallets, rather than San Francisco taxpayers who may face a future parcel property tax.

SFERS will respond to this article with a barrage of excuses and financial jargon about the larger pension fund, while those of us who focus on investment performance will continue to reap superior returns from our deferred comp accounts.

This article involves the same underlying theme in my previous reporting: City government needs to prioritize meritocracy over mediocrity.

The opinions expressed in this article are for general educational and information purposes only, and are not intended to provide specific investment advice. To determine which investments may be appropriate for you, consult your licensed financial advisor prior to investing. This article is not a solicitation to invest, or to invest in index funds. All financial investments involve risks and possible loss of principal capital. All investment performance figures referred to were disseminated by the San Francisco Employee Retirement System. Read the Prudential prospectus before you invest. Current performance may be lower or higher than past performance, which cannot guarantee future results.

Lou Barberini's family lives in the West Portal area. He has an MBA in Taxation, and worked for investment companies and a Big Four CPA firm. He currently provides fiduciary retirement, investment, and tax planning to clients of Nich Capital Partners. (

October 2018

Lou BarbariniDoes A Retirement Board Member Violate SEC Law?

In my recent Westside Observer columns, I have presented evidence the San Francisco Employees' Retirement System's (SFERS) stewardship of the $20+ billion defined benefit pension plan and the voluntary $3.4 billion deferred comp plan were poorly managed, and that the later, unaudited deferred comp plan should be audited. These articles became the topic of discussion during SFERS' May 23, 2018 Retirement Board meeting when board president Brian Stansbury stated he's asked on a weekly basis why the $3.4 billion deferred comp pension hasn't been audited.

During the meeting, Commissioner Joe Driscoll went on to denounce my Westside Observer columns, claiming I've been "misinforming" readers using "incorrect pieces of information floated to the public."


Derivatives, that SFERS allows into Prudential stock accounts, are the financial instruments that caused the $100 million loss in SFERS' Stable Value Fund in its deferred comp plan in 2009.

This is complex, technical material. Readers should consider SFERS and the Retirement Board rely on the complexity of the Prudential group annuity to intimidate questioning participants. But if this is how SFERS and its board care for a $3.4 billion deferred comp plan, what fiduciary efforts has SFERS made on the larger $20+ billion pension fund taxpayers are ultimately on the hook for?

1. Is the Prudential Deferred Comp Offering an Annuity?

SFERS' Deferred Comp manager, Diane Chui Justen, asked whether Prudential is an annuity responded: "The assets in the deferred comp plan are located in a trust. That trust is not an annuity and it does not invest in an actual annuity." An abundance of evidence challenges her response.

a. Education and Training: Ms. Justen hasn't passed the California insurance exam or worked in the insurance business, thus she may not have the background to recognize a group annuity.

b. SFERS' Prudential Fund Fact Sheet "User Guide" States: "In addition to registered mutual fund and bank collective trusts, Prudential Retirement Insurance and Annuity Company (PRIAC) makes available an array of insurance company separate accounts. PRIAC offers a variety of different types of Separate Accounts through a group annuity issued by Prudential."

c. The SFERS-Prudential Contract (1/3/14) states, Sec. 5(e): SFERS must convey in writing if they want to discontinue, amend, or modify the "group annuity."

d. Jasper Smith is Prudential's representative to San Francisco's public safety departments. He's licensed to market annuities in California for both Prudential Insurance Company and PRIAC.

e. Prudential Fund Fact Sheet: if an investment option is a mutual fund. Prudential denotes it. SFERS' Fund Fact Sheets aren't designated as a mutual fund.

f. California Department of Insurance only allows insurance annuity companies to recalibrate mutual fund shares into units. SFERS' Prudential account is denominated into units.

g. Of the 9,500 mutual funds offered to the public, not one mutual fund is denominated in units. (The Wall Street Journal)

2. Selective Understanding of Derivatives.

President Stansbury asked Ms. Justen whether there were synthetic instruments within the Prudential product. She replied: "I cannot know what Mr. Barberini is thinking. I don't know what he means by synthetic. Within our stable value product, there are underlying investments, and within those investments, there are wrap contracts which could be considered synthetic, but that has nothing to do with the allegations or comments that this reporter is providing."

Sec. 5(a) of the contract gifts Prudential the peculiar right to "purchase, receive, sell, or convey futures, foreign currencies, swaps, options or other derivative transactions." Derivatives, that SFERS allows into Prudential stock accounts, are the financial instruments that caused the $100 million loss in SFERS' Stable Value Fund in its deferred comp plan in 2009.

Ironically, Ms. Justen appears to understand how derivative instruments can act to synthesize the stable value account, while unable to comprehend how the presence of those same derivatives would have the same effect on Prudential's stock sub-accounts.

3. What Is an Annuity?

Commissioner Driscoll has been an SF fireman for 45 years earning $260,966 in City pay (FY 2016-2017), and foregoes collecting his 90%+ pension to remain an unpaid SFERS trustee. Despite never having passed the California insurance exam, Mr. Driscoll dominates Retirement Board meetings with contradictory, nonsensical lectures, on insurance products such as:

• At SFERS' June 2016 board meeting, he argued that Prudential wasn't offering deferred comp plan participants a group annuity: "We do not offer tax-sheltered annuities. I am familiar with the investment inferiority of that product. To defend something we don't do seems a very odd use of time." However, by SFERS' May 2018 meeting, Mr. Driscoll countered with regards to the defined benefit pension: "All of us who have money in our defined benefit plan are participating in a tax-sheltered annuity. That's a labeling problem that the people don't understand when they are misinforming people."

First he vilified annuities in the deferred comp account, and then claimed the $20+ billion pension is an annuity. Thus the $20+ billion defined benefit plan must be an inferior investment pension.

The larger $20+ billion pension fund is not considered a tax-sheltered annuity because the pension is not issued through a contract with an insurance company, and despite the Commissioner's sermons, he nor this pension come under the purview of the California Department of Insurance.

• "An annuity is available when you go through the distribution phase (from your deferred comp) and want to take your money out." His description of what financial professionals call an "immediate annuity" misses the mark. The majority of annuities are used as revocable savings instruments to defer taxes — not that annuities are irrevocable investment vehicle dedicated to distributing savings.

• Driscoll: "We use this unit pricing skill to make transfers easier, but at the same performance level, your money is managed by the exact same manager, not by some shadow or by some parallel or twin." If taking the extra step of creating a secondary unit price for every investment makes transfers easier, why hasn't Schwab, Fidelity, Vanguard, T.R. Price, and Franklin Funds replicated this "skill?" And, "unitizing mutual funds" is by definition creating a group annuity.

• Driscoll continued: "You can look up every (Prudential) mutual fund with a five-letter code, even with unit pricing, and they (your financial advisor) can look up every single one." First, Driscoll struggled to recall the term "ticker symbol" and second, of Prudential's 21 deferred comp sub-accounts, 16 (76%) don't have ticker symbols, making them "un-trackable" by 38,000 city employee investors.

• Driscoll: "That reporter (Lou Barberini) is saying that this is an unregulated group — that's not true. The group that regulates the mutual funds is one group, the group that regulates collective investment trusts is under the Comptroller, the Department of Treasury regulates the same rules, same laws, same enforcement authority."

I wrote that Prudential's new collective investment trusts (CITs) specifically escapes Securities and Exchange Commission (SEC) regulation, sidesteps the formal registration requirements under the Investment Act of 1940, and skimps by not paying participants' SIPC insurance, not that CITs weren't regulated.

4. Does Peddling Prudential Violate SEC Law?

The SEC forbids insurance salespersons masking annuities as mutual funds. The SEC amendment 94-36 specifically prohibits it: "No statement or presentation may indicate or imply that the product offered or its underlying account is a mutual fund. Although variable-product separate accounts may ultimately be invested in mutual funds, there are significant material differences between a variable-product investment and a direct mutual fund investment."

Annuities are unnecessarily complex. Does misrepresenting an annuity as a "mutual fund" violate SEC regulations? or the CFA Code of Ethics Rule 1(C) Misrepresentation? Driscoll did not respond to a public records request

5. Sunshine Ordinance Violations

On May 30, I placed a Sunshine Ordinance public records request to SFERS asking for the due diligence SFERS performed when selecting Prudential for city employees' assets. On June 7, I sent another records request to Commissioner Driscoll seeking documentation supporting his claim Prudential's investment options are "mutual funds." Both SFERS and Driscoll deliberately ignored their mandatory requirement to respond to the two Sunshine requests — strong evidence that SFERS and Driscoll never performed a background check on the Prudential vehicle.

6. An Audit Will Expose Hubris

It's pretty obvious the public and SFERS' other board members are mistaking Driscoll's hubris for knowledge. Worse, without an audit, nobody at SFERS is privy to which financial institution holds city employees' $3.4 billion in assets, and as a consequence SFERS' annual reports that express deferred comp values is based purely on conjecture. At the February 2017 meeting, only Driscoll protested a $2 per participant fee for an audit— an audit that will insulate the board from civil liability for negligence.

I have no objection to anyone disputing what I write. While employed by the San Francisco Police Department, I was quoted about annuities in The Wall Street Journal, Barron's, and The Financial Times. So, I have reason to take exception when the Retirement Board relies on an absence of insurance knowledge, testing, and experience as a basis to dispute my research and I stand by the conclusions I have detailed. By extension, the Retirement Board's reliance on these unqualified "experts" for due diligence confirms suspicions that SFERS' board members may be complicit in misrepresentations to the public about "inferior pensions."

Lou Barberini's family lives in the West Portal area. He has an MBA in taxation, worked for investment companies, and a Big Four CPA firm. He currently provides fiduciary retirement, investment, and tax planning services through Nich Capital Partners ( He can be reached at

July 2018

Lou Barberinii on the beat • Photo: Vince Maggiora

Car Break-ins:

Phony Statistics

& Placebo Beat Cops

Dear Chief Bill Scott:

You may have returned to the Los Angeles Police Department (LAPD) by the time you receive this. Nevertheless, as a person who shares the same undergraduate major as you — an accounting degree — I was extremely disappointed in your administration's manipulation of crime statistics, your failure to analyze the details of DOJ-generated data used to demonize the San Francisco Police Department (SFPD), and your nonsensical strategies to address the rampant car break-ins permeating San Francisco.


Not only does this demonstrate a lack of integrity ... it also allows SFPD to initially report low crime numbers, and then when those months become the basis for comparison, the crime numbers miraculously increase to make the crime trend appear smaller.”

False Crime Statistics

As a fellow accountant, I am astonished that SFPD's monthly crime statistics increase as they age. For example, for one single month (January 2017), SFPD reports that property crimes were of three different amounts: 2,867, 3,623, and 3,721. A single month, but with three different increasing totals reported, a 30% change increase over the 2,867 crimes first reported!

Property crimes, on the initial January 2017 SFPD crime stat report were reported as 2,867. However, a month later, those same January 2017 statistics, when used as a comparison to February, quietly increased to 3,623, and SFPD did not release an update to the original January 2017 report. One year later, when January 2017 was compared to January 2018, those same January 2017 monthly property crimes slyly increased to 3,721.

The January 2017 property crimes are not an isolated example. Every month, SFPD crime report's property crime statistics increased as time passed, but the original month was never restated to reflect the change. Over an entire year, January 2017 burglaries aged from 403 to 426 to 443; rapes increased from 37 to 41 to 46; and car stealing swelled from 393 to 407 to 423. How is it possible that a January 2017 crime wave could statistically occur during November 2017?

Not only does this demonstrate a lack of integrity by your administration, but it also allows SFPD to initially report low crime numbers, and then when those months become the basis for comparison, the crime numbers miraculously increase to make the crime trend appear smaller. I am sure that your LAPD interviews were leveraged with the April 11, 2018 Chronicle article: San Francisco auto break-ins down 17% comparing the first quarter of 2018 versus the same period in 2017. Is the consistent 6-month-delayed-reporting of data an accounting gimmick to manufacture a trend to later claim a drop in crime in future periods?

However, consider this analysis: First, it is suspicious that the SFPD crime stat page, which was dormant for eight months, suddenly was updated around the announced chief's opening at LAPD. Second, the Chronicle headline, as explained above, was based upon completely manipulated SFPD statistics. Using your own administration's statistics, I calculate car break-ins actually increased approximately 4.5% during that period, a 21-percentage point distortion! Third, the Chronicle headline doesn't even take into account that the 2018 first quarter crime stats are really only preliminary numbers. Based upon SFPD's track record, there is a 100% chance the 2018 first quarter numbers, the source of the Chronicle headline, will be higher by the fall than they are right now.

Car Break-ins: Statistics to Fault the Victim

The Captain of Taraval Station recently stated that 70% of car break-ins were caused by the car owner needlessly exposing property. That is like me saying basketball players that used deodorant instead of antiperspirant average 10 points more per game. The sports page box scores do not report on players' hygienic habits. Similarly, SFPD's collected data doesn't tabulate where a victim's stolen property was stored. So where were these Travel Station statistics obtained?

Your accounting curriculum at the University of Alabama included probability and statistics, which taught you that, for the Taraval Captain's broad claim to be valid, he would have had to take a representative sampling throughout the entire city to be able to generalize his findings to the approximate 100 daily San Francisco car break-ins. The first issue is how the Taraval captain obtained data that is not collected, and the second issue is the conspicuously round numbers (70%, 75%, and 90%) used in his report, potentially indicative of a very small and simple sampling.

The captain's blaming of car owners and tourists nicely fits your administration's narrative deflecting fault on the public by blaming the victim and, thus, fits all of your captains' cohesive mantra they will "try and educate the public" about their carelessly exposed property. Perhaps to really educate the public, you could authenticate your Taraval captain's sampling, or whether he made his conclusion based on just ten reports from the Stonestown parking lot at Christmas, which would be like me drawing a conclusion on sanitary preferences from an interview with just ten basketball players.

You Didn't Analyze the DOJ Report on SFPD

Like an incurious student assuming his teacher's infallibility, you took great pride in implementing the DOJ's findings against SFPD without making an independent analysis.

As I detailed in the November 2017 issue of the Westside Observer, the DOJ was correct that SFPD's actions are based on race, but not in the manner most people assumed. How else can you explain why a Caucasian is 64% more likely to be cited by an SFPD officer when compared to a person of color? SFPD was so sensitive about race that it preferred to cite Caucasians rather than risk the wrath of being labeled racist, but you missed this issue.

You were so caught up in the politicized DOJ's narrative about a powerful police union that you prevented union reps from addressing shift lineups. Essentially, coworkers could not discuss benefits, while you simultaneously allowed civilian life insurance agents, with department connections, to inundate secured-station lineups to peddle commission-products on the taxpayers' time. Isn't this both an inconsistent application and message on your policies, as well as a failure of you to remember your tax accounting classes that established life insurance is not a better investment than a Roth pension?

Placebo Foot Beats Is Ineffective!

Chief Scott, your move to address the car break-in epidemic by moving undercover officers to uniformed foot beats seemed to defy logic. First, like the U.S. formally announcing to the enemy they are vacating a country, your move telegraphed to the criminals they no longer had to be on guard that every civilian vehicle could potentially be an undercover SFPD officer. Second, car boosters can see an approaching foot beat officer a mobile scarecrow from a hundred yards away. There is no way a foot beat officer can catch a car burglar who has a 150- to 200-foot lead. And third, how does a walking foot beat on Irving, West Portal, or 24th Streets reduce car break-ins at the hot spots of Golden Gate Park, Lands End, or Pier 39?

Like the DOJ report that you accepted without question, you appeased the public's belief that foot beats would make them safer. You fed the neighborhoods a placebo instead of providing a more progressive contemplative remedy. Assigning foot beats to address car boosting was like applying pager technology in a facial-recognition world. Had you been innovative and perhaps read The Wall Street Journal, you might have been able to educate the community on how other cities are implementing bike beat officers as a replacement for mobile scarecrows.

Bike foot beats:

1. Are still approachable to the public;

2. Can close the distance gap to criminals in seconds and cannot be outrun;

3. Can cover the less-traveled off-streets of commercial areas and immediately return to the main streets in seconds;

4. Can cover, and be exposed to, five to ten times the area a foot officer can cover in the same period of time;

5. Can be deployed quickly to other sectors of a district without having to take MUNI or have a police car transport them;

6. Send a green message by not requiring gas, oil, or battery replacements;

7. Extend the life of police cars by less usage;

8. Reduce insurance costs to the city, and cannot cause the damage and civil payouts that police vehicle accidents create;

9. Keep the officers physically fit; and

10. In a gridlocked city, a bicycle is quicker than a police vehicle to arrive at a critical incident.


I am acutely aware of the effects on crime fighting that both the San Francisco political environment and the District Attorney's office lean towards decriminalizing crime have created. However, my expectations were that with your accounting degree, you would have applied the principles of consistency, accuracy, and integrity to your management style. You either did not bother to monitor your administration's crime stats, or you turned a blind eye to the dishonesty, so you would appear more marketable in your LAPD job search interviews.

Your administration's management of the Brady List-the list of officers that have been dishonest in an official capacity-seems hypocritical. Under your watch, it is my understanding that the Brady List has been expanded to include officers that have read public police reports online, while no one at headquarters has been placed on the Brady List for straight-up lying to the public about a fictitious decrease in car break-ins..

Good luck with LAPD. In the future, it would probably be a better strategy to connect with and gain a grassroots understanding from the innovative and knowledgeable frontline troops, rather than insulating yourself (and draining the pension) by creating an additional layer of command staff.

Remember the accounting principle: Form should not mask substance. A chief's title is merely form, while the substance of your legacy is enduring.

Lou Barberini, CPA, Former SFPD Officer. Lou Barberini's family lives in the West Portal area. He has an MBA in taxation, worked for investment companies, and a Big Four CPA firm. He currently provides fiduciary retirement, investment, and tax planning services through Nich Capital Partners (

June 2018

Lou BarbariniDisclose SFERS Pension Conflicts of Interest

Over the past two years, I have alerted readers to serious problems with the management and whereabouts of city employees' investments in the San Francisco Employees' Retirement System's (SFERS) deferred compensation plan. More than 27,000 city employees have invested over $3 billion in this 401k-style supplemental plan to which employees may voluntarily contribute. Curiously, one public union hasn't been moved by my concerns over how city employees' assets have been stewarded.


Thousands of POA Journal readers might have missed out on earning a superior return during one of the greatest bull markets because of this amateur and erroneous advertising. Under FINRA Rule 2210, Prudential Insurance, the POA, and the welfare officer are all civilly liable for this mistake.”

During this period I have been reporting numerous red flags with deferred comp issues in Prudential's annuity offering, the welfare officer with the San Francisco Police Officers Association's (POA) has been simultaneously promoting the investment results of Prudential in the union monthly newsletter, the POA Journal, for free! POA union members should immediately question why a POA employee is taking it upon himself to gift Prudential with free marketing in the member-supported monthly journal.

The union welfare officer is employed solely to monitor welfare benefits of POA members. But rather than investigating the validity of my assertions, he astonishingly published that 13 of the 17 Prudential's annuity options lost money over the past ten years. Because I worked on the street (in financial services) for over a decade, I immediately recognized the unlikelihood of any business or investment fund surviving a ten-year losing streak, especially 76% of the investment options offered by one company losing money!

Financial firms' compliance departments are hypersensitive about "Communications with the Public" under FINRA Rule 2210. The potential civil liability to investors that have made investment decisions based on erroneous performance results is astronomical. A few years ago, I brought to the attention of the POA's executive board the possible civil exposure to our union that might be triggered by a mere inadvertent typo in free "advertisements" for Prudential in the POA Journal.

Unfortunately, the fears I expressed to the POA may come to fruition.

With regards to the Prudential investment loses, the POA welfare officer not only missed the conceptual improbability of such enormous loses, but he also missed an important footnote on Prudential's website. By doing so, he converted positive results to losses and understated Prudential's performance by a whopping ten to fifteen percentage points! (For one investment option, by 35 percentage points.) The gravity of this error is severe, particularly because it was repeatedly made in numerous POA Journal editions!

Thousands of POA Journal readers might have missed out on earning a superior return during one of the greatest bull markets because of this amateur and erroneous advertising. Under FINRA Rule 2210, Prudential Insurance, the POA, and the welfare officer are all civilly liable for this mistake.

The POA welfare officer is retired from the SFPD. He is both an attorney and a Certified Financial Planner (CFP). He means well, but he has never worked on the street in any investment position. Besides his POA day job, he also runs a private law practice that represents public employee disability claim cases before SFERS. If, for instance, a MUNI driver wants to file for a tax-free disability pension, the driver could contact the POA welfare officer who will switch on his attorney's cap. In essence, you have a POA employee's side income determined by SFERS, while he is simultaneously being paid by the POA to oversee SFERS. It represents a clear conflict of interest and is a sketchy scenario similar to an internal affairs officer getting paid overtime to investigate his own overtime abuse.

My former coworkers still on the street and I are unanimous in our opinion something is seriously wrong with SFERS' selection of Prudential's unaudited, synthetic, and overly-complex annuity. All POA Journal readers should be made aware that the POA welfare officer has positioned himself where he cannot objectively evaluate the merits of SFERS' deferred comp plan without jeopardizing the success of his disability claims practice before SFERS. This is self-dealing, not advocacy. Union members' and readers' interests have been compromised.

The Certified Financial Planner (CFP) Board of Directors is in the final stages of releasing a new Standards of Conduct, which would censure a CFP who did not disclose to readers he is juggling a conflict of interest. The POA welfare officer should get in front of the forthcoming CFP standards and immediately unveil any and all conflicts so city employees can properly weigh the authenticity of information he is touting for SFERS and Prudential.

Prudential's contract with SFERS is currently up for bid. It's imperative city employees receive a truthful discussion — not influenced by the side job compensation of POA employees — on why an unaudited, synthetic, and overly-complex insurance annuity is right for them. This is particularly important because the financial professional appointed to SFERS' board, who owns her own investment company, has directed none of her clients into the same expensive investment vehicle to which she votes to have City employees steered.

I have numerous lunch bets that Callan Associates — an outside consulting firm to SFERS — will recommend the $3 billion deferred comp plan be awarded to Nationwide Insurance. That would be the sixth such insurance company SFERS has churned the contract to within 21 years. Nationwide is one of the last remaining annuity companies that hasn't had an opportunity to take a piece out of city employees' tax-deferred savings. City employees should never be assigned a back seat to politics, campaign contributors, and preserving disability pensions for the well-connected.

Lou Barberini's family lives in the West Portal area. He has an MBA in taxation. He currently provides fiduciary retirement, investment, and tax planning services through Nich Capital Partners ( He can be reached at

May 2018

Lou BarbariniThe City That Has Forgotten How

In his January 2017 book The Upstarts, author Brad Stone described the dire level of taxicab service in the Sunset as we entered the new millennium: "Trying to hail a cab in the outer neighborhoods near the ocean was an exercise in futility." With the proliferation of cellphones, Sunset high school students created a new means to party-hop between weekend venues and overcome the dearth of taxis — they started using their phones to contact an underground taxi service called gypsy cabs.


The new configuration of Taraval Street dedicates the inner lane in each direction to MUNI and taxicabs. In other words, the city is reasonably dedicating a lane to public transportation, while simultaneously providing space to taxicab services that were so notoriously scarce they spawned an entire alternative industry.”


Similarly, in another taxi-barren part of the city, startup multimillionaire Garrett Camp was equally frustrated with the city's taxicab services. Camp complained, "I didn't want to park on the street and I didn't want people to break into it [my Mercedes]. I would call [a cab] and they wouldn't show up."

Camp's solution was to summon a cab from every taxi company, then jump into the first cab that arrived, stiffing the other cabs simultaneously en route. Understandably, this tactic soon landed Camp on the taxicabs' blacklist and forced him to gravitate to the Sunset gypsy cab method.

Camp, an innovator, harbored a fascination with a scene from Casino Royale where James Bond followed a car utilizing GPS on his Ericsson phone. What separated Camp from the Sunset kids also using gypsy cabs, was that he envisioned the merger of the Sunset's underground transportation with the Casino Royale-style GPS capabilities of a new smartphone from Apple — the iPhone. As one of the two eventual founders of Uber, Camp elevated himself from a multimillionaire to multibillionaire by merely plagiarizing and digitizing the Sunset kid's transportation system.

The purpose of recounting Camp's story is neither to villainize nor extoll Uber, but rather to draw attention to the ludicrousness of the city's new driving restrictions on the formerly two-lane Taraval Street. The new configuration of Taraval Street dedicates the inner lane in each direction to MUNI and taxicabs. In other words, the city is reasonably dedicating a lane to public transportation, while simultaneously providing space to taxicab services that were so notoriously scarce they spawned an entire alternative industry.

During one morning commute I monitored eastbound Taraval Street traffic at 20th Avenue. Over a 30-minute period, I observed 183 cars, three MUNI streetcars, and of course, zero taxicabs. With pedestrians crossing 19th Avenue, which delays vehicles' attempting right-hand turns, eastbound Taraval Street vehicle traffic was stalled for two blocks.

We all get it: cars are bad. And, most of us accept any means of transportation that does not expose us to gridlock, or our cars to the break-in epidemic. But the City's idea to give Taraval Street preference to taxis, which are as rare as horse-drawn carriages, illustrates a serious disconnect between the city's utopian fantasy and the billions being made by investors more attuned to Sunset residents' transportation adversities.

This article was intended to be exclusively about the new Taraval Street design and a city that has forgotten how. However, on March 8, two stories surfaced related to a parallel city body that is also completely detached from its customer base — the SF Employees' Retirement System (SFERS).

First, an article appeared in Investment News describing how the insurance industry is mounting a lobbying campaign to Congress to allow for the expansion of "pooled employee plans" into the 401k markets. When the article described a "pooled employee plan" it perfectly confirmed the suspected structure of SFERS' deferred comp plan: A voluntary retirement savings plan commingled with numerous other retirement savings plan around the country into a group annuity collective. So far, insurance companies have been limited to utilizing this profitable, but shadowy, scheme on deferred comp plans because they aren't protected by the Department of Labor, ERISA law, or pension boards that lightly implement their fiduciary responsibility. Now the insurance industry is trying to infiltrate mainstream 401k markets because it is such a lucrative business, although proportionally more risky for group annuity customers.

Second, on the same day, the Securities and Exchange Commission censured ING Insurance (Release #82837), for shifting dividends away from customers' group annuity accounts to ING-affiliated subsidiaries. This ING gaming of the consumer is disconcerting for two reasons: One, the SEC findings overlapped the same period ING was managing SFERS' deferred comp assets, and two, nobody at SFERS has been able to validate or explain what city employees' assets are actually invested in, or where the assets are held.

In April 2016, when Retirement Board Commissioner Joe Driscoll described annuities as an "inferior product," he really nailed it. In light of that statement, and the confirming troublesome facts coming to light on March 8, it is difficult to reconcile why Commissioner Driscoll voted to approve a group annuity for city employees. Or why another SFERS board member, Wendy Paskin — whose private firm's SEC filings (#801-73012 CRD# 160004) document that none of her clients have been directed to as an inferior group annuity — while she simultaneously voted to steer city employees into one.

Whether it's being realistic about traffic patterns or safeguarding employees' savings, it appears that since the "golden rule" is being employed less frequently, the city that knew how seems to be losing its memory.

Lou Barberini's family lives in the West Portal area. He has an MBA in Taxation, and worked for investment companies and a Big Four CPA firm. He currently provides fiduciary retirement, investment, and tax planning to clients of Nich Capital Partners ( He can be reached at

April 2018

Lou BarbariniSFERS Defies
Warren Buffett’s Rules

Last month, the long stock market calm was disrupted by a storm of volatility. Much of the instability was caused by the implosion of complex financial instruments that are sometimes embedded in “exchange traded funds.” Exchange traded funds are similar to mutual funds, and it was the ingredients — the “derivatives” — within the exchange traded fund that triggered the turbulence. Warren Buffett has described these derivatives as “financial weapons of mass destruction.”

Despite Buffett’s caution, the San Francisco Employees’ Retirement System (SFERS) has allowed Prudential’s insurance and annuity division to replace city workers’ mutual funds with these Buffett-titled financial weapons of mass destruction. Thus, not only are city employees being mislead about what they are actually investing in, but SFERS also has empowered Prudential to do the opposite of what the most successful investor of our time has recommended.


SFERS’ willingness to allow Prudential the right to invest in a broad array of nontraditional investments, means that no city employee has accurate knowledge of where their money is being invested. Which of course violates Warren Buffett’s other warning to never invest in something you don’t understand. Be careful city employees. Caveat emptor!”

Putting money into a voluntary and supplemental pension plan like a 401k, an IRA, or the city employees’ deferred comp plan is an act similar to storing provisions in an earthquake preparedness kit. Packing a flashlight, a radio, and nonperishable food items assures residents they will be prepared for the aftermath of an earthquake, while simultaneously hoping the kit is never put to use.

Continuing with the analogy, San Francisco employees have had SFERS and Prudential convey they were buying Wheaties cereal, Calistoga water, Budweiser beer, and Smuckers peanut butter for public employees’ earthquake preparedness kits. Unfortunately, when city employees receive their account statements, the container has been generically labeled as “food” and “drink.” Thus, city employees have been relegated to hoping that SFERS and Prudential were acquiring the real food items they ordered — food that should have been monitored by the Food and Drug Administration (FDA).

Starting this month, SFERS and Prudential have moved to replace the pure mutual fund deferred comp options with investments called “collective investment trusts” (CITs). Unlike mutual funds, CITs are not registered with the Securities and Exchange Commission (SEC), and thus are exempt from SEC oversight. The switch to CITs is tantamount to filling the earthquake preparedness kit with only non-FDA regulated food items and perishable, rather than nonperishable, foods.

SFERS and Prudential will claim they are making this switch to save city employees fees, but Prudential stands to reap huge cost savings by eliminating mutual fund marketing expenses, SEC registration costs, and by not having to pay the SIPC insurance premiums to insure investors’ mutual funds. This is not fee reduction for city employees — this is a tradeoff lacking government protections. Meals from Tijuana street vendors cost less than San Francisco restaurants, but that’s because Tijuana diners, notorious for not paying fair wages, don’t receive or pay for the protection of the FDA and health inspectors.

Unlike mutual funds, CITs generally have great leeway to invest in alternative investments, including hedge funds. The great investment independence of CITs and their inherent opaqueness and illiquidity, combined with SFERS’ willingness to allow Prudential the right to invest in a broad array of nontraditional investments, means that no city employee has accurate knowledge of where their money is being invested. Which of course violates Warren Buffett’s other warning to never invest in something you don’t understand. Be careful city employees. Caveat emptor!

Seminar: If you have questions or concerns about the new tax law, please RSVP to my March 14, 2018 tax seminar at the United Irish Cultural Center (see attached information).

Lou Barberini’s family lives in the West Portal area. He has an MBA in Taxation. He worked for investment companies and a Big Four CPA firm. He currently works with clients at Nich Capital Partners ( He can be reached personally at

March 2018

Laundering Influence: SFPD's Charities

Generally, the first block of Turk Street is a sliver barely more habitable than winter in the Arctic.  On this evening, the dangling credentials that draped ten chests glittered in the cone of illumination from the streetlight above.  A harsh terrain, soothed by an abundance of law enforcement.

Confidence radiated from a literal ton of combined SFPD and fed narcs who surrounded a solitary unlicensed pharmaceutical salesman.  To complete the arrest, the narcs needed to find the marked money that an undercover police buyer had tendered to the salesman.  The most likely hiding place was somewhere in the suspect's long overcoat's underlining, where tunnel systems were known to stem from holes in the pockets.


2018 represents the 60-year anniversary of the PAL.  As a kid, I earned my first trophy in the PAL league, and for years my godfather coached a Visitation Valley PAL football team that several SFPD officers later shared with me was the best sports experience of their lives.  Similar to SFPD officers on the streets, the PAL's coaches and volunteers are dedicated, genuine, and selfless.”

One of the narcs asked the seller to pass the overcoat, which was accomplished with the casualness of passing butter at a four-star restaurant.  Only the salesman went ghost, rabbiting into the Tenderloin night while leaving the narc behind holding the overcoat, now minus its owner.  Inside the overcoat ¾ a loaded semiautomatic firearm.

The narcs had ignored the mathematical equation that caution diminishes in proportion to the number of teammates participating in an operation.  Every narc had assumed someone else was responsible, and the result was a lapse of officer safety protocol that had allowed an armed felon to penetrate the officers' personal spaces.

Sometimes overconfidence makes one drop their guard.  Other times it can lead to countries engaging in war.  Significantly, because ten officers feel confident on a treacherous block of Turk Street does not necessarily translate to financial competency when they take over a police-related charity's board of directors.

San Francisco Police Activities League (PAL)

2018 represents the 60-year anniversary of the PAL.  As a kid, I earned my first trophy in the PAL league, and for years my godfather coached a Visitation Valley PAL football team that several SFPD officers later shared with me was the best sports experience of their lives.  Similar to SFPD officers on the streets, the PAL's coaches and volunteers are dedicated, genuine, and selfless.

The PAL is a quasi-public funded 501(c)(3) non-profit organization formed in 1959 to counter San Francisco's then-growing "juvenile delinquency problem" by organizing youth sports, and other healthy activities.  The PAL gets rent-free use of the SF government-owned SFPD Academy.  In addition, through the fulltime assignment of a SFPD sergeant and officer to the PAL office, taxpayer dollars are commingled into the funding of the PAL.

Over the years, the amount of SFPD officers on the PAL board of directors has fluctuated.  In 2010 there were two retired SFPD officers on PAL's board.  Two years later, with a new SFPD administration in place, the PAL board swelled to ten San Francisco officers.  Of the eight active SFPD members added, two were later promoted to captain, two were promoted to commander, and three became deputy chiefs.  Within SFPD, admission to the PAL's board of directors is definitely perceived as a springboard for promotion to the highest levels in the Department.  However, it appears some directors overlooked that with the glamor of the title, came the assumption of fiduciary responsibility.

Does using a CPA firm help cover fiduciary responsibility?

For the first ten years of the new century, two different Bay Area CPA firms handled the PAL's accounting services.  But in 2012, along with the SFPD takeover of the PAL board of directors, the PAL switched from a local CPA firm to an "enrolled agent," whose office was located in a Fresno neighborhood strip mall some 188 miles away.

An enrolled agent can sign tax returns without passing the comprehensive CPA exam that includes segments on operations, forensics, business law, auditing, probability and statistics, internal controls, comprehension of accepted accounting principles, ethics, and knowledge of tax laws.  Additionally, a CPA has a 20-hour per year continuing education requirement.  Downshifting to an enrolled agent is like substituting your artistic landscaper for your general contractor in your kitchen remodel. 

It is possible that a charity might try to save money by using an enrolled agent, especially one with cheaper Fresno office rent.  However, in the PAL's case, the previous CPA's annual bills averaged $2,400 per year, whereas with the enrolled agent's arrival, the PAL's annual accounting costs immediately increased to over $12,000 per year ¾ a 400% increase!

Replacing a multi-tooled CPA with an enrolled agent is also strong evidence the PAL board, despite their fiduciary responsibilities, has never requested an independent audit of the PAL's books.  Absent an audit, the board of director with the greatest responsibility for the PAL's books would probably be the person signing the PAL tax return.

Did a felon sign the PAL's 2013 tax return?

The PAL's federal income tax returns are public information.  Bizarrely, PAL's 2013 tax return was prepared by the Fresno strip mall accountant and then signed by "Benjamin F Tan for Mike Biel ¾ Interim Executive Director."  Mike Biel was a SFPD Deputy Chief.  But who is "Benjamin F. Tan," and how did he gain authority to sign the PAL's tax return?

A San Jose newspaper, The Mercury News, ran a series of articles in 2012 and 2013 about a "Benjamin F. Tan" who was the subject of Santa Clara County felony charges for conspiring to siphon off over $1 million of employees' 401k contributions from a South Bay Hispanic youth charity.  The Santa Clara District Attorney also accused Tan of being involved in "illegal fiscal practices" and for spending the charity's money on personal items such as Ipods and Jazzercise classes.  Benjamin F. Tan pleaded guilty to felony grand theft, and with another, returned $170,000 to the charity.  As a result of Benjamin F. Tan's actions, The Mercury News reported that the IRS terminated the charity's tax-exempt status.  The charity pursued a civil suit against the Fresno accountant for failing to detect the embezzlements.

Could the South Bay Benjamin F. Tan, who resides in South San Francisco, possibly be the same Benjamin F. Tan who signed the PAL's 2013 tax return?  While it might be just a coincidence of names, that seems unlikely considering that both Benjamin F. Tan's would have been associated with Fresno accountants, and both Benjamin F. Tan's would have been associated with different youth charities.  Whether it is one-and-the-same person isn't independently confirmed.  But if this is one-in-the-same felonious Benjamin F. Tan, he was successful in penetrating the inner circle of SFPD's highest ring of command staff, similar to a gun-carrying drug salesman mingling with the narcs on Turk Street.

The PAL's 2014 tax return ¾ even more bizarre

If PAL's 2013 tax returns were suspicious because perhaps a felon signed it, PAL's 2014 tax return was chockfull of peculiar transactions. 

The PAL entered 2014 with $1.2 million of securities (stocks and bonds) on the books.  Amazingly, the PAL received $2.9 million on sales of the securities, but instead of recognizing the $1.7 million difference as a gain, the Fresno accountant only recognized $300k.  The only way to explain this unusual phenomenon is that the financial advisor to the PAL must have sold off the entire PAL portfolio, bought fresh securities, completely sold off those fresh securities, and purchased a second whole new portfolio of fresher securities ¾ all within a couple of months.

Excessive stock turnover, what Wall Street calls "churning," might be the only thing that happened here and it would have been the PAL board's fiduciary duty to monitor and prevent this.  However, the $300,000 gain leaps off the tax return as the only thing that separated the PAL from nine consecutive years of net loses.  This one-time gain looks and smells like financial engineering just to pay someone off.  

Not only did the churning of the stock portfolio fly under the PAL board of directors' radar, no one compared the ending 2014 asset values to the ¾ literally a microsecond later ¾ beginning 2015 values and noticed that almost $200,000 of PAL's total assets had vanished, without explanation.  While PAL's Board may not have noticed, an experienced CPA would have, instantly.

                                            Ending            Beginning         Unaccounted
                                       Balance 2014    Balance 2015        Difference
               Cash                $      27,822       $      15,152          ($   12,670)
               Stocks/Bonds     1,177,249          1,017,835          (   159,414)
               Other Assets            42,078               32,358                 (9,720)
               Total Assets     $ 1,247,149       $ 1,065,345          ($ 181,804)

Published yearly statistics suddenly disappearing or being repackaged was a maneuver practiced by this SFPD administration.  Like Fortune 500 companies, SFPD produces glossy annual reports.  In the 2012 SFPD annual report, crime statistics were published for 2012 and compared to the prior year of 2011.  When the 2013 annual report was published, the previously published 2012 crime stat totals magically increased to greater numbers to make the large jump in crime appear smaller, when compared to the 2013 crime numbers.

Thus, it stands to reason that since using two different crime figures for the same year was successful, why not apply the maneuver to financial statements.

Still, the biggest red flag on the 2014 PAL tax return was the "Change Of Accounting Period" handwritten in large letters across the face of the tax return.  The majority of U.S. taxpayer and entities are on a calendar basis.  However, some companies such as the Golden State Warriors or a ski resort might be on a fiscal year so that they don't have to close their books in the middle of a seasonal business.  Companies rarely, rarely, rarely change from calendar to fiscal year or vice versa.  However, if for example, Philz Coffee bought the much-larger Golden State Warriors, Philz Coffee might shift the smaller coffee business to a fiscal year end, to coordinate with the same accounting period as the Warrior's.

The PAL filed its 2014 tax return with the handwritten change notice, only to change back to a calendar year basis in 2015.  In June 2016, a month after the SFPD administration turned over, the PAL raced to get its tax return out early, and again changed to a fiscal year end.  We can conclude that the PAL was in a hurry to close its fiscal year books because the 2016 forms had not even been published yet, forcing the Fresno accountant to use 2015 forms for a 2016 tax return.  Since the 16th Amendment was ratified 105 years ago granting the federal government authority to collect income taxes from all Americans, the PAL might be the only entity that has ever changed their accounting period in three consecutive years.

A SFPD Deputy Chief (now retired) signed the PAL 2014 tax return as "President and CEO."  Perhaps all of the aforementioned irregularities were attributable to an incompetent Fresno accountant performing before financially unsophisticated cops.  However, there is a difference between being able to hide behind "clerical errors" and changing an accounting year end ¾ clearly an intentional act ¾ back and forth three years in a row.

Across three different CPA firms, two partners and a manager concurred that the 2014 PAL tax return was so nonsensical, they could not sign the return without jeopardizing their license.

The San Francisco Police Foundation:

One way to measure if the PAL books are an aberration is to compare the stewardship of the PAL to the management of another police charity.  In 2012, concurrent with SFPD's takeover of the PAL board and the arrival the Fresno strip mall accountant, another charity surfaced, federal tax return-wise ¾ the San Francisco Police Foundation.

While most SF police officers have never heard of this charity, a SFPD captain's brother-in-law serves as President, and his wife (the captain's sister) acts as Secretary.  The Treasurer of the organization was the Deputy Chief who was also concurrently serving as the President of the PAL.  The captain was later promoted to commander.  In 2014, the Chief of Police and many on his staff, donated to the little-known Police Foundation.

One of the primary objectives of a non-profit police organization is to build rapport with the community, but that comes with the constraint that the police charity has to be careful not to portray themselves as vulnerable to the influences of donors.  Hey I donated to your cause, can I get more foot beats on my street?  Hence, there are vast restrictions on what San Francisco police officers or the Department may receive as gifts or donations.  The minuteness of an officer receiving a token $20 bottle of wine, or an officer receiving two Giants tickets for saving a 91-year old grandmother's life must be approved, and are publicly documented.  

From 2012 through 2014, the Police Foundation received $78k, $92k, and $150k respectively in donations.  Then in 2015, about the same time a large tech firm founder promised to donate $1.5 million over three years to the SFPD cadet program, contributions spiked to $791k.  In 2015, the Police Foundation used the contributions it received to fund $500k of salaries for SFPD cadets (who alleviate SFPD officers from performing various tasks), and additional funds were allocated for police officers' motorcycle training.

The genuineness of donor's gifts are not in question.  The issue is whether the Police Foundation's circumvention of SFPD's influence rules reinforces the PAL's numerous accounting irregularities and the potential felon-in-the-midst were contrived, not mere oversights.

Two takeaways:

Takeaway #1:  What is unusual about the PAL is that the leaders from SFPD, an external entity, were able to transfer their power over to control the direction of an independent entity ¾ the PAL.

Within the Department, the Chief had assigned the Deputy Chief to monitor and preserve the integrity of the San Francisco Police Department.  The responsibilities included acting as the liaison to sensitive investigations, including those of officers, overseeing internal affair investigations, and meting out Brady violations.

The Brady Violation List is generally defined as a list of law enforcement officers who have sustained a record "of knowingly lying in an official position" and is considered exculpatory evidence that, if disclosed, may strengthen a defendant's case.  The wide scope of what is considered lying ranges from perjury under oath to an officer calling in sick to attend his kid's basketball game.

Prior SFPD Chief George Gascón had completely combed through active and retired officers' files to ensure defendants were apprised of Brady violations.  Surprisingly, the subsequent police administration, despite blaming rising crime on a shortage of manpower, elected to retrace Gascón's voluminous work, and theoretically reinspect thousands of officers' files.

The wide spectrum of acts that meet the Brady untruthfulness standard provide a police administration with broad discretion and the subjective opportunity to ding an officer they don't like.  Officers' fears of reprisals were supported by the fact that the duplication of Gascón's Brady file search was apparently consummated absent a systematic chronological or alphabetical approach.  Rather, the new administration was able to employ clairvoyance to knowingly target specific files, even over longtime retired officers.

The consequence of this is a great irony.  The Deputy Chief with the authority to apply the subjective Brady determination on whether an officer had lied, was the same person that signed a federal tax record authenticating dubious, if not false, economic events.  In effect, the message to the troops: do as we say, not as we do.

If admission to the PAL board was the "carrot" for upwardly mobile police careers, the deputy chief's management of additional roles as SFPD's disciplinarian was the "whip."  Within an organization, leaders commonly have the power to promote or demote.

However, unique to the PAL board is that the hierarchy of SFPD's chain of command is embedded in the composition of PAL's board.  I have been informed that "the chief wants this" was frequently voiced at the board meetings.  Hence, board members were essentially trapped between SFPD's shadow and their ability to facilitate ascent up the SFPD ladder, while the administration simultaneously prevented descent through the underlying fear of controlling the discipline function of SFPD.  It's not hard to imagine what would have happened to a junior PAL board member if they exercised their fiduciary responsibility and questioned the PAL's bookkeeping.

Malcolm Gladwell discussed a similar structural problem in Outliers: The Story of Success.  Gladwellbelieved that deference to senior pilots within cockpits contributed to several Korean Air crashes.  Junior pilots were afraid to question decisions, hinting Gee Captain, we sure are close to that mountain, instead of Joe, We are off course and about to crash!  The problem became so severe, Boeing had to come in and retrain the pilots to eliminate the effects of the seniority ranking within the cockpit.

It is conventional for board of directors to be composed of friends and networkers.  However, the police-centric composition of the PAL board weakened its strength because there was a lack of diversity in careers, backgrounds, and experiences.  The PAL board's concentration of officers would be like the Facebook board only inviting engineers at the expense of disallowing finance people and attorneys.  Perhaps an accountant on the PAL board would have been curious about a competitor and Googled "Benjamin F. Tan."

Takeaway #2:  There is a "Benjamin F. Tan" now employed as Chief Financial Officer of the Mission Graduates, a Mission district Hispanic after-school program similar to the defrauded South Bay charity.  The Mission Graduates' website claims Benjamin F. Tan "provides fiscal oversight to non-profit corporations."  The website also notes receipt of funding from the usual commingling of San Francisco taxpayer dollars (via contributions from the San Francisco Unified School District and San Francisco's Department of Children, Youth and Their Families).

I called and emailed the Mission Graduates' Benjamin F. Tan, but he did not respond back to me.  If the Benjamin F. Tan at the Mission Graduates is the one-in-the same Tan from the South Bay and the PAL, he actually enhanced his resume and gained law enforcement credibility by the PAL board not conducting due diligence as fiduciaries are obligated to perform.  And thus, a one-in-the-same Benjamin F. Tan would be a wolf in the Mission Graduates' henhouse.

Ironically, some of the same PAL board members that were comfortable not performing fiduciary due diligence on a potential felon working within the PAL, were the same SFPD administrators who used their hunches to deny police officers with professional licenses from filling technical positions within SFPD.


Some SFPD officers will cheer this article while others will demean it as polarizing.  Names were purposely not used in this article, and instead department positions were substituted like variables in an equation.  Because, despite the aforementioned degree of cronyism, the "variables" with sway under one administration will be the biggest complainers about a "lack of fairness" in the next.  The players change, but unfortunately the game remains the same.

Nor should this article be construed as even the slightest indictment of SFPD officers.  Overall, the vast majority of officers go to work every day knowing they will never have the juice to be invited to and receive the career leverage of a PAL-type fraternity.  Instead, these street officers can be defined more properly as victims, who operate in a millisecond decision-making environment and have to weigh whether their actions will be evaluated objectively, or whether discipline will be determined based on unrelated grievances or their lack of proximity to the inner rings of power.  Crime suppression and the safety of our citizenry depends on the street officers' confidence in management's fairness, and without that assurance, street cops will continue to be hesitant and forced to watch their own backs first, before taking risks to assist the public.

As someone hired by SFPD to combat crime, it was disappointing to learn about the potential criminal expertise flowing from the South Bay charity through the PAL to a Mission District afterschool program.  I did not go looking for this story.  Frustrated SFPD officers communicated the story to me while I was employed with SFPD.  This article is an expression of those officers' desire for fairness and integrity.

By the way, this is the type of analysis and due diligence that a CPA firm can contribute to an entity's operations.

Lou Barberini is a CPA residing in the West Portal area.  He has an MBA in Taxation and worked for investment companies and a Big Four CPA firm.  He can be reached at

  In 2014, PAL's Executive Director Wodruff-Long received a $55,092 compensation that was presented as compensation of a "key employee."  This was the only year her salary was disclosed outside of general PAL salaries and it might just be a coincidence that this was the year the PAL had the big securities gain.

  While the 2014 SFPD Annual Report remains on the website, the 2011-2013 Annual Reports have been removed.  Here is a link to a December 16, 2014 article on the subject:

February 2018

Lou BarbariniThe Senate Ate My Article and Is After Your Money!

My original Westside Observer article for this month was a comparison on how technology has increased the volatility of pricing, all the way from Giants' tickets to shares of index mutual funds. While the Giants tickets were affected by a horrible season, the trigger for hyper-volatile mutual fund share prices was attributable to a small provision in the Senate version of the proposed tax law.


The double taxation of estates is eliminated for estates up to $22 million, but middle-class taxpayers are now assessed a double tax on their California taxes.”

Under the current tax law, if an investor had been accumulating a stock over time, let's say Apple, when the investor goes to sell a portion of his Apple stock, he is allowed to select those Apple shares that cost the most. By specifying the most expensive shares of Apple purchased, usually the most recent, investors were able to minimize their capital gains tax.

Enter, the Senate version of the tax bill, which would have required investors to sell the first shares they bought ­— those that are generally the cheapest. This would have drastically accelerated the investor's capital gains tax.

The proposal to sell your earliest-acquired shares applied to mutual fund companies as well. Consider: Yesterday Taxpayer A and Taxpayer B each bought $10,000 of the Luigi Mutual Fund. The Luigi Fund took A's and B's money and invested in Apple and Amazon stock. Today, Taxpayer A realized he actually needed the $10,000 for his wife's Christmas gift, and he turned around and sold his Luigi Fund shares for about the same price as he purchased them at.

Taxpayer A's actions would have forced the Luigi Fund to sell the Apple and Amazon stock it bought with his money. Though Apple and Amazon did not fluctuate overnight, the proposed tax act would have forced the Luigi Fund to still recognize the proceeds of those Apple and Amazon sales against the shares the fund initially bought 20 years ago when Apple and Amazon were at infancy prices. This would have produced a huge capital gain that would not have been assessed against Taxpayer A because he had severed his ties with the Luigi Fund. But instead, the capital gains would have been passed on to Taxpayer B because he remained in the fund. In other words, Taxpayer B would have paid tax on 20 years worth of appreciation from which he never benefited.

With this statute, if the stock market turned negative, mutual fund shareholders would have rushed for the exits to beat the capital gains tax on the mutual funds' liquidation of old stock. This would have created a vicious cycle that furthered market declines, producing more capital gains taxes, which would have encouraged even more selling. By itself, this single hubristic tax proposal could have created a stock market disaster.

Catering to the mutual fund industry's protests, the Senate finally recognized this proposal's devastating defects. However, the fact that enough time elapsed for me to complete an 800-word analysis and have it edited before the Senate comprehended the potential mess it had initiated not only ate up my original article, it also speaks volumes about the Senate's inability to foresee the economic effects of its tax proposals.

While deep-pocketed mutual funds have now been excluded from this proposal, as of this writing it has been left on the drawing board for ordinary taxpayers. Lack of ideology and inferior tax treatment for the middle class seems to be a consistent theme with the Senate's and House's tax proposals:

The double taxation of estates is eliminated for estates up to $22 million, but middle-class taxpayers are now assessed a double tax on their California taxes.

The United States needs to incentivize population growth to prevent the aging of our country, but immigration is frowned upon by the current administration. Yet, the new tax proposal raises the automatic deductions for couples without kids by $3,000, while decreasing the automatic deductions of a family with three children by $9,000.

And, the presidential campaign rhetoric to eliminate hedge fund managers sheltering their million-dollar salaries at a 23% tax rate was left untouched — while police, fire, and teachers are taxed at a higher rate.

Most of these un-Reaganesque tax proposals impair the blue states' interests, abandon blue state republicans, and act as an arbitrary capital preservation scheme for the wealthy, dressed in sheep's clothing of middle-class tax cuts.

Lou Barberini resides in the West Portal area. He has an MBA in Taxation and worked for investment companies and a Big Four CPA firm. He currently works with clients at Nich Capital Partners ( Lou can be reached personally at

December 2017

Did the DOJ Slam SFPD Using Fuzzy Math?

In a December 16, 2015 CNN commentary, Van Jones lamented how certain races were subject to higher interest rates on their car loans, citing the joint findings of the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice (DOJ). The CFPB/DOJ findings led to auto loan companies being assessed over $80 million in settlements.

Perhaps Van Jones had not read an October 29 Wall Street Journal article, which exposed a different perspective on the CFPB/DOJ findings. Generally, auto lenders are prohibited from inquiring about an applicant's race. Thus, per the Journal, the DOJ in reaching its findings, rather than compiling race data on an individual case basis resorted to using algorithms and guesswork on surnames to reach its conclusions. Thus, a Jones in the Bayview was assumed to be African American where as a Jones in the Marina was assumed to be Caucasian. Problems started occurring when some of the Bayview Jones' started receiving checks from the DOJ settlement and were not the race the agencies had guessed at.


… ponder whether the DOJ went searching for statistics using fuzzy math to support an agenda handed to them, or if the DOJ was conducting genuine surveys to improve police relations and make our community safer.”

One has to wonder if the algorithm determined "Warren" — as in Senator Elizabeth Warren — to be Native American.

The auto loan findings raised the question of whether the DOJ has an underlying agenda, and that their statistical gathering and analysis were based on an algorithm modeled to produce desired — albeit skewed — results. Within a year of drawing conclusions on auto loans, the DOJ released its findings on racism and the San Francisco Police Department.

Similar to its unusual way of guessing the racial composition of the auto loan market, the DOJ came up with an uncommon way to determine whether SFPD uses racial profiling in traffic stops. To determine the base of racial demographics for San Francisco, the DOJ used the reported race in accident reports, not only on the city streets but also on the freeways above.

Using the demographics of the Bayshore Freeway traffic that is bypassing the city is about as relevant as defining Nebraska a blue state based on the political leanings of the passengers on the transcontinental flights above. It is questionable enough that the DOJ used traffic accidents to determine the City's demographics, but why did the DOJ add freeway traffic, too, unless it was needed to produce the results the feds were trying to back into?

Everyone knows auto insurance premiums are higher for men, new drivers, and students with poor grades because they are more likely to be in accidents. Thus, the feds' findings would be similarly skewed to these segments that are more likely to be in traffic accidents, rather than using a measure that also factored in San Francisco's better drivers.

Finally, unlike the California Highway Patrol, which reports traffic accidents where there is no injury, SFPD only prepares reports if there is an injury. This further skews the sampling effect of freeway accidents when compared to accidents on the surface streets below.

Vivian Ho, of the San Francisco Chronicle, fanned the flames of the DOJ's report with her October 14, 2016 article headline: "(Female and minority) officers are underrepresented among Police Department leaders, according to the report." The DOJ report concluded that African Americans make up of 5.8% of San Francisco's population, but they are not representative of the higher SFPD ranks. African Americans make up, respectively: 7.6% of sergeants, 14.3% of inspectors, 12.6% of lieutenants, 4.8% of captains, 20% of commanders, and 16.7% of chiefs. Likewise, female members make up 15.3% of the Police Department while composing 20% of sergeants, 21.4% of inspectors, 18% of lieutenants, 14.3% of captains, 20% of commanders, and 16.7% of chiefs. Thus, despite Ho's Chronicle headline, in terms of moving up the ranks African Americans and females are only underrepresented at the rank of captain — and that position is deficient by only a fraction of a percent. This is really an immaterial discrepancy.

If the DOJ's data presentation seems selective, some of the actual wording in the DOJ report appears slanted. Page 74 of the DOJ report states that people of color are 39% less likely than white drivers to be issued a citation when stopped by SFPD — a pretty dramatic statistic! But consider that the feds' statement can be translated to a sentence that is the exact mathematical equivalent: A Caucasian in San Francisco is 64% more likely to be issued a citation when pulled over than a person of color. A shocking, headline-grabbing DOJ fact! However, the DOJ probably used "39% less likely," instead of "64% more likely," because the smaller number minimized the counter narrative that disparities flow both ways in an imperfect world.

The intention of this article is not to present that SFPD is free of racism. I can assure you prejudice exists, as it does in sports, schools, corporations, or social media. Nor is it the purpose of this article to deny that throughout the history of SFPD, African Americans and females have experienced a level playing field. They have not.

The DOJ report has merit, but the conclusions are compromised by the appearance that more than a little of the feds' thumb was on the scale. It would be naïve to think that the past president's views on law enforcement, discussed in Dreams From My Father, did not influence the DOJ's statistical assumptions in the same way the winds of City Hall affect the operations at SFPD.

Last month, despite women being fairly represented in the rank of lieutenant, the current SFPD chief skipped over many male sergeants with superior test scores to promote women at a 30% rate — double the women officers' proportion of SFPD.

One has to wonder if the SFPD Chief based his decision on the Chronicle's sensational headlines, rather than on the details of the DOJ report. Or hypothetically, what should a SFPD father say to his kids if he outscored his wife, but she was promoted over him: "Study harder" — or "life is just a lottery and test scores are only a front"?

SFPD officers face both political and media headwinds. And, when you see the broken glass on the sidewalk, or read about San Francisco's rising homicide rate, ponder whether the DOJ went searching for statistics using fuzzy math to support an agenda handed to them, or if the DOJ was conducting genuine surveys to improve police relations and make our community safer.

Lou Barberini resides in the West Portal area. He has an MBA in Taxation and worked for investment companies and a Big Four CPA firm. He currently works with clients at Nich Capital Partners ( Lou can be reached personally at

November 2017

Is Jury Duty a Health Risk at 850 Bryant?


Outlined against a blue-gray March sky, Officer Layden felt queasiness as he balanced precariously on the rickety ladder. With the street looming five floors below, he tightly clutched the 60-year-old key in his right hand. Sergeant Miller steadied the ladder with both hands, while Officer Crowley stood guard at the entry door. With the apprehension of a drug dealer awaiting a delivery, Officer Harry Stuhldreher nervously scanned the hallways as the four San Francisco police officers implemented their clandestine Operation Fresh Air.


…the Hall of Justice was hit with a sewage storm. Sewage leaked into the Police Commission room, flooded the hallways and on into Room 511, and stained the common hallway ceilings. This fecal storm was remedied with carpet shampoo, paint, and yellow caution tape.”

The four worked at the San Francisco Hall of Justice, a building constructed in the late fifties, over a decade prior to when poisonous materials were poured into New York’s World Trade Center. Today, The Hall accommodates municipal courts, the District Attorney’s offices, and one remaining floor of San Francisco police officers. The uniqueness of The Hall is the reluctant occupants on the top two penthouse floors — the residents of County Jail.

yellow tapeOver the past couple of years, the San Francisco Chronicle has published several articles on the yellow stained ceiling decorating the District Attorney’s office on the third floor. Per one article, urine was cascading down the floors from the jails on the upper two floors. It is logical that if the sewage emanates from the top floors, it must flow through both the fifth and then the fourth floor, but The Chronicle has failed to cover the epicenter of the storm.

The employees in charge of The Hall are silencing the problem. In a December 4, 2015 Chronicle article, John Gavin, Chief Policy Advisor to the City’s real estate division, comically claimed that the recognizable yellow hue on the third floor walls “was from a water-only pipe.”

Subsequent to Gavin’s comments, on February 22, 2016 the fifth floor of the Hall of Justice was hit with a sewage storm. Sewage leaked into the Police Commission room, flooded the hallways and on into Room 511, and stained the common hallway ceilings. This fecal storm was remedied with carpet shampoo, paint, and yellow caution tape.

The carpets were shampooed but not replaced. The crawlspace above the ceiling tiles was neither touched nor cleaned. Instead, the brown-stained ceilings were literally and figuratively whitewashed, i.e., merely painted over. To keep visitors and employees in the dark about this biohazard, yellow crime scene tape was used instead of proper biohazard warnings.

wall and ceiling

There was another smaller shite storm in 2016, followed by a greater one in January 2017. The police officers privy to what was occurring started to take matters into their own hands: First, officers started propping open an exterior stairway exit door to allow fresh air to ventilate throughout the fifth floor; and second, one SFPD unit sought an outside environmental firm to assess the safety of the fifth floor biohazard.

A San Francisco police officer in charge of the Hall of Justice maintenance contacted lieutenants and sergeants of the units closest to the fecal storm and advised them the exterior door had to be sealed to maintain the biometric pressure of the building. A cat-and-mouse game of propping open the exterior door ensued. When the exterior door was closed, and without a working cooling system in many of the offices, the stale fecal air temperature climbed into the upper 70’s.

On March 13, 2017 Envirocheck Inc., a private company, presented its survey on the safety of the Police Commission room, which documented the presence of sewage in that room, and the Envirocheck representative orally stated there was evidence of fecal matter in the center of that room.

One has to wonder, if the fecal matter that was found in the Police Commission room was it deposited from the sewage storms of 2016 or 2017? And if the fecal matter existed after the City’s 2016 shampoo and whitewashed-over remedy, how many San Francisco citizens that were required to attend meetings in the Police Commission room were exposed to fecal matter, or possibly black mold, because of the City’s lackadaisical concern for their health? And if sewage can leak down to the third floor on the District Attorney’s side of the Hall of Justice, how many San Francisco citizens have been mandated to attend jury duty in contaminated third floor courtrooms directly under the Police Commission room?

Just three hours after the Envirocheck presentation, an alarm was installed on the exterior door to end the police officers’ cat-and-mouse game of trying to provide fresh air ventilation. There are four stairwells at the Hall of Justice and only one of the four stairwells was alarmed — the one closet to the fecal storm. Obviously, a retaliatory gesture against officers who brought Envirocheck into the picture.

Between March 17 and March 24, the Department of Public Health’s Industrial Hygentist Kevin Milani was in Room 511 on a different ergonomic matter. Milani noted in an email that Room 511, which had received sewage overflow in 2016, had high temperatures, “noticeable sewage-like odors,” and visible signs of water damage. Milani’s tests did not evaluate the common hallways where the 2016 sewage spill was simply painted over.

In response to Milani’s May 9th email comments, our police officer with the self-proclaimed expertise in biometric pressure stated that the Police Commission room carpets were replaced and “no other leaks were affected by the leaks emanating from the sixth and seventh floors.” It is ironic that the carpets were replaced in the Police Commission room only after Envirocheck was hired, and that Room 511 — which was only issued sandbags after the 2016 sewage storm flowed onto its carpets — apparently was not worthy of new carpets. The biometric cop’s email also accused Sergeant Miller of violating protocol by contacting the Department of Public Health. After all, protocol trumps the quality of the air coworkers breathe.

With a nod to Grantland Rice’s immortal words, SFPD’s four horsemen’s stealth mission in Room 511 was not nefarious. Operation Fresh Air was simply an attempt to circumvent the biometric pressure cop, and an attempt to access fresh air by cracking open a window a mere four inches. Under that blue-gray March sky, Officer Crowley (me) reached the conclusion that his health was imperiled more by someone wearing the same uniform, than by all of the robbers, drug dealers, and car boosters roaming the streets of San Francisco. Two weeks later, Officer Crowley rode off into the Sunset — literally and figuratively.

Six months have passed since Operation Fresh Air. The sewage still drips, drips, drips into Room 511. There is a symbolism to the dripping. A mayoral appointee is indicted under one administration only to be arrested under a subsequent administration for accepting bribes from an undercover FBI agent. Drip, drip, drip: The resume of a UC Berkeley pension employee, released for hiring a convicted felon friend who went on to defraud the Berkeley pension, is worth a $300,000 salary at the San Francisco Employees’ Retirement System. Drip, drip, drip: A San Francisco cop, more fascinated with biometric pressure than the health of his coworkers and citizens is, as of this writing, representing his coworkers with the mayor’s junket to Ireland.

Drip, drip, drip: The sewage keeps flowing.

Names of Notre Dame football legends were substituted as aliases to protect the innocent.

Lou Barberini resides in the West Portal area. He has an MBA in Taxation and worked for investment companies and a Big Four CPA firm. He currently works with clients at Nich Capital Partners ( Lou can be reached personally at

October 2017

In the Autumn of Life, Step-It-Up

I laughed inwardly when my friend told me about the team bus arriving at the hotel. Whitey spotted a nearby cab and said, "Hey Mick, there's our limo." And thus Whitey and Mickey were off into the Chicago night without unpacking their bags or even checking into their room. I was mesmerized by the stories of how a posse of Yankees were humble enough to walk from their hotel to a Detroit ballpark, or how women snuck alcohol-filled miniature perfume bottles to an aging Satchel tucked away in the corner of the bullpen.

My friend represented a passed era, when a baseball career merely stalled adulthood and a real job. A time when both character was a component of athletes' DNA and characters infused color into the game.

The warmth of his stories prodded me to broach the most difficult subject. He was one of the last four survivors from the field on that famous autumn afternoon when an epic Game Seven was concluded with a homerun. I grimaced out the question: "Tell me, what was it like when Maz hit it?" Distanced now by 50 years, his head dropped on cue, like the pain of one retelling how his high school sweetheart dumped him at the prom: "I knew it was gone, as soon as he hit it."


Assuring a home, or rental properties, transfers to a lineal decedent's title at a parent's death can preserve the parents' Prop 13 property tax rate. This alone can make a San Francisco home more affordable for heirs.”

Still in his early 30's, he put away the toys of his youth, returned to the Bay Area, and eked out a conventional family-prioritized life. A widower in his late 80's, he sold his home to pay for healthcare expenses — which leads to the non-baseball issues I had failed to discuss with him.

One of the greatest taxpayer benefits is the tax-free "step-up in basis" rule. It is not really difficult to understand, but in the confusion of dealing with late-in-life financial issues, the step-up rule is frequently not properly utilized.

A typical hypothetical scenario: A husband and wife purchased a home in the Sunset District 40 years ago for $50,000. The current fair market value (unbelievably) is now $1 million, and the now-85-year-olds are considering selling their home to move to assisted living. If the couple sells their home, they will recognize $950,000 in capital gains of which the IRS allows $500,000 to go untaxed, still leaving about a $120,000 tax bill on the remaining $450,000 gain.

At 85 years of age, the couple's life expectancy is not long. Consider instead if the couple took out a $200,000 loan against their home to pay for the assisted living. Assuming the husband passes away three years later, the surviving wife can then elect to sell the same house with an IRS tax bill of ZERO.

Here is how it works: At the death of one spouse, in a community property state like ours, the IRS allows the surviving wife to step-up the $50,000 original cost of the Sunset home to the $1 million fair market value at the time of her husband's death. Thus, if the wife subsequently sells the home for $1 million, to determine her capital gain, she gets to subtract her freshly stepped-up cost basis of $1 million. The $1 million selling price less $1 million cost basis equals zero gain and zero tax. The wife would have saved $120,000 in taxes by simply waiting a couple of years to sell the family home. And, the $120,000 in saved taxes might be more than the portion of the $200,000 loan the couple actually spent for assisted living.

I have spoken to numerous real estate agents who recognize that the original cost of the home is stepped-up upon a spouse's death, but mistakenly think that only half the home is stepped-up. In California, the entire value of the home is stepped-up at the death of one of the spouses. The step-up tax rule also applies to a couple's secondary home, rental properties, stocks, and mutual funds.

Continuing with my example, should the surviving wife elect to hold onto the house for a few more years, upon her passing the house would be stepped up again. But here is an ironic caveat to the family being allowed to employ the step-up upon the second parent passing: If the family does not have a living trust, the whole house will receive the favorable stepped-up rule again, while if a living trust is used, most likely only half the house will receive the favorable step-up tax treatment. If one spouse dies long before the other, there is more time for additional appreciation and thus forfeiting to use the entire step-up on the second parent passing, will have more pronounced negative tax consequences.

Here are the takeaways:

1. Try to hold onto appreciated property until death.

2. Assuring a home, or rental properties, transfers to a lineal decedent's title at a parent's death can preserve the parents' Prop 13 property tax rate. This alone can make a San Francisco home more affordable for heirs.

3. For older San Franciscans, be cognizant that selling a home or adding kids to the home's title while a parent is alive can eliminate the step-up and therefore increase taxes.

4. On the campaign trail, President Trump discussed discontinuing the step-up in basis rule for estates over $5 million. Twice before the step-up in basis rule was experimentally eliminated, only to be reinstated because it was an accounting nightmare for heirs to account for their parents' costs and home improvements.

Only a portion of the ivy-covered Forbes Field wall in Pittsburgh endures — a monument to that dramatic fall afternoon. And now only three players from the field remain. This column is a tribute to the humility in athleticism that has faded in a social media world, and atonement for my getting too wrapped up in his stories instead of guiding my friend down a better tax path.

Lou Barberini is a CPA residing in the West Portal area. He has an MBA in Taxation and worked for investment companies and a Big Four CPA firm. He can be reached at


1. $1,000,000 selling price less $50,000 cost = $950,000 gain less $500,000 exclusion= $450,000 capital gain, which is subject to approximately a federal and California 26% combined tax, or $117,000.

2. There is no ceiling on the value of a principal residence that can be transferred to children without increasing the property tax base. A $1 million of assessed value can also be transferred without an increase in property tax to the children.

September 2017

Lou BarbariniDeferred Comp Id@nt!ty Theft Target

In mid-June I was transferring a portion of my Prudential San Francisco Employees' Deferred Comp account to another institution when I stumbled upon something I had overlooked: Prudential has never issued me, nor the other 25,000+ San Francisco public employees, individual account numbers. Prudential instead uses participants' social security numbers as the sole point of reference, which increases the vulnerability of San Francisco city employees' to identity theft.


And, when Prudential's contract is up for renewal next year, San Francisco city employees will again be corralled into a fresh, overly-complex life insurance annuity — probably another one without account numbers. It sure seems suspect that the crew with no members having passed the life insurance exam,when selecting investment vehicles for city employees, only fish in the small life insurance annuity pond, instead of the ocean of other investment companies.”

The financial website, Investopedia's perspective on account numbers is:

"At one time, it was common to use a Social Security number as the primary identifier. Because of the proliferation of identity theft, however, this practice has been all but eradicated. It is not a good idea to use a Social Security number for any type of account, or as a user name or password for electronic identification."

So if the practice of using social security numbers in lieu of account numbers has been eradicated, why is Prudential so far behind the times? Prudential probably wants to save the costs of this extra step.

The irony is that Prudential takes the unnecessary step of converting every San Francisco employee's purchase of mutual fund shares into a secondary fictitious share price, unique to Prudential a second set of books. Prudential can spend money to keep two sets of books that confuse investors, but cannot spend money to create a secondary point of reference — like an account number — to protect investors.

Contrast Prudential's behavior to your typical credit union. When I access my credit union account from my computer, I need to have a pass code texted to my phone. This ensures that two of my devices have to be stolen before my account can be compromised. This extra hurdle is burdensome, but it conveys to me that my credit union is looking out for my interests — unlike Prudential and the San Francisco Employees' Retirement System (SFERS). Why can a credit union pay for dual sign-ins, while Prudential — which has an asset base 1,000 times larger — can't afford to simply create unique investor account numbers?

Prudential's response will be that their representatives ask security questions to mitigate identity theft. This is not a true safeguard against identity theft. With the proliferation of social media (Facebook, Linked-In, etc.,) identity thieves will have absolutely no problem answering the two screening questions Prudential asks customers: What is your birth date and what is your zip code?

Not creating account numbers also supports my narrative that Prudential does not invest city employees' money in the investment options to which Prudential claims. It is suspicious that SFERS' contract allows Prudential to ignore city employees' investment instructions to invest in a Golden State Warriors' mutual fund, and instead put that investment in an inept San Francisco Giants' mutual fund. For the city employees, the performance of the Warriors' fund shows on their statement, while their money is actually invested in the Giants. If Prudential were truly transferring city employees' money to American, Fidelity, T. Rowe Price, and Vanguard ¾ the Warriors-type mutual funds — an account statement would exist at those mutual fund companies titled to SFERS. Public record requests to SFERS have confirmed that no such account exists. By not issuing account numbers, Prudential has increased the difficulty of following the money trail to where Prudential has actually invested San Francisco city employees' money.

The San Francisco Civil Grand Jury recently released a report on SFERS' other $20+ billion pension, the one that is funded to a 77.6% level. The report recommended that a public oversight committee be formed to monitor the large pension fund, and the new committee's members should possess experience in "life insurance."

Considering that the Civil Grand Jury is recommending committee members have experience in life insurance, it would be interesting to see which SFERS administrators have life insurance experience that could be applied to decisions on deferred comp. After all, SFERS has churned its deferred comp plan through five different life insurance companies over the last 20 years.

It turns out that, per the California Department of Insurance website, neither SFERS' Chief Investment Officer, Bill Coaker, who was the City's highest-paid public employee at $512,485 in the year ending June 2016; its Executive Director; its Deputy Executive Director; its Deferred Comp Plan Manager; its chairman of the Deferred Comp Committee; nor its entire seven-member Retirement Board of Trustees have passed the insurance exam (by the way, I did pass that exam).

SFERS is never going to address, or respond to, the numerous red flags I have raised in the Westside Observer about Prudential's deferred comp annuity over the past year. Executive Director Jay Huish still has not answered the three questions I posed to him in November 2016. And, when Prudential's contract is up for renewal next year, San Francisco city employees will again be corralled into a fresh, overly-complex life insurance annuity ¾ probably another one without account numbers. It sure seems suspect that the crew with no members having passed the life insurance exam, when selecting investment vehicles for city employees, only fish in the small life insurance annuity pond, instead of the ocean of other investment companies. If the deferred comp plan is churned to another company that also uses social security numbers rather than account numbers, city employees will remain at identity theft risk.

I purposely misspelled "Identity" in the title of this article. It's my effort to try to be informative to readers, without attracting hackers' searches. After all, someone has to watch city employees' backs.

Lou is a CPA living in the West Portal area. He has an MBA in Tax and worked for a Big Four firm and investment companies before his 20-year career with SFPD. He can be contacted at:

July/August 2017

SFPD's Millennial-Tech Effect

A younger Officer Barberini makes an arrest

One sounds cranky when nearing retirement and comparing how his or her job and industry "is just is no longer the same." For KMA (SFPD slang for entering retirement mode) San Francisco police officers, lamenting how The Department has changed is an inherited skill. As the last of the SFPD baby boomers pass their positions to the millennials, many of this decade's personnel and technological changes have been dramatic, contributing to falling arrests and the highest per capita property crime rate in the country.

Historically, the City has always hired police officers in surges rather than at a steady pace. There was mass hiring of baby boomers in the late seventies to early eighties, sequenced by a mid-nineties hiring of Generation X, and finally the millennials, the offspring of the baby boomers. By hiring in waves, the City has disrupted what should have been a smooth succession of institutional knowledge and craft passed on to new academy classes, instead causing the SFPD to experience volatile shifts in generational cultures.


… a tool (bodycam)that will trigger critical second-guessing, criticism that formulates in the safety of carpeted oversight offices, and not in the microseconds on the street."

The theme of this article is about the cultural changes to the Department caused by the idiosyncrasies of the millennials and the integration of technology—namely videos—into policing. Not discussed are the two elephants in the room: a void in prosecution, and a Police Commission with a political finger to the left-blowing winds, that have greatly contributed to the decline in arrests and a spike in property crimes.

Personnel: Traits of the Millennials

The upbringing of baby boomers versus millennials as future police officers could not be more distinct. The former generation grew up in larger families that required greater engagement with multiple siblings. The later, digital generation was raised in smaller families that magnified each child's importance.

A large percentage of baby boomers walked or took MUNI to school when the City was swelling with kids. By contrast, many millennials were shuttled to school in a figurative vehicle bubble, removing them from early exposure and interaction with other citizens on the streets.

Boomers' parents rarely were present at their children's games, and when the boomers were not playing in the Police Activities League or Catholic Youth Organization, they created their own games and leagues in schoolyards. Parents of millennials, some aptly called "helicopter parents," thrived on organization. They enrolled their children in specialized travel teams, and inversely missed as few of their kids' games as boomers' parents attended. One generation's parents stimulated creativity and independence, while the other limited their children to structure.

Lou with his father and brother

As teenagers, baby boomers interacted with adults when they walked paper routes or worked at restaurants. Adults delivering newspapers in cars and accepting entry-level jobs at restaurants confiscated even life's basic economic lessons from millennials. When the baby boomers entered the SFPD, they had a résumé of assumed responsibilities and had been managed by adults other than their parents.

A larger portion of baby boomers grew up in the City when the middle class was thriving. Even if a boomer officer later moved his family to the suburbs, he or she still maintained a territorial affinity to the City. On the other hand, most millennials grew up in the suburbs, where unlike San Francisco, there were more kids than dogs. The millennials' greatest attraction to the City now is as an entertainment center for twenty-somethings.

Millennials' strength is technology and they have embraced it the way Canadians take to ice hockey. Many had cellphones before they graduated from elementary school. Millennials are well-suited for reviewing and documenting video evidence of crimes.

The drawback to millennials' immersion in technology is that they rely more on unilateral posting to social media than on direct connections. That is a sharp contrast to boomers, who grew up conversing, gossiping, or initiating dates through telephone conversations. A 2014 UCLA study confirms the erosion of social skills through overuse of technology. In the study, sixth graders were measured on their increasing ability to recognize facial expressions after they were weaned off their electronic devices for just five days. Consider how a childhood, void of human exchanges, affects a young police officer's ability to recognize the facial warning signs of a bad guy.


Compounding the problem are promotional exams where ranking is 100% contingent on the scoring of oral boards—a subjective test. The result is that younger and very inexperienced officers are now supervising senior officers, which is equivalent to hiring football coaches who have only read books about football."

Each generation's paths have fed into how police officers are managed by SFPD. Thirty years ago, the boomers' independence and creativity was stimulated by SFPD's focus on self-initiated activity. "Are you going to just sit in your patrol car waiting for something to happen, or are you going to question the guy fiddling with every car door on a street? Can you work independently?" And, the boomers were supervised by the highest ranks of SFPD who had exemplary careers of proactive stints in gang, robbery, and narcotics specialized units. Management's message to the troops was, "We've already been down that path. We get what you are encountering on the street."

By contrast, this decade has been marked with the trend toward scarecrow policing. When an area becomes the subject of neighborhood complaints, SFPD's response has become to position an officer(s) to a "fixed post." That is, the officer(s) is confined to a designated spot, for instance the southwest corner of 16th and Mission Streets, and not allowed to move. The 50-foot radius of that corner becomes free from undesirable activity, but the usual suspects merely move 50 yards away. The underlying message to the police officers: Just be visible. We don't trust your judgment or your ability to work independently.

This new type of leadership is the product of a command staff that has become more classroom-oriented and less street-experienced. With the exception of Assistant Chief Chaplin, few of the command staff have strong proactive specialized unit résumés. While scarecrow policing might seem normal for a millennial who experienced a structured childhood, this would have never been acceptable to boomers who were groomed to become self-sufficient adults.

Similarly, the few SFPD millennial officers who grew up in the City and did take MUNI to school strongly resent being assigned to stand on a corner as a scarecrow. They are eager to protect the citizenry from robberies and auto burglaries. But this self-initiated-activity group is a shrinking percentage and influence of SFPD's force. The effect of the millennials' structured upbringing makes the new reactionary just-respond-to-the-call-to-service-play-it-safe SFPD mentality palatable, and deviates from the former generation's independent philosophy of discouraging crimes before they happen.

In the old self-initiated-activity world, active officers spent considerable time in court, resulting in increased officers' compensation. The consequence was that active officers did not take promotional exams as early in their careers. They remained in positions where they could train the new officers how to interact with the most dangerous characters.

Lou mugs with California Highway Patrolmen

In the Scarecrow environment, without arrests and court overtime, officers struggle to increase their income and provide increasingly better lives for their families. The new way to earn more income at SFPD is to go corporate and take promotional exams at much earlier stages of one's career.

SFPD recently lowered the threshold to qualify for the sergeant's promotional exam to three years seniority if the officer has a college degree. Ironically, the lack of a college degree has not prevented some members of SFPD from ascending to the highest levels of command. Compounding the problem are promotional exams where ranking is 100% contingent on the scoring of oral boards,—a subjective test. The result is that younger and very inexperienced officers are now supervising senior officers, which is equivalent to hiring football coaches who have only read books about football.

Technologies Takeover of Policing

While the millennials were raised in an environment that required less human engagement, they counterbalanced this deficiency with an immersion in technology.

It is technology, namely the proliferation of cellphones, that: a) increased citizen calls for service; b) created cellphone robberies as a new crime; and c) provided enough video evidence for the media to demean law enforcement.

Cellphones not only make it quicker for citizens to report crimes, but also stir the vividness of citizens' imaginations. The man walking up the street carrying a rolled up carpet over his shoulder surely had a dead body inside (true story). Twenty years earlier, the same citizen would have seen the carpet-carrying man and waited until they got home to make a landline call, only to be distracted first by talking to a neighbor, fresh mail that just arrived, and then the four new messages blinking on their new answering machine. Immediate access to 9-1-1 has increased the volume of SFPD's reactionary calls for service at the expense of time available for self initiated activity—assuming the officer is so inclined.

No one is going to argue that police are perfect, as cellphone video footage has been captured in recent years. The solution: officer-worn body cameras (bodycams). For the generation that invented the selfie-stick, bodycams for millennials are a natural transition. For the last of the SFPD baby boomers, they are a threat to independence.

To be clear, no San Francisco police officer is afraid to document the good work they perform daily, or the ridiculous and hostile situations they must face. When the officer's bodycam is activated, halos emerge over the most rebellious citizens' heads as they suddenly remember their long-forgotten manners.

However, unlike the millennials, baby boomers fear the bodycam because they appreciate that it is a tool that will trigger critical second-guessing, criticism that formulates in the safety of carpeted oversight offices, and not in the microseconds on the street. Like a quarterback throwing a successful 25-yard completion only to have the coach question on Monday, "Didn't you see your other receiver open 30-yards out?" the bodycam opens the door to discipline if an officer creatively goes off script, or if a supervisor wants to get someone. With a bodycam, police reactions will be more robotic and absent the independent, colorful salesmanship the boomers crafted over decades of connecting with people.

The issue is not whether law enforcement officers are flawless, but rather, are the videos that the media selects to play over and over proportional to police imperfections?

Officers observe a drug deal going down - the bust

A police bodycam video of a hostile Taraval District man, shouting homophobic obscenities, and confronting officers, which ended in a shooting, is shown on every news station; a 50-person, BART takeover robbery is not.

A noncompliant man in New York dies from an officer's use of a tactical defensive maneuver, and the viral video causes the San Francisco Police Commission to remove that tactic from SFPD's defensive choices. Just a few months later, a SFPD officer struggles to subdue a man high on drugs in the Richmond District, and a civilian steps forward to help the officer by applying the same defensive tactic to the suspect that the SFPD officer is not allowed to use. The media never discusses why a civilian can use more defensive tactics to defend an officer than the officer can use himself.

In 2011, Public Defender Jeff Adachi produces surveillance videos of undercover officers that resulted in only one officer being arrested and fired for the incidents the videos captured. The videos were replayed over and over on every news station. To combat the alleged misdoings, SFPD overreacted and immediately downsized all the undercover specialized units, and benched most of the plainclothes officers at the station level. If just one ship sinks, destroy the lighthouse! This created a situation where prospective criminals no longer glared into pedestrian cars evaluating whether the driver was a civilian or an undercover officer. For the not-so-nice people of our city, hesitation was removed because there were very few undercover officers patrolling, and the boom times were on. Property crimes bounced off an inflection point and immediately skyrocketed, while SFPD waited for the Adachi videos to be adjudicated. But did the media ever measure whether the Adachi videos were representative of the type of successful undercover police work that was executed daily in San Francisco, or the correlation to the subsequent crime spike?

Technology, specifically cellphone video, has fed the media's selective subject matter and reinforced the misperception that all police are malicious. Over time, bodycam videos will evidence the valiant work of SFPD, but in a man-bites-dog media world, our local media focusing on police incidents that play out thousands of miles away in rural America will trump SFPD's good work. This fuels a cycle of mistrust of SFPD and compromises officers' ability to service the community.

Bodycams are not a magic bullet. For every technological advance, there is a loss of a human interface. Bodycams, like automated voicemails that replaced the cheery receptionist's voice, will deliver robotic responses to the citizenry instead of genuine, empathetic police interactions.

Millennials + Technology=?

These are personal observations and generalizations provided as a topic for discussion. Millennials are waiting later in life to form households, purchase homes, have children, and maintain a steady job. SFPD millennial officers, with their steady incomes, are ahead of this national trend.

Long gone is the meritocracy. Both the newer officers' respect for the achievements of their supervisors, and the trust in their supervisors' experience to advise in critical situations, has severely declined. To a certain extent, it is better for an officer to figuratively take a knee on first down and punt, rather than take action, possibly violate a venial administrative mandate, and lose their job.

The millennials were shaped, and are the product of, baby boomer parents. With automation moving up the food chain, millennials have had fewer career options than their parents. With seasoning, the millennial police officers will catch up to the previous generation's interaction skills, and will then be able to merge that proficiency with their technological expertise to become more effective officers.

Like having to get a movie scene perfect on only one take, body cameras will cause police actions to be more staged and less colorful. Technology will also make crime suppression ever more dependent on video footage from buildings, buses, cars, and pedestrians. Citizens will become responsible for reporting crimes online, and attaching their self-made videos as evidence. Transactional after-the-fact investigations will replace humanized and proactive police responses.

Although millennials across the country have postponed the stages of their life, they will eventually catch up to their parents, and millennial police officers' skills will eventually surpass their baby boomer predecessors. But have bodycams really made San Francisco safer, or do they just provide an opportunity to sensationalize ordinary events?

Like the rest of society, police officers are not perfect. But even though the bar is set much higher for police officers, the great majority leaves their respective stations to perform in an altruistic manner every single shift.

Lou Barberini is a CPA living in the West Portal area. He can be reached at

June 2017

Streaking Your Workouts and Your Investments

While driving a patrol car, Jake sermonized: “There is no physical benefit to me working out for less than an hour.”

“I disagree, its better to establish a routine, even if it’s just a ten-minute workout. The point is to streak — to get in a routine where you feel guilty if you break your streak. A workout should be the first thing you do in the day. Get it out of the way, and the rest of your day has a way of falling into place,” argued Jake’s young and good-looking Irish-Italian partner. Ok, maybe the “young” is an exaggeration.

In the sanctity of a patrol car, every problem in the world has been solved. From homelessness to whether China manipulates their currency, to the now $12 price of Lagunitas IPA at Giants’ games.


It is easy to buy things on sale the day after Christmas, which directly contrasts with the difficulty of buying shares when the world appears to be coming to an end. The discipline of dollar cost averaging removes the fearful emotion, and forces you to acquire shares at rock bottom prices.”

The piercing of the patrol car’s confidentiality was exposed in a recent 60 Minutes interview with a Silicon Valley product manager. In the segment, the product manager discussed how the social media company, Snapchat, had embedded “Streak” into its application. To get users addicted to Snapchat, the company posted the number of days in a row two users communicated with each other. The product manager described how teenagers suffered so much anxiety and guilt about preserving their streak that when they vacationed with their parents, they lent out their passwords to friends to keep their streak active.

Two conclusions can be drawn from this 60 Minutes installment: 1) Streaks can provide powerful psychological fulfillment, and 2) Jake and his partner are now discussing a multitrillion dollar class action lawsuit versus Snapchat for stealing the intellectual rights originated in the patrol car, to the streaking concept.

If streaking creates discipline in exercise and in social apps, what could happen if we applied streaking to investing? A lot of investors I know personally missed out on the stock market surge since 2009 by parking their money in savings accounts. But with the precariousness of the market, is this the right time to dive in headfirst?

If we know that historically the stock market and stock market mutual funds have provided greater returns than savings accounts, how does one ease in to stocks or stock market investing? By streaking, which also goes by the term “dollar cost averaging.”

By investing into a mutual fund a designated amount each month of new money, or transferring a designated amount from an existing low-paying savings account on the same day each month, an investor will obtain the approximate average stock or mutual fund price over the next 5 to 10 years. This, dollar cost averaging can be set up automatically by any financial institution.

What is the benefit of dollar cost averaging? The psychological satisfaction of achieving discipline and watching your account grow. Additionally, dollar cost averaging forces you to invest in stocks or mutual funds when the market is sinking. It is easy to buy things on sale the day after Christmas, which directly contrasts with the difficulty of buying shares when the world appears to be coming to an end. The discipline of dollar cost averaging removes the fearful emotion, and forces you to acquire shares at rock bottom prices. When the world is sunny and the stock market is euphoric, it is too easy to overcommit money to stocks or mutual funds. In this environment, dollar cost averaging prevents you from overinvesting and confines you to the same monthly streak amount.

The good-looking Irish-Italian cop was correct when he said that if you get your workout in at the beginning of your day, everything else seems to fall into place. The same thing can be said about millennials’ savings. If you write the first check off your paycheck to your investment account, somehow your other expenses will still get paid. (I forgot, millennials don’t write checks.) Whereas, thinking you will wait for that big tax refund to invest in a mutual fund, like the big full-hour workout, well, we never seem to get around to it.

A word for San Francisco public employees: The City has allowed a few insurance companies to pitch and set up automatic paycheck withdrawals for whole life policies and universal life policies. There are several unnecessary and complicated bells and whistles attached to these high-commission policies, and some of the salespeople are incorrectly marketing their polices as savings vehicles comparable to Roth IRA’s and other individual pension options that are actually incentivized by our tax laws.

Streaking/Dollar Cost Averaging is a conservative way to achieve financial health and grow your account with the long-term trajectory of the U.S. economy. Similarly, over the long-term, getting on a physical exercise streak will enhance your health and wellbeing. Streaking is the tortoise beating the hare.

Finally, be skeptical of the miracle infomercial products that promise you simply-achieved ripped abs or all the benefits of a Roth IRA, without investing in a Roth.


May 2017

How To Acquire Shares in Apple From Thin Air

Jay approached the lectern: This semester I am going to teach you how to survive the investment jungle. I am going to show you how to invest, not with hypothetical investments, but with your skin in the game. Starting next week, I want every student to contribute $10 per week, and together we will collaborate on a successful investment journey. Thus, began my fall semester in Mr. Jay's Investment 101 class at San Francisco's Eleanor Roosevelt School, also known as "SFERS."


So here is what I learned from Mr. Jay's Investment 101 class and from SFERS' Jay Huish: I can open up a blank Excel spreadsheet, type in a $2 million value for imaginary Apple stock, claim my spreadsheet is a valid financial statement, and take my spreadsheet to a bank and use it as collateral for a $2 million cash loan”

With the passage of winter, I bragged to my wife how Mr. Jay's class had produced a 30% return on Apple stock in just six months.

My wife questioned: "Of course, that's a hypothetical gain?"

"No, everyone in Mr. Jay's class contributes $10 per week and we pooled our money together."

"Wow, five classes, $10 per week, 26 weeks, plus a 30% gain, that's a $50,000 account! Where are the Apple shares held?"

"Mr. Jay never discussed that."

The first thing the next morning, my wife was knocking on Mr. Jay's door to check up on her share of our community property.

"Mr. Jay, what financial company is holding your classes' shares of Apple stock?," she asked.

Mr. Jay opened up his laptop and pulled up an Excel spreadsheet. He pointed to two columns. The first column listed, "Apple Inc." The second column listed, "$50,700."

My wife was startled. "It looks like you created that spreadsheet yourself. Without even a brokerage company account statement evidencing you bought Apple, your investment is no different than a third-grade class using Monopoly money!"

This story may sound absurd, but it is playing out in real life in San Francisco. In my January column, I questioned how City employees could be assured their $2.8 billion Deferred Compensation investment, entrusted to Prudential, exists in its entirety.

Deferred Comp is a supplementary 401k-type plan City Employees can voluntarily contribute to to generate supplemental retirement savings. The existence of public employees' $2.8 billion investment became much less certain when San Francisco Employees Retirement System's (another SFERS acronym) CEO Jay Huish admitted SFERS has never hired an independent auditor to verify the Deferred Comp plan's valuation. Suspicions were further elevated when the chairperson of the Deferred Comp Committee, Joe Driscoll, vehemently protested a proposal to budget $30,000 for an audit that would have cost a mere $1 per Deferred Comp investor.

Deferred Comp investors have to ask: If no independent audit was conducted, what documents did SFERS use to establish the Deferred Comp values for its annual report? We are talking about $2.8 billion here! Either SFERS is playing loose with facts like Mr. Jay's spreadsheet, or SFERS must have received a brokerage statement from a firm holding City employees' assets.

To investigate this further, a Westside Observer reader took it upon himself to find what account statements SFERS used to substantiate its annual report. Prudential had to be ruled out, because it insisted it "acts solely as a record keeper."

So, to keep it simple, the reader focused on a single Deferred Comp investment option- the Vanguard S&P 500 Fund (VIIIX). SFERS' FY 2014-2015 Annual Report stated the combined City employee assets in this Vanguard S&P 500 Fund were $199,014,798. Pursuant to the California Public Records Act, the reader asked SFERS to provide the Vanguard account statement that matched this amount and that SFERS relied on to prove the existence, title, and value listed in its annual report.

Instead of an account statement, SFERS delivered a generic spreadsheet- absent a Vanguard letter of transmittal, Vanguard letterhead, or a Vanguard corporate logo. The reader made a second request, and then received a different spreadsheet, again with no indication it originated from Vanguard. SFERS is acting like a student who refuses to include footnotes with his term paper.

SFERS' cavalier accounting for City employees' Deferred Comp assets is alarming enough. However, a March 13 front-page Wall Street Journal article shed more light on Prudential Insurance's group annuity program. The article exposed how Prudential has been acquiring large corporation's pensions (such as General Motors'), moving the employees' pension assets to a group annuity, then selling off some of the employees' pension assets so that Prudential can directly lend the cash out--all while Prudential Insurance strives to earn a "12%-13% return."

In Prudential's own legalese: Prudential "makes most Separate Accounts (Deferred Comp) available as commingled investment vehicles." If we combine Prudential's commingling philosophy with SFERS' misdirection away from the dedicated SF Vanguard account that does not exist, we have to conclude San Francisco's assets are commingled with Seattle's and El Paso's public employees' assets. But now SF public employees have to worry if General Motor's employees' assets have also been stirred into the Prudential's trillion-dollar group annuity pool.

Further, if Prudential decides to trade some General Motor's low-paying AT&T bonds for speculative Aleppo, Syrian municipal bonds, the water level of the commingled Prudential group annuity pool will drop, and San Francisco's portion will also be contaminated.

SFERS failure to ensure that San Francisco public employees' assets are segregated from General Motor's assets confirms four problematic SFERS' characteristics: 1) The SFERS Annual Report Deferred Comp values are not authentic; 2) Prudential is probably overcharging fees on SF employees' nonexistent mutual funds that Prudential may have replaced with Florida swampland, Antarctica vineyards, or Aleppo condos; 3) It is hard to imagine that SFERS' sloppy stewardship of Deferred Comp is not indicative of why the City employees' mandatory pension now faces, as reported by Bloomberg, a $5.5 billion deficit; and 4) Should Prudential'sgroup annuity suffer losses due to Prudential ratcheting up the investment risk, ultimately San Francisco taxpayers will have to backstop SFERS for its failure to exercise proper fiduciary care.

So here is what I learned from Mr. Jay's Investment 101 class and from SFERS' Jay Huish: I can open up a blank Excel spreadsheet, type in a $2 million value for imaginary Apple stock, claim my spreadsheet is a valid financial statement, and take my spreadsheet to a bank and use it as collateral for a $2 million cash loan to buy $1 million of real Apple stock, and gamble on $1 million worth of Aleppo bonds. Presto, all synthetic!!! You are laughing? Don't you think Prudential, SFERS, CEO Jay Huish, and Deferred Comp Chairman Joe Driscoll are laughing at city employees as well?

Lou Barberini is a San Francisco CPA living in West Portal

April 2017

The Marshmallow Experiment: Genesis for Roth IRA's?

Around the time of Woodstock and the team of Armstrong and Aldrin setting foot on the moon, a study was conducted on delayed gratification. The experimenter: Stanford professor Walter Mischel PhD. The subjects: 4-year old's. The reward: Marshmallows.

To measure patience around delayed gratification, Mischel and his research team sat 4-year-olds at a table and placed a marshmallow in front of them. The child was offered a proposition: Eat that marshmallow now, or wait a tortuous 15 minutes, and be rewarded with a second marshmallow for their endurance.

Mischel's, now famous Stanford Marshmallow Study, followed the children in two follow-up studies in the 80's and 90's over the next 30 years of their lives. Mischel found unexpected correlations between the results of the marshmallow test and the success of the children many years later, documenting that those children who could abstain from eating the first marshmallow earned higher SAT scores, achieved higher educational attainment, and maintained lower body masses.


The child was offered a proposition: Eat that marshmallow now, or wait a tortuous 15 minutes, and be rewarded with a second marshmallow for their endurance.”

Turns out, patience- and by extension, delayed gratification- is a virtue.

Similarly, the ability to postpone immediate gratification, and instead chose to invest savings for one's future contributes to an individual's ultimate financial freedom and greater options in life. Despite this, US tax laws have incentivized Americans to save by giving them an immediate tax deduction now by contributing to a 401k or IRA, only to have to repay those same tax savings back later when they retire. Kind of like: We will give you a marshmallow now, but you have to give it back to us later.

In 1997, the Roth IRA was born. The Roth option didn't entice taxpayers with an upfront tax deduction, but provided an offsetting reward that the taxpayer never had to pay any tax on the withdrawals. The Roth IRA was like a Cayman Island bank account, free from the eyes of the IRS.

Originally, the drawback to a Roth IRA was that the accounts were limited only to taxpayers with moderate incomes. Then, in 2006, Congress expanded the Roth mechanism to 401k's plans, and by doing so opened up the Roth tax benefits to taxpayers in all brackets.

Reducing the traditional 401K and IRA versus the Roth decision to its simplest form: If you think your tax bracket might be lower in retirement, take the upfront tax deduction offered by the traditional 401k and IRA today, and pay back the taxes in a lower tax bracket in retirement. If you think your tax bracket might be higher in retirement (or government budget deficits will increase future tax brackets) opt for the Roth now, and be rewarded with a lifetime pass from future higher tax rates.

As a CPA, I would have thought that there would have been a greater mass migration to Roth 401k's, Roth 403b's, and Roth Deferred Comp plans. There wasn't. While these Roth pension savings vehicles may not be for everyone, there are three factors I believe blind investors to their benefits:

Cash Flow: For an employee in a 33% tax bracket, a $1,000 contribution to a traditional 401k plan results in an immediate $333 larger paycheck. Or worded differently: A $1,000 traditional contribution only costs an employee $667 after tax savings. On the other hand a $1,000 Roth 401k contribution costs $1,000. Postponing the marshmallow-sugar high tax savings of $333 requires more patience, calculation, and delayed gratification.

Wealth Effect: Let's say in the prior example's tax brackets, a husband contributes $1,000 to a traditional 401k, which really only costs a net amount of $667. His wife, working for the same company, can only afford to save the same $667 net amount, but opts for a Roth 401k. After many years in the exact same investments, the husband's account grows to a value of $1,000,000 while his wife's only grows to $667,000. While the husband feels like his account is more substantial, the reality is that both the husband and wife have the same net values in their accounts. The husband has an eventual $333,000 tax lien to pay back taxes, whereas his wife does not. Thus, the traditional 401k can create an illusion of wealth. Or, it can create a false mental comparison of the $1 million 401k value being equivalent to a million dollar house or even a million dollar Roth 401k account. It is not!

Partial Financial Advisors: Because a financial advisor, brokerage firm, or 401k administrator are often compensated on a percentage of an account size, they receive more income and have a beneficial interest in promoting the husband's $1 million investment in a traditional 401k than the wife's $667,000 in a Roth 401k- even though, after taxes, they are both equal in value.

Consult with your tax advisor about whether a Roth 401k, Roth 403b, or Roth deferred compensation account is best for your particular financial situation.

Investing is often framed by professionals seeking your business to be more complex than it actually is. Too many bells and whistles often mask inferior products. Remember that the attractiveness of the salesperson is often inversely correlated to the quality of their product. But we have a new paradigm: Invest and tax plan like a four-year old waiting for your second marshmallow.

Deferred Comp Update:

In answer to many of your questions about my recent articles, now 100 days later and counting, the San Francisco Employees' Retirement System's (SFERS) CEO still has not answered my questions.

At the February 8, 2017 Retirement Board meeting (two hours and 46 minutes into the meeting when it was proposed that an audit of SFERS $2.8 billion deferred comp account would only cost each of the 30,0000 D.C. Plan participants $1, the Chairman Comp Committee, firefighter Joe Driscoll vehemently objected. Joe asserted he wanted to protect City employees from the $1 per person cost of an audit. That's ironic, because Joe said nothing in 2009, when SFERS' deferred comp plan investors lost $4,000 on average due to failed investments in derivatives. Save a dollar, but lose four thousand of them? No big deal. Way to set your priorities, Joe.

Lou Barberini, CPA lives in San Francisco's West Portal neighborhood. Feedback:

March 2017

The Unaudited, Unverified, Undocumented City Pension

Happy New Year!

Over the past several months, I authored several articles for this newspaper on the peculiarities of how the San Francisco employees' $2.8 billion Deferred Compensation plan (Deferred Comp plan) is administered. The Deferred Comp plan allows employees to save additional funds for retirement to supplement their City pensions. The employees have worked hard to save money for their families and retirements, and they deserve to be ensured their savings are secure and present when they need them!

By extension, I have contended in these articles that if the San Francisco Employee Retirement System (SFERS) neglected to apply fiduciary care to the Deferred Comp plan, it may be reasonable to extrapolate that fiduciary care may also probably be lacking on the management of the larger $20 billion public pension fund, the pension for which taxpayers are ultimately on the hook.


Two months have passed since our meeting. I have twice emailed Mr. Huish requesting answers to our questions, yet Mr. Huish still has not answered questions 2, 3, and 4…"

On November 21, 2016, another CPA and I met with SFERS Executive Director Jay Huish and posed four questions:

Jay HuishQuestion #1: Has SFERS hired an independent CPA firm to audit and authenticate the existence of the assets in the SF employees' $2.8 billion Deferred Comp plan. Because Prudential Insurance commingles numerous cities' investments into one unsegregated account, the actual existence of San Francisco employees' investments is in question. The Prudential Insurance contract with San Francisco gives great flexibility for Prudential to maintain records of how employees' investments would have performed, without actually investing the money. Mr. Huish confirmed my worst fears: While SFERS includes Deferred Comp values in their annual report, they do so without an independent CPA firm and without verifying that all of San Francisco's employees' investments actually exist at Prudential Insurance.

Question #2: When SFERS prepares its annual report, were independent documents provided to confirm the values of public employees' Deferred Comp assets or is SFERS just accepting Prudential Insurance's word. Mr. Huish said that every five years, when public employees' assets are transferred (called: "churning") to a new insurance company, the assets have correlated to what the insurance company had been reporting. That was sufficient assurance for Mr. Huish. I reminded Mr. Huish that during the SFERS 2009 insurance company switch, a significant $100 million deficit in assets surfaced. Those assets had vaporized without a trace. Mr. Huish said he would get back to me with the documents on which SFERS based its annual report.

Question #3: Why does Prudential keeps two sets of books by creating a secondary unit price for each public employee's investment that is different from the underlying fund share price the employee believes he is investing in. Mr. Huish said he would get back to me.

Question #4: If Prudential Insurance's product is manufactured out of Prudential's "insurance and annuity" division is this not in fact an annuity? Recall an elected Retirement Board Commissioner claimed annuities are "inferior investments." Mr. Huish said he would get back to me.

Two months have passed since our meeting. I have twice emailed Mr. Huish requesting answers to our questions, yet Mr. Huish still has not answered questions 2, 3, and 4 above. Mr. Huish's silence is deafening and speaks volumes about the integrity of both the Deferred Comp plan and the separate and larger SFERS pension fund. The fact that he cannot answer question #2: where does SFERS get the data that supports SFERS' annual report, is a gigantic, cautionary red flag!

On another deferred comp matter, six months have passed since I asked Prudential representatives about the government-issued "license plate" (CUSIP) number of the deferred comp components, and I have received the same answer that Mr. Huish gives me: silence. However, in November, Prudential Insurance registered that they paid $20,000 to have two San Francisco lobbyists represent them. Why does the incumbent Deferred Comp Plan manager need a lobbyist to hold on to this City contract?

This article is not intended to serve as financial advice, but to point out where investments may be negatively affected when due diligence and fiduciary care apparently have not been applied. Based upon the opaqueness of records, silence from the fiduciaries, and even the question of the existence of the entirety of the Deferred Comp plan's assets, it would be advisable for all San Francisco Deferred Comp investors to consult with their independent advisors or CPA's on how to proceed with their Deferred Comp investments.

Make sure to have your consultant factor in Mr. Huish's employment record at UC Berkeley's pension system. As the December 12, 1995 San Francisco Chronicle reported, Mr. Huish "compromised UC procedures," had a "disregard for apparent conflicts of interest," and hired a friend's friend who had just been released from prison for defrauding the government. That Huish-hired employee then allegedly defrauded the UC Berkeley's pension. UC Berkeley put Mr. Huish on leave and he was hired by SFERS.

Lou Barberini, CPA, lives and works on the Westside.

February 2017

Dude, Where's my investment?

After two years of relying exclusively on MUNI, BART, and my Bianchi, last year I broke down and purchased a car− my first new car in twenty years. Negotiating for a car has become much simpler. Immediate mobile phone price comparisons have squeezed dealers' commissions and forced dealerships to rely more on volume and customer service.

Similarly, internet price comparisons have reduced fees on mutual funds investing.

When I purchased my car, I delivered a check and told the representative I would pick my car up the following week. The rep said he would register my car with DMV and it would be waiting for me in stall #1234. By happenstance, the next day I invested in a mutual fund. I wrote a check and the representative offered to send me the shares or the company would hold my shares in account number #1234. Pretty simple. Pretty similar transactions.


why has the San Francisco Employee Retirement System (SFERS) left public employees' $3 billion deferred comp so convoluted that no one can define what type of investment it is?"

So with technological advances, it causes one to question why has the San Francisco Employee Retirement System (SFERS) left public employees' $3 billion deferred comp so convoluted that no one can define what type of investment it is? Allow me to apply SFERS methodology to a hypothetical example of a car purchase, where the car is the metaphor for an investment in a mutual fund. If you find the complexity of my example discouraging, you should question whether your entire investment exists, and who is holding the shares that do exist.

Assume a San Francisco police officer, a fireman from Seattle, and an accountant from El Paso visited a car dealership to purchase cars for their children that were scheduled to graduate from college at the end of the semester. When the three public employees pulled out checkbooks, the dealer advised them, "Don't write the check to us. Make your check payable to State National Life Insurance." The fireman protested that he didn't need life insurance, whereby the salesman responded, "By writing a check to the life insurance company, you will acquire the car for a cheaper price." The police officer, obviously the smartest person, inquired, "Businesses all try to eliminate the middleman, but you are adding a middleman, and claiming that this will lower the cost? Is the life insurance company working for free?"

One month later, the accountant from El Paso visited the salesman to take a photograph of the car her son would receive upon graduation. She asked what stall her son's car was parked in and the salesman responded: "Your car is actually registered to State National Life Insurance Company and parked in their lots. The insurance company has converted your ownership into three 'units' which act like a claim voucher." The accountant pressed, "How do I know that State National Life actually purchased my car and that they aren't just using the float on my money until my son's June graduation?" The salesman's answer: "Trust us."

There are four primary problems with this scenario, and by extension SF's deferred comp:

First, to accept that adding an extra insurance middleman-layer lowers costs requires a willing suspension of disbelief.

Second, if car buyers are not provided evidence of owning a specific car, and they don't need the car right now, one can question whether State National Life is buying the car or substituting a cardboard replica until the buyer actually needs the car.

Similarly, Prudential's contract with the city, (Item 5(a)) provides Prudential with the flexibility to replace derivatives, futures, and options for the mutual funds investors think they are buying. These esoteric instruments are leveraged, risky, and complex; and allow Prudential to mimic a mutual fund's investment performance for a fraction of the investment outlay. This frees Prudential to use some of deferred comp investors' money for other Prudential uses. In 2009, one of the SFERS' deferred comp components lost over $100 million from derivatives− not a temporary fluctuation of price, but a permanent vaporization of the investment.

Third, because investors' cars are not earmarked and they instead acquire a proportional interest in State National Life's entire fleet, if the Seattle fireman's check bounces, that has the effect of reducing the value of everyone else's "claim vouchers."

Likewise, Prudential's marketing brochure describes how every public employee from Seattle to El Paso to San Francisco has his or her investment commingled into one big multi-employer account. Thus, even if SFERS claims that their members are pure of derivative diseases, the fact that SF employees are swimming in the same infected pool with other cities means that the financial health of SF's assets are still subject to the contagious Prudential contracts with other cities.

Fourth, like FDIC insurance, SIPC insurance exists to protect mutual fund investors from transgressions up to $250,000. The security of that SIPC insurance is forfeited when Prudential alchemizes mutual funds into one large insurance account.

Prudential's annual independent audit verifies the assets on Prudential's books. However, that audit does not investigate the security, composition, or proportional value of San Francisco's $3 billion stake in the great Prudential commingled account. The only way to confirm that a) Prudential actually invests 100% of San Francisco's money, and b) San Francisco's assets are segregated from the contractual whims of other municipalities; would be for SFERS to present the account statements from Vanguard and Fidelity. If the Vanguard and Fidelity statement values do not exactly match the values SFERS disclosed in their annual report, the annual report must have been based on conjecture.

As discussed above, embedded in SFERS' 2008 annual report, were the spreading sparks of disparity between what SFERS reported as balances and an investment component that was evaporating. The end result: a $100 million firestorm that the next generation of city employees had to replenish. Without an independent audit, or SFERS providing the source documents for their annual reports, investors' are doomed to repeat themselves.

I met with SFERS Executive Director Jay Huish on November 21st and presented him with the aforementioned issues.

Lou Barberini is a West Portal CPA. Feedback:

Joe, Do you have the firefighters' backs?

All across the country cops hear it, "If it weren't for that gun, you wouldn't be so tough!" Yet, both the accusers and police know that the police officer's gun is not their most effective tool; it's their radio. For all a police officer has to do is broadcast a three or four-digit code and either an entire district, an entire municipal force, or surrounding counties will respond to the officer's request for help. It is the principle of wave after wave of additional officers arriving that allows a force of one thousand to provide safety to a city of one million.


Firefighters should feel offended by Joe's lack of watch-my-back due diligence: It's a mutual fund that invests in other mutual funds? Really Joe? It's not just the gigantic $3 billion size of Joe's fellow public employees' assets, it's that each dollar invested represents coworkers' sacrifices and dreams of a better life for their family."

Teamwork starts the first day. Rookie police and fire recruits are measured not by their arrests or demonstrations of bravery, but on the simple test of whether they will drop everything to immediately respond to a coworkers call for assistance. Protecting each other's back, not to be confused with a wall of silence, is the pillar of public safety. Recruit, do you have my back?

The question is whether public safety officers protect their coworkers' backs to the same degree once the uniforms come off. Consider the issues I raised in the June edition of this newspaper regarding the Retirement Board meeting comments captured on video by elected commissioner and the Chairperson of the deferred comp committee, Joe Driscoll. At the April meeting, Joe specifically brought up my name and stated he was familiar with the inferiority of annuities, while ensuring that San Francisco Retirement System (SFERS) had not limited SF employees to annuities as their deferred comp option.

Two months after I contacted Joe, he doubled down in an email to me writing that Prudential's product "is a mutual fund that invests in other mutual funds." Not only does this sound nonsensical, I believe Joe, in his role as a fiduciary, has made a material misstatement of fact.

First, if Prudential created a mutual fund to invest in existing mutual funds, Prudential's new mutual fund would have to register the mutual fund and obtain an identification number, like a license plate, called a CUSIP number. I found no evidence of a new mutual fund identification number. Three months have passed since I asked the Prudential Vice President on Key Accounts whether a CUSIP exists for this new mutual fund, and I am still waiting for an answer.

Second, with an apology for the technical nature of this one paragraph, Prudential's contract with San Francisco's deferred comp plan allows Prudential "to invest in contracts issued by an insurance company including separate account or comingled separate accounts." Section 5(e) goes on to discuss the parameters for a "group annuity." By coincidence, Prudential's marketing brochure (RSBR852 June 2013) that was provided to SFERS is titled in the same language: Insurance Company Separate Account. Further, on page three: "These investment vehicles are made available through group annuity contracts issued by the insurance company (Prudential) to ….. government plans."

Not only is the word "mutual fund" absent from the documents, but it appears that Prudential's account with San Francisco is an annuity, specifically a group annuity. The differences is that the mutual funds are held in an insurance annuity vat or keg, instead of served in individual 12 ounce annuity bottles. This would mean that Joe has voted on numerous occasions to direct his fellow firefighters to an investment he defines as "inferior." The magnitude of this mischaracterization is magnified exponentially by the almost $3 billion size of this account.

Unlike me, I am not sure whether Joe has ever experienced a "406," whereby an entire public safety force has responded to help him. Also unlike me, Joe has never spent a single day in financial services where a client's whole financial life is in your hands. In both situations, the enormity of trust and responsibility is humbling, and it is my gratitude and loyalty to the uniforms that is the impetus for this article.

Firefighters should feel offended by Joe's lack of watch-my-back due diligence: It's a mutual fund that invests in other mutual funds? Really Joe? It's not just the gigantic $3 billion size of Joe's fellow public employees' assets, it's that each dollar invested represents coworkers' sacrifices and dreams of a better life for their family.

Similarly, taxpayers should also be extremely concerned that, if this is an indication of Joe's curiosity and financial expertise on a simple deferred comp plan, what exertion is he making on his hedge fund and Chinese A-share adventurism for the $20+ billion city pension, the plan for which taxpayers have ultimate responsibility?

Joe, let me prep you for when Prudential clouds the arguments made by this article. The most recent SFERS annual report states the value of the June 30, 2015 SF deferred comp investment allocated to the Vanguard 500 Fund is $199,014,798. If Prudential's assertion that they act "solely as a record keeper" is true, than Prudential should be able to provide a June 30, 2015 Vanguard document, titled in SFERS' name, for the exact amount of $199,014,798.

Joe, please ask for this documentation, and if Prudential does not supply the Vanguard statement, do the right thing and request an audit from a national CPA firm. While, Macias Gini & O'Connell CPA's conducted an audit on the $20 billion SFERS pension, it appears the $3 billion deferred comp has not been audited. Joe, its time to rejoin the team, and protect your fellow firefighters' financial backs.

You are welcome to email me for copies of the aforementioned brochure or contracts.

Lou Barberini, CPA

November 2016

Cherry-Picking Statistics

The shade of the grandstand enveloped home plate in shadows as the ballpark sat nervously on edge. Sergio focused on Buster's pumping fingers; then glanced over his left shoulder. Clarence "Preppy" Vanderbilt, the multi-sport USC grad, with a gliding shuffle step, slowly crept off first base. The leading base-stealer in the National League, Vanderbilt, was a threat to steal second base and disrupt the deadlocked game.

Dodgers C #55 Russell Martin (R) steals second by getting by Angels SS #2 Erick Aybar (L) during the Angels vs Dodgers game at Dodgers Stadium on June 30th 2010 in Los Angeles.


Standing on the hill, Sergio, petrified like a statue, focused his attention again on Buster's fingers. Time appeared to stand still despite the draining sands of summer's hourglass. Tick-tick-tick……

Boom-boom! The calm was shattered with Sergio's cobra-fast pirouette towards first base, and point-three seconds later, Belt's mitt slammed into Vanderbilt's outstretched back. Safe! Belt casually tossed the ball back to Sergio as Vanderbilt stood, dusting the dirt off his pants, and nodding sarcastically. Without even returning to the mound, Sergio again fired the ball to Belt who again applied a hard message tag to Vanderbilt's left thigh.


Also, like Sergio, if a rookie is specially assigned to a volatile, active area; their performance should never be compared to the veteran, who is coasting into retirement in the sleepy, fog-blanketed districts.”

Vanderbilt glared at Sergio: "F$!# you. You are a positionist!"

"What? A contortionist. Ya, I know. I'm pretty flexible."

"No, A$$h@l+! You are a positionist. You judge me and treat me differently because of my position in the batting order. You have tried to pick me off 10 times in the last two days. Our pitcher makes it to first base and you don't throw over once? Because his position is a pitcher, like you, you treat him better than me? My career counts!!"

"Dude, it's your actions that matter. You crouch down, in a sprinter's position, 15-feet away from first base. Your pitcher stands daydreaming, only 3-feet from first. You put on special gloves to slide into second base while your pitchers don jackets that create wind resistance. I judge you strictly on your mannerisms. I think it's reasonable that my suspicions are aroused."

"That's B.S. If I had 'pitcher-privilege' you wouldn't make me dive into first and risk injury- you positionist!"

As Sergio's and Preppies' voices elevated, homeplate umpire Gary Gannon closed in on the mound to break up the argument.

Vanderbilt pleaded his case: "I have to dive into first more than anyone on my team creating more injury potential. It's because of my leadoff position in the batting order that Sergio profiles me. I'm just one of twenty-five players on my team. Thus, I represent 4% of my team and yet I receive 60% of my team's pickoff attempts. That's disproportionate and evidence of systemic positionism."

Sergio countered, "Preppy, you learn that math at the University of Spoiled Children? You are demanding that pickoff attempts have to be equally distributed amongst your team irrespective of the player's speed or frequency of actually being on base?"

Umpire Gannon interceded: "Vanderbilt has made some valid points and the numbers do seem to be slanted against players in the leadoff position."

"No those numbers are specious. Everyone knows Vanderbilt reaches first base four times more than any pitcher in the league. In fairness, the amount of the pickoff attempts I make should be compared to the players actually on the basepaths, and those hiding on the dugout bench should never be factored into this equation. Don't let him cherry-pick the numbers!"

"Look how dirty my uniform is compared to my teammates? Its because of your bias against leadoff batters."

Gannon weighed: "His pants are filthy. Have you considered the psychological effect on Vanderbilt?"

"Gary, that's anecdotal!! Bochy only directs me into problem situations. When I enter a game, there's always a threat on the bases. Yet, you compare my statistics to other pitchers who get to start fresh innings with no base-runners? Compare apples to apples before you draw conclusions."

Gannon stroked his chin: "The frequent pick-off throws are obviously upsetting the leadoff batters' self-esteem."

"Preppy, have you ever heard me say anything derogatory to you as a leadoff hitter or to other leadoff hitters?"

"No, I haven't."

"Gary, you hear that? I have never been accused of disrespecting leadoff hitters. Please judge me on how I personally treat leadoff hitters on a case-by-case basis."

"Yes, but I have to discourage these risky pickoff plays. My ruling, from this point forward, is that I am going to bundle pickoff attempts into three successes. If you successfully catch a base-runner off first base three times, those three successes will equal one out in the game."

"You got to be kidding me? You are creating a disincentive to containing runners! The balance of the game is at stake!"

"There are disparities, therefore there must be prejudice against leadoff hitters. Now play ball!"

Up in the Giants' radio booth, Kruk and Kuiper conducted their postgame analysis and described how it was only the seagulls that remained to witness the conclusion of the 24-22, six-hour contest.

Mike Krukow chuckled, "But then again, those seagulls got to see a new baseball record of 34 stolen bases in a single game."

Duane Kuiper closed: "Ya know, Mike -no one savors statistics more than I, but I can't stand when players cherry-pick numbers that present an unfair portrayal of what really transpired. Just like the seagulls were the only ones staying for today's disaster, our citizens remain to pay the burden when advocates skew figures just to advance their agenda and disparage public servants. Preppie Vanderbilt taking a gigantic lead and donning special sliding gloves is like the slowly moving car that continuously circles the city block despite ample parking spots. Both deserve greater scrutiny. It is inefficient for a pitcher to apply equal attentiveness to the base-runner standing only inches from a base as it is for a police officer to investigate a grandmother driving two miles over the speed limit. Sergio's pick-off attempts on Preppie were actually proportional to his impact on the game.

"Also, like Sergio, if a rookie is specially assigned to a volatile, active area; their performance should never be compared to the veteran, who is coasting into retirement in the sleepy, fog-blanketed districts.

"Rudeness and prejudice do exist and are neither acceptable on the field nor on the street. However, each player or officer's acts should be evaluated on a case-by-case basis. Ignoring exculpatory statistics, like weighing a benchwarmer's impact the same as an all-star base-stealer's, creates a false ratio and does not justify the demonization of the public safety officers that risk their lives to make our city a better place."

Lou Barberini is a San Francisco CPA who lives and writes in West Portal:

October 2016

The Cop In The Arena

Joaquin “Jack” Corrales’ patrol car glided along the Great Highway as he admired the narrow sliver of tropical hues resting on the inky Pacific and weighed by the seasonal gray dome. This was the extent of the daily sunset out here: nature’s taunt to the locals that the rest of the world was experiencing a more uplifting summer than those on the west side.


The man in the leather jacket mocked Corrales, “You’ve got to ask yourself one question: do I feel lucky? Well do you cop?”

The radio interrupted the tranquility, “Citizen says suspicious person wandering around Golden Gate Park windmill. Dark leather jacket. Has unknown object in his hand.”graphic

The advent of cellphones has exponentially increased the citizen calls for San Francisco Police Department’s service. Corrales calculated that cellphone technology revolutionized solving crimes, though it had also stimulated some of the citizens’ television-influenced imaginations. How many times was the unknown simply imagined?

Corrales notified the dispatcher that he would look for the suspicious person and drove the remaining length of the Great Highway to the windmill parking lot. Dusk was rapidly yielding to nightfall. No cars. No people in sight.

Corrales prided himself on consciously serving the public, and took the extra precaution to ensure there was no one even behind the windmill. Jack got out of his car and walked into the park.

As he circled behind the windmill and approached the blind spot, he unfastened his gun and held it behind his rear. While he needed to be prepared for the worst, he did not want to startle an innocent citizen, but the park was desolate of either a threatening situation or an ordinary citizen. Corrales returned to his patrol car as his adrenaline rush transitioned to the emergence of an appetite. Where to eat? A hamburger? Italian?

Then, another spike of adrenaline rose up his back. On the other side of his patrol car was a man in a dark leather jacket, pointing a gun, waiting for the officer. Corrales had never seen such a large gun. When the hoop appears twice as large to Stephen Curry, or the baseball looks like a grapefruit to Buster Posey, this concentration level is extolled as the zone. With every brain cell in his head racing into overdrive, it is safe to assume Jack’s brain similarly interpreted the gun to be larger than it was.

His hand still holding his gun, Corrales eased his firearm up to counter the man in the leather jacket. Corrales knew that time and distance was his friend though radioing for backup might disrupt this equilibrium.

The man in the leather jacket mocked Corrales, “You’ve got to ask yourself one question: do I feel lucky? Well do you cop?”

Jack’s mind drifted to kissing his children goodbye, playing catch with his father as a young boy, the day he proposed to his wife. So this was what your life, flashing before your eyes, feels like.

“Put the gun down!!!”

The man only laughed loudly.

Corrales’ mind sprinted: “What’s the mental state of a person that points a gun at a police officer? This man is not sane. Is this blue suicide?” The television-obsessed citizens will ask, ‘Why didn’t you just shoot the gun out of his hands?’

If this turned into a shootout, and the man is struck as he turned to his side during the volleys, it would trigger ‘Police Violence’ headlines, the new popular phrase enamored by local columnists.

Jack processed: “When did defending myself become police violence? Who expanded the definition? If I’m violent for defending myself, isn’t a fireman guilty of violence if he ventilates a wall? Does a ‘destructive act,’ even to a wall, not meet the literal definition of ‘violence?’ Why don’t I hear about Firemen violence?

“Why am I considered violent if I fire my gun in self defense, but a career criminal, who happens to be incarcerated for drugs (this time), gets released because drugs are non-violent? In this era, even Al Capone would be released. ‘What’s that, you want to lock me up for tax evasion? Talk about non-violent crimes!’

“What if the gun is plastic? Another set of problems. I understand proportionality. Is my use of deadly force not appropriate for a man with a toy gun? The media will destroy me with their second-guessing. ‘Why didn’t you taser him? He had just recently begun to turn his life around.’

“And if the gun isn’t plastic? Taser? Useless. I’m dead, my kids are fatherless. Either way, I lose.”

The stranger slowly started backing up, slithering towards the trees. “I just wanted you to know what its like to have someone jack you!”

Corrales weighed: “What if this unstable person leaks back into society? I should be the wall. It is my responsibility to protect the public.”

Then his mind refuted, “Maybe it is a plastic gun. This is probably just a 5150 psych service case. If l bring him for a mental health evaluation, he will be back here in 72 hours.”

The man’s backpedaling accelerated as the paralyzed Corrales mulled: “I don’t know what to do and I really don’t know what the City wants me to do anymore.”

Lou Barberini, CPA, lives and works on the Westside.

July 2016

Say It Ain't So, Joe

"I have spoken to Mr. Barberini in the past. They keep raising up issues, its not a matter of misinformation, even when we give them the correct information, its just they don't seem to want to understand. That's number 1. Number 2, Members can buy annuities if they want, but we do not offer tax-sheltered annuities. I am very familiar with the investment inferiority of that product. To defend something we don't do seems a very odd use of time."

Commissioner Joe Driscoll, Chairman, Deferred Compensation Plan Committee, San Francisco Employees' Retirement System, Retirement Board meeting April 13, 2016 at 2:41.

This is Commissioner Joe Driscoll's response to my March Westside Observer article in which I questioned why the Department of Labor has upgraded the standards of service requirements for private sector employees' 401k plans, while leaving public employees' similar retirement plans virtually unprotected.

Commissioner Driscoll's statement is an apparent contradiction. He states that he knows annuities are "inferior products;" yet over the past 30 years, he has voted in favor of SF's employees Deferred Comp (DC) Plan being limited to annuities from Hartford Insurance, Aetna Insurance, ING Insurance, Great West Insurance, and Prudential Insurance's insurance product. In terms of offering investments, an insurance company can basically only offer life insurance or annuities. Thus, either Driscoll has voted for a product he opines is "inferior," or he should explain how Prudential's insurance product differs from an annuity.


I asked Joe again: “Over the past 35 years, can you name a single city employee that has received a life insurance payout from our DC life insurance product?”

To reconcile Driscoll's board meeting comments with my understanding of Shakespeare's paraphrase, "An annuity, by any other name, is still an annuity;" on May 3rd, I emailed, and hand-delivered via SFERS, the following four questions to Commissioner Driscoll:

If this is not an annuity, why is it distributed through Prudential's "Retirement and Annuity Company?"

Considering that Prudential's Fact Sheet states these investments are not mutual funds or separate accounts, what precisely is this product?

With regards to my not understanding Joe's answers, from our meeting at 800 Bryant Street, I asked Joe again: "Over the past 35 years, can you name a single city employee that has received a life insurance payout from our DC life insurance product?"

Why is there a disparity between Prudential claiming that the ending April price on the Vanguard S&P 500 fund (VIIIX) was $23.86, while Vanguard states that the actual closing price was $188.85? Is this a bait-and-switch?

Commissioner Driscoll has not acknowledged receipt of or responded to my questions. And while he may believe that this is "an odd use of time," participants in SF's DC plan should be extremely concerned about these unanswered questions for three reasons:

First, why would anyone generate the extra work and headache of subdividing Vanguard and the other funds, into two different share prices and two sets of books?

Second, Prudential Insurance has gone to great lengths to disclose they are merely record-keepers and "participants' accounts are not separated." The implication is that Prudential does not take possession of any of the underlying fund shares. So which company actually holds these mysteriously-priced shares?

Third, if San Francisco employees' shares are not held separately, then does that translate into all of the firefighters in Driscoll's department having their DC's investments comingled into one big account? And if there are "no separate accounts," does that mean that firefighters from other cities have had their accounts merged with SFFD's investments? And finally, since we don't know where the unsegregated shares are, then what assurance does Driscoll have that Prudential Insurance does not carry every U.S. firefighter's investments as a Prudential asset on Prudential's own balance sheet? In that manner, Prudential can borrow against the nation's firefighters' assets; which of course makes Joe's coworkers' vulnerable to Prudential's creditor's claims.

There is a solid reason why there are two sets of books, SF employees have been limited to insurance annuities, and the city's contract with the outside consultant alleviates them from putting the San Francisco employees' interests before their own. It is called: slipping into the shadows of weak insurance regulation to avoid SEC oversight. But don't worry SFFD, when AIG Insurance recently teetered on bankruptcy, the government bailed them out.

The intention of this article is not to discount Commissioner Driscoll, but to address his direct refutation, as chairman of the Deferred Comp Committee, to the issues I have raised. A distinction should be made between our respect for Driscoll's 40+ years of service as a firefighter, and his role as an elected fiduciary. A similar distinction must also be made between reading about finance, and the development of a professional skepticism that comes from "street smarts" earned by actually working opposite the Wall Street wolves. Overconfidence, an absence of curiosity, and a lack of appreciation for minute details can dilute a novice's analysis.

As an example, I initially tried to contact Driscoll, via his campaign flyer email address: Except, that email address has never been activated. I also notice that his campaign flyer, which was recently mailed to solicit the votes of 20,000+ SF employees, had a quote from "Institutional Investing" magazine. But there is no such magazine. It is Institutional Investor. Driscoll's flyer, quotes "Joe Driscoll (is) 'a driving force' behind the success of San Francisco's retirement system." Yet the article actually states that Driscoll's role was significantly smaller and he was merely a "force behind investment innovation." Even more egregious, and thanks to the campaign flyer's link to the August 8, 2005 article, it forebodes: "Driscoll also pushed for the plan's new currency-overlay program." Had Institutional Investor waited eight years to revisit the program, which only Joe received Institutional Investor credit for pushing, the journalists would have been able to report that the currency-overlay program went on to lose approximately $60 million ($2,000+ loss per city employee.)

Last month, MetLife was fined over $25 million because numerous agents received overly generous commissions for churning annuities, but couldn't justify a significant benefit to their investors. In 2014, city employees' DC Plan was switched from Great West Insurance to Prudential Insurance with a savings of about $20 on a firefighters' $100,000 DC investment. The average insurance commission on that size account is $5,000. Would you believe a salesman who advised you to trade your car in to get 20 more feet, (not miles) per gallon? It makes you wonder how much some insurance agent pocketed to switch the $2 billion SF account, just to save a couple more "feet" for our firefighters?

For these schemes, Prudential has no liability and the City Attorney has contractually relieved the outside consultant's fiduciary responsibility. Thus, as a Retirement Board commissioner, Joe Driscoll is required to operate in a fiduciary capacity, is civilly liable, and is the last line of defense against salesmen whose interests, by their very nature, are on the opposite side of the negotiating table from city employees. I, for one, do not believe the aforementioned issues are an odd use of time of any person entrusted with the fiduciary responsibility for his fellow firefighters.

Lou Barberini, CPA,

June 2016

Should A 401k Replace The Public
Employees Pension?

The subject of this article is whether it might be easier to balance San Francisco’s challenging budget by switching the public employees’ $20 billion pension plan into a 401k plan.

Before I present my reasoning, I wanted to share with readers a unique investment opportunity. I know a guy in Italy, Giuseppe, who is selling his three million euros vineyard for only one million euros. My friend’s 10-acre vineyard is set on beautiful rolling hills that surround a Tuscan villa and swimming pool. A spaghetti drip system, with sporadic leaks, irrigates half the vineyard, while the other half’s more difficult terrain has to be hand-watered with a pail. The estate and the vineyard really capture the romance of Italy.


San Francisco Employee Retirement System tends to select the most expensive products with the weakest oversight and regulation. The newest adventure perpetuates SFERS’s habit of paying Wall Street financiers exorbitant, hedge fund-level fees. Only this time, SFERS’ is going all the way to China to circumvent US government oversight.”

There is just one small caveat, while you may buy the property for one million euros, the title must remain in Giuseppe’s name. It is your property, but the land deed still shows Giuseppe as the recorded owner. Don’t worry, everyone tells me Giuseppe is a good guy. E-mail me if you are interested.

Back to the San Francisco landscape. Many in the private sector and the media have argued that public pensions are neither viable nor sustainable. My recommendation is that we test their wishes and create a 401k alternative- let’s call it Luigicare. The four distinguishing tenets of the Luigicare 401k will be: 1) all public employee assets will be commingled, 2) We will hire a professional financial manager, 3) employees will get retirement withdrawals from their pension, based upon a percentage of their final year’s earnings, and 4) if an employee dies before they have exhausted their 401k share, those assets will remain in the plan for the benefit of the other public employees. Come to think of it, Luigicare looks an awfully lot like the current SF public pension.

Just as the vines on Giuseppe’s land require a certain amount of water to flourish, retirees require a certain amount of income to live on. Whether that water or income is delivered through the steady stream of a black-wired drip system, or provided on an as needed basis from a pail, is not important. Our current pension is not the culprit; it’s the leakage that creates negative perceptions and shortfalls.

In my recent articles, I have shown how the San Francisco Employee Retirement System (SFERS) tends to select the most expensive products with the weakest oversight and regulation. The newest adventure perpetuates SFERS’s habit of paying Wall Street financers exorbitant, hedge fund-level fees. Only this time, SFERS’ is going all the way to China to circumvent US government oversight

We must ask: which SFERS employees are proficient in the infant Chinese market rate economy and its government’s experiments with regulations and stimulus? Which City Attorneys are versed in Chinese contract law?

Most San Franciscans believe that the city hires fairly competent finance people to work at SFERS. Several members of SFERS staff are top 1-percenters in annual public salary. The question is whether these 1-percenters recognize the risk of giving Giuseppe one million euros for property whose title will not transfer. A conclusion can be reached because that’s exactly what the SFERS executives are proposing. Chinese law fiats that Chinese A shares cannot be titled in an American’s name. Thus, the SFERS staff is proposing to send $400 million of taxpayers’/public employees’ money to two Chinese Giuseppes, who will buy Chinese A shares in their own names.

While trillions of Chinese nationals’ dollars are stampeding out of their country in search of more stable currencies, SFERS is confident they recognize value better than these locals. While our President is addressing rising tensions in the South China Seas by repositioning our navy, SFERS has no fear of risking San Francisco taxpayers’ money in the same turbulent vicinity. This is the same staff that proposed lowering the pension’s risk by fleeing US Bonds to the “safety” of hedge funds.

Will San Francisco get its money back if the rhetoric over China’s sand island expansion heats up? Folks, its not the return on the pension’s principal that’s important, it’s the return of the pension’s principal. It’s the leakage, not the conduit or the pail, not the traditional pension or the 401k.

If you think this $400 million investment is inconsequential in relation to the size of our pension, please examine the recent class action suit filed against the advisors to the Dallas Police-Fire pension because of “huge losses” and for the “reckless and improper advice” that occurred from complex investments. The Dallas Morning News (4/5/16) reported there were allegations of self-dealing and over $300 million of high-risk investments had to be “written-down.”

In December 11 & 12, 1995 articles, SFGATE documents how a SFERS one-percenter, at his previous job, mismanaged “conflicts of interest, hired a friend that had already served federal prison time for defrauding the government, conducted superficial background checks, and entered transactions that were not at arms length.” He was placed on administrative leave and the next employer to hire him was SFERS. If you are not troubled by this culture, then my friend Giuseppe has a great deal on a 10-acre plot on Pluto.

Lou Barberini is a San Francisco CPA living in West Portal

May 2016

Do SF Employees Receive Equal Protection?

Our society relies on trust. We put our faith in restaurants to serve us the freshest food, we rely on our neighbors to watch our homes, and we trust our lives to traffic controllers and pilots when we are 30,000 feet in the air. Yet, when it comes to financial advice, too frequently financial advisors put their commissions before the interests of their clients. To address this conflict, the Department of Labor has a proposal before Congress that requires financial advisors to "act in the best interest of their clients." Yet, while our federal government moves to increase investor protections, the San Francisco Retirement System (SFERS) has failed to keep pace with this trend.


... there is great consistency here between this deferred comp insurance product, and the Retirement System's desire for hedge funds in the taxpayer funded pension: seek the most fee-laden, opaque investment, in an environment with the least government oversight.”

San Francisco public employees are covered by a traditional public pension that is funded by taxpayer and employee contributions. Employees also have access to an optional, 401k-type account that is commonly referred to as "deferred comp." The money that goes into deferred comp comes 100% from the sweat equity of the employees. Unfortunately, through a quirk in the tax law, deferred comp receives no protections from the Department of Labor and the proposed fiduciary law.

SFERS has used a small Santa Monica investment consultant as traffic controllers to both the $20 billion pension and the $2 billion deferred comp plan. Per the firm's SEC filing, none of its other clients have been directed to the same investment runway to which SF employees have been steered. That is just one of the many issues that should raise concerns amongst San Francisco employees on whether anyone has assumed a fiduciary responsibility over their deferred comp account.

1) Per a Retirement Board member and the Santa Monica firm's SEC filing, the consultants have only one public pension plan as a client- San Francisco,

2) The Santa Monica consultants have chosen to direct participants to mutual funds packaged in a life insurance product. This maneuver obviates the SEC with the weaker Department of Insurance. It is like putting a few car parts in an airplane and claiming your jurisdiction should be moved from the FAA to the California DMV- an agency with lighter regulation standards,

3) Is a consultant qualified to recommend insurance if they do not possess an insurance license?

4) As disclosed at a public meeting, not one city employee has ever received a death benefit from this life insurance over the past 30 years,

5) Unlike mutual funds, these life insurance contracts do not allow the purchaser to receive a volume discount for the size of their account,

6) Over the past 30 years, deferred comp has been churned from Hartford Insurance -to Aetna Insurance -to ING Insurance -to Great West Insurance -to Prudential Insurance. If a retail financial advisor switched insurance carriers every time a client's contract terms matured, they would lose their license.

7) The SEC website warns against using these life insurance policies inside a pension plan (Google: "SEC Variable Annuities"),

8) For the deferred comp plan, the Santa Monica consultants selected a money-market type fund, called a "stable value fund" that lost $100 million during the financial crisis. The fund lost money not from market fluctuation, but from investing in exotic, risky investments that became totally worthless,

9) As exposed in the Financial Times of London's blog (12/16/14), the husband of one of the partners at the consulting firm accepted numerous bundled political campaign contributions from financial institutions right around the time those financial institutions' products went into the SF pension. Subsequently, the Santa Monica firm's contract was not renewed for the $20 billion pension. However, they still manage the SF deferred comp plan.

10) As discussed in the San Francisco Chronicle (11/29/99), there has been a history of lobbyists getting paid to influence which financial institution earned the deferred comp account. If our consultants and Retirement System are making recommendations purely in the best interests for the public employees' benefit, why are lobbyists in the background?

SFERS had two almost identical, boilerplate contracts drawn with the Santa Monica firm, identical down to San Francisco's condition that the firm avoids using tropical hardwood. But, despite the specificity of flooring, in item #5 on page two of each contract, the wording radically diverges. For the taxpayer/employee funded $20 billion pension, the consultant agreed to offer a "fiduciary relationship." But for the employees' deferred comp plan, "fiduciary" was replaced with the concession to only: "act in good faith and in a professional matter." This difference in wording hardly seems inadvertent and goes against the entire federal trend of enhanced consumer protection. Hardwood floors seem to matter more than the fiduciary protection of employee assets.

For San Francisco deferred comp participants, first the tax laws did not include them under Department of Labor protection; then the Santa Monica consultants eliminated SEC oversight; and finally, on a $2 billion account, the city failed to negotiate for a "fiduciary standard." It is similar to a pilot navigating through a blinding fog, radioing the tower his instruments aren't working, and curiously, the traffic controllers directing the plane to the one runway blacked out by an electricity failure. This is the reason Forbes Magazine (2/14/13) described government deferred comp plans as the "investment backwater- the Wild West of retirement planning."

As it stands now, a San Francisco public employee can walk up to a random financial storefront and receive a better federally-imposed standard of care than they would receive by investing with the full strength of the City and County of San Francisco. But there is great consistency here between this deferred comp insurance product, and the Retirement System's desire for hedge funds in the taxpayer-funded pension: seek the most fee-laden, opaque investment, in an environment with the least government oversight.

If you are still confused about these deferred comp issues, email me:

Lou Barberini is a San Francisco CPA living in West Portal

April 2016

Lou BarbariniWill EB-5 Visas Drive Up the Price of Beer?

The San Francisco Giants are second only to the Boston Red Sox in the price of beer at a ballgame. We accept this as a compromise for living in a highly desirable area of the country.

But what would happen if Bill Gates decided to purchase a small-market team like the Pittsburgh Pirates? And what if Bill decided to employ his great resources to lavishly bid for players and reward the Pirate fans? This much wealth suddenly flowing into Pittsburgh would spread inflation to every corner of baseball as owners struggled to keep pace with Bill's spending. Bill's actions would singlehandedly raise the salary bar, causing a trickle down increase for the Giants bidding for even mediocre players. The ripple effect would be more expensive game tickets and even more expensive beer at AT&T Park.


What is this EB-5 visa program? In exchange for a $1 million investment, a non-US citizen can obtain green cards and gain residency permits for their families.”

A deluge of money into a concentrated area tends to overflow its banks. The Wall Street Journal recently discussed the billions of foreign money flowing into US construction projects through a special EB-5 visa program. For instance, the builder of the second post-9/11 World Trade Tower was looking to raise $500 million through the EB-5 visa program. The former mayor of Oakland wanted to finance a new football stadium with EB-5 funds. The Huffington Post reported that EB-5 money has been earmarked to build 12,000 homes and 3.1 million square feet of office space on the old San Francisco shipyards.graphic

What is this EB-5 visa program? In exchange for a $1 million investment, a non-US citizen can obtain green cards and gain residency permits for their families. The legislative rationalization for EB-5 visas is that the money must be applied to businesses, and that the money must create new jobs.

The topic here is not anti-immigration, but three separate issues: a) the new preferential treatment for wealthy immigrants, b) skyrocketing housing prices tied to the instability of other countries' economies and the resulting capital flight to the US dollar, and c) preferential visas that have not yet been factored into the inequality debate.

Have you ever gone to an airport and wondered why someone that purchased a first class seat through a corporation such as United Airlines receives preferential government treatment through a special TSA lane? That is pretty much the EB-5 message we send to people trying to enter our country. Foreigners can give money to private businesses and get priority services from our government. This is quite a change from "give me your tired and poor."

An EB-5 investment cannot fund a personal residence. Yet, it is difficult to argue that foreigners that have invested a million dollars in the US probably have some desire to purchase a home as well. The purchase of a US house parks capital in our stable currency, while protecting the foreigner from further fluctuations in their home currency. Much of this "parked capital" sits in vacant homes that have been bid up beyond the reach of US families.

The numbers on how many houses sit empty is not clear. The Wall Street Journal recently reported that in Canada, analysts have resorted to looking in garbage cans and checking utility bills to see if the houses are "ghost homes." By their very nature, unoccupied homes are volatile investment. Money that comes in quickly can leave just as fast, leaving Americans to suffer from a pricked housing bubble.

Chinese nationals' US home purchases increased 27% between 2014 and 2015. The amount of capital fleeing the turbulent Chinese Yuan is so great that under pressure from China, HSBC bank will no longer lend money to Chinese nationals buying real estate in the United States. China is by no means the only country competing with American homebuyers. Petro-economies such as Russia, South America, and the Mideast are saturating our east coast.

Over the past decade, China has overbuilt cities, anticipating a great migration from the rural lands to metropolitan areas. 60 Minutes (8/3/14) broadcast a segment on entire cities that were built, but continued to remain absent of people. Cheap money spurred building for the sake of building and the formation of "Ghost Cities."

This should raise Californian's concern for contagion. The Los Angeles Times reported that 85% of EB-5 money in 2014 came from China. How many US construction projects are being built just because so much EB-5 bubble money is coursing freely into our economy? Is the leaking air from China's bubble now inflating a US bubble an ocean away?

The media and presidential candidates have been touting the popular issue of "inequality" while EB-5 garners virtually no media attention. Over the first 40 days of 2016, the word "inequality" appeared over 150 times on The Chronicle's SF Gate website. The term "EB-5" appeared once. The premise of inequality is that the wealthy have benefited more from lower interest rates and our tax structure, than have the middle class and the poor. Those damn Google buses. However, the issue of inequality is more complex− involving automation creeping up the food chain; the middle class not reproducing; and longevity straining our health and social programs.

Are the wealthy really doing that much better, or are we just juicing richer immigrants into the wealth pyramid creating a more populated upper class? Is this any different than Mark Zuckerberg, Warren Buffett, and Bill Gates purchasing small-market sport franchises? If that were the case, it would be specious to claim that the owners were getting richer from the sport, and more accurate to say that more rich people were becoming owners. And for the simple beer-drinking bleacher bums, foreign economies will continue to drive up the local cost of living, inflate homes beyond our reach, and force us to pare the Lagunitas IPA's at the Giants games.

Lou Barberini is a San Francisco CPA living in West Portal

March 2016

Lou BarbariniInvest In Teachers or
Hedge Fund Managers?

If you work for the city or if you are a city taxpayer, you should be concerned that the ultimate responsibility for the viability of the San Francisco public employees’ pension falls on your shoulders. With that in mind, consider this question: Would you prefer 1,000 additional police officers making our streets safer, or would you rather pay that money to Wall Street hedge fund managers? Do a few rich guys on Wall Street contribute more to our city than 1,000 new city employees?


...does it make sense to spend 2/3rds of the fire department’s budget on a few Wall Street hedge fund managers? We could hire a thousand more teachers, or a thousand more gardeners, or a thousand more police officers, or doctors and nurses for Laguna Honda Hospital.”

Over the past two years, the Chief Investment Officer for the San Francisco public pension, William Coaker, has advocated allocating 15% of the $20+ billion city pension plan to hedge funds. His rationalization is that hedge funds provide a cushion during a stock market decline and are less risky than stocks.

Opaqueness, Arbitrary Valuations, and Fees, Fees, Fees

What is a hedge fund? Let me provide a hypothetical example: As the theoretical manager of the West Portal Hedge Fund, I will use your public pension plan’s assets to invest $100 million in a package of West Portal businesses including the Empire Theater, Papenhausen Hardware, Barbagelata Real Estate, Trattoria de Vittro, and various others.

There will be many costs that you will incur as the beneficiary of my hedge fund. The first layer of fees will be paid to business brokers, property managers, attorneys, accountants, and of course San Francisco’s pension plan will have to hire more employees specifically to analyze my West Portal Hedge Fund.

The second drag on your pension’s income will be the 2% fee I charge every year on your $100 million investment whether the value of the fund goes up or stays flat. The third layer of fees will be my annual 20% cut on the profits on the West Portal Hedge Fund.

Calculating the value of the West Portal businesses is not a simple matter. If the pension invests in stocks or bonds, we can look at any newspaper and determine its exact value. In contrast, how will we determine the Empire Theater’s profits and its value? The ticket and popcorn sales are easy. But, how do we determine whether the theater building appreciated 5%, 10%, or 15% in value?

First, drop the “we.” As the hedge fund manager, I get to subjectively tell you how much I think the Empire Theater has appreciated. The higher my personal appraisal, the larger the base for my 20% cut.

Mathematically, if the West Portal Hedge Fund earns a 7.5% profit (4% income and 3.5% based on my evaluation), you get to keep $4.5 million and I get to keep $3 million. You risk $100 million, and I get to keep 2/3rds of what you receive without risking a penny.

A hedge fund is not liquid. Unlike a stock or bond, you can’t just sell out of it. And in 20 years, when the West Portal Hedge Fund is liquidated, neither Coaker nor I will be around to answer if the selling price is less than the total of my annual guesses on appreciation.

History of Underperformance:

Mr. Coaker has stated that he will look for the “rock stars” of the hedge fund world that will work for us and continue with a high level of success. This is the same pension plan that recently lost over $60 million ($2,000, per employee), investing in currency hedge funds. Mr. Coaker was asked, in retrospect, which hedge funds he wished he had invested in, but he has remained silent. This makes it hard for us to evaluate how hedge funds can help us. It is easy to predict the past. If a basketball expert cannot tell you he wishes he picked the Warriors last season, how can you trust who he will predict this season?

Both CALPERS, the gigantic California pension plan, and Warren Buffett, the greatest investor of our time, disagree with Coaker’s strategy. CALPERS recently decided to dump their entire hedge fund allocation. Buffett claims that an index fund, running on autopilot, can beat hedge funds because hedge fund fees create too strong a headwind to success. Buffett is so confident in his theory that he has waged a bet that the average hedge fund cannot beat a passive index fund. So far Buffett is winning because over the past five years, the average hedge fund has earned less than a 4% annual return.

We gained more context of hedge funds’ potential with San Francisco’s plan when a union attorney recently published the performance of the “gold standard of institutional investing,” the Yale Endowment Fund. In the union newsletter, the attorney claimed that not using the Yale hedge fund approach caused San Francisco’s pension plan to underperform over the past five years.

Thus, if we substitute the Yale gold standard numbers into San Francisco’s pension, we can compare the Yale performance to Warren Buffett’s simpler advice. While the union’s attorney is correct that Yale outperformed our pension plan, Yale’s high priced Wall Street managers could not beat Buffett’s robot-S&P 500 Index. A passive index fund beat the best minds by an average of 1.5% per year. It’s like Coaker and his proponents are selling us on replacing our reliable car with a Rolls Royce for our two-block commute; and while we are stuck in traffic, we watch our neighbor leisurely walk past us.

If we continue to apply the Yale performances to Coaker’s desired allocation, we can determine how much the Yale style would have cost us in hedge fund fees. For a performance that could not even beat a passive index, we would have paid hedge fund managers $220 million per year. That’s one billion dollars in fees over five years! The entire San Francisco Fire Department’s 2015 budget is $332 million; does it make sense to spend 2/3rds of the fire department’s budget on a few Wall Street hedge fund managers? We could hire a thousand more teachers, or a thousand more gardeners, or a thousand more police officers, or doctors and nurses for Laguna Honda Hospital.

Coaker’s final selling point is that a hedge fund will outperform stocks in a year when the stock market really declines. Remarkably, in the most devastating year during the middle of the Great Recession, the Yale Endowment declined 24.6% while San Francisco only declined 22.26%. San Francisco outperformed Yale in a down year!

Impetus for Hedge Funds:

In fairness to the commissioners on the Retirement Board, they have recently voted to cap hedge funds at 5% of the plan’s assets. And, in fairness to Mr. Coaker, every pension chief investment officer is trying to leverage his performance to obtain a better gig. If you are trying out for a major league baseball team, and you are a small second baseman, you have to swing for the fences to get discovered. Even if you are not a home run hitter, you have to take great risks and to play over your head to get noticed. Steadiness just does not attract attention. Unfortunately, when chief investment officers of pensions swing for the fences, they are playing with other people’s money- ours!!

Lou Barberini is a San Franciscan and a CPA living in West Portal

February 2016

By the Numbers

Car Break-Ins Up 50% as Larceny Escalates

The Dangerous Neighborhood and Schools Act

The broken car window glass glittering on our sidewalks is as ubiquitous as the traffic congestion and the straining cranes dotting our skylines. The media is whispering that car break-ins for 2015 are up an unprecedented 50% from the previous year.

FBI crime stats show, that since January 2011, annual burglary, robbery, and larceny rates reversed a long decline and started an upward trajectory. By coincidence, in January 2011, former Mayor Gavin Newsom appointed George Gascon as San Francisco’s District Attorney.


Even realignment of California’s prison population to county jails cannot explain the deviation between San Francisco’s exploding larceny rate and the decline in such crimes in other large California cities.”

The FBI defines “larceny” as breaking into cars, stealing bicycles, shoplifting, and iPhone thefts. Since January 2011, most cities experienced a decline in larceny crimes: Los Angeles -2%, San Jose -7%, San Diego -1%, Chicago -18%, Detroit -24%, and New York up only +1/2%. San Francisco countered this trend with a 41% increase in annual larcenies. Even realignment of California’s prison population to counties jails cannot explain the deviation between San Francisco’s exploding larceny rate and the decline in such crimes in other large California cities.

It was from this 41% increased larceny platform, that George Gascon doubled-down by sponsoring a measure for the November 2014 statewide ballot−

The Safe Neighborhood and Schools Act. Despite the explosion of larcenies, proponents of this proposition believed that drug crimes and thefts from unlocked cars were nonviolent crimes that should be decriminalized, and the savings from reduced incarceration could be redirected back into schools and neighborhoods.

Just as San Francisco’s larceny rate has strayed from the California norm, The Safe Neighborhood and Schools Act did also, in two ways. First, 14 district attorneys opposed this measure, while only one other district attorney supported it.

Second, many police departments have experienced success implementing the Broken Windows Theory of policing- most notably, New York City. The premise of Broken Windows is that no level of crime should be acceptable to law enforcement, while simultaneously demonstrating to the public that the police are active, involved, and concerned.


Per Suhr, the public is slowly realizing that under Prop 47, the bike thief now gets to walk away with a just a piece of paper.”

The philosophy of The Safe Neighborhood and Schools Act is the inverse of the Broken Windows theory. The Safe Neighborhood and Schools Act proffered that some crimes were not worth addressing at the traditional level. Included in the proposed decriminalized behaviors, was the crime of ripping an electronic device, with a value of less than $950, out of a victim’s hands. Prior to this proposition, the penal code deemed any taking of property off a person, irrespective of value, was such a serious violation of a victim’s space and freedom, that the theft would always be characterized as a felony crime. After all, does a thief really know the specific value of an electronic device before he steals it?

Legally, since stealing an iPhone is now a misdemeanor, a police officer cannot even issue a citation to a thief unless the victim wants to make a citizen’s arrest. Thus, many victims prefer to accept the return of their cellphone rather than attending court to testify against the thief.

The Safe Neighborhood and Schools Act, displayed on the California ballot as “Proposition 47,” passed in California by a 60% to 40% margin. Overnight, car break-in’s jumped almost 50%.

Why? It’s the message!

Per the thieving mindset, if taking a cellphone off a person’s cheek is now only a misdemeanor, why not climb the ladder just one more rung? Why not simulate a gun with a pointed finger in your jacket pocket? And, while we are preying for weak victims, what about the tourists who just put all their belongings in their trunk before departing for a museum?

Just as we drive 59-mph in a 55-mph zone and 68-mph in a 65-mph zone, criminals now perceive that breaking into a car is just a venial, small step over the felony line. This is the deflation of repercussions in an inverse Broken Windows world.

With the approaching release of the final 2015 crime figures, the blame game has already begun. In the SF Weekly (11/12/15), District Attorney George Gascon pointed a finger at SFPD and said,

“We are seeing reduced police activity. A police culture that places a great deal of value on felony arrests. We’re asking them to do things differently, and we are seeing a lot of resistance to that.”

This statement implies that the ego rush of felony arrests is what motivates the members of the SFPD. You have to wonder what would happen if the NFL responded to a rash of quarterback injuries by downgrading a roughing the passer penalty from 15 yards to a 15-inch wrist slap. Because of the reduced effect of the milder penalty, no one would be surprised if the NFL referees threw less flags. After all, the message from the NFL hierarchy is that protecting a quarterback is less important.

Ironically, per Chief Greg Suhr, the combined SFPD activity on 15-yard felonies and 15-inch misdemeanors is virtually at the same level as prior to Prop 47. Much of Gascon’s claims about arrests being down are actually attributable to Gascon’s renaming felonies to misdemeanors. Per Suhr, the public is slowly realizing that under Prop 47, the bike thief now gets to walk away with a just a piece of paper. This mistakenly creates the perception that SFPD is doing less while this is specifically the desired reduced incarceration outcome that Gascon sought when he sponsored The Safe Neighborhood and Schools Act proposition.

George Gascon refutes the failure of The Safe Neighborhood and Schools Act by quoting the low recidivism rate cited in the Stanford Justice Advocacy Project. The study boldly claims that only 159 prisoners out of 4,454, who received reduced sentences under Prop 47, returned to “state prison” for new crimes. But Gascon omits an extremely significant point from the same study (page 6):

“County jails do not report recidivism rates at all.”

Thus, there are no statistics on how many arrestees are sent back to county jail. It is kind of like only tallying quarterback injuries if they end up in an ICU, but not if they just break a limb.

Mr. Gascon is a very smart and educated man. But it seems that instead of a vanilla strategy of moving the ball down the field, he is more attracted to the notoriety of developing a revolutionary offense. His search for radical solutions is evidenced by his 180-degree turns: his conversion from a Republican to a Democrat; his departure from LAPD to becoming a Ford dealership manager; his switch from police chief to District Attorney; and his determination to clean up the Tenderloin, to arguing against incarceration:

“There is evidence that indicates incarcerating people for low level offenses actually makes them worse. There is evidence that even 24 hours in jail creates enough, sometimes, to create a problem for rehabilitation for the rest of their lives.” (KTVU 11/15/15)

Mr. Gascon’s latest strategy was a $3,000 grant for the Mosquito, a device that emits a harsh high-pitched buzzing that was supposed to deter loitering in the Tenderloin. It is a reminder of a predecessor’s suggestion that “wind baffles” were the solution to the hostile Candlestick Park weather. Fortunately, more pragmatic minds prevailed and we gained a landmark ballpark. Similarly, silver bullets do not exist for reducing crime; a 50% increase in larcenies documents a failed experiment; and Prop 47- The Safe Neighborhood and Schools Act didn’t just relabel felonies, it redefines the word “safe.”

Lou Barberini is a CPA who lives in Miraloma Park.

December 2015

Even realignment of California’s prison population to county jails cannot explain the deviation between San Francisco’s exploding larceny rate and the decline in such crimes in other large California cities.