Today, that money is gone — a fact the MBTA has not previously disclosed — and a series of Fletcher hedge funds are bankrupt. The FBI and the Securities and Exchange Commission are investigating what the bankruptcy trustee calls a fraud, one with “many of the characteristics of a Ponzi scheme.” It ensnared the MBTA retirement fund and also three Louisiana public pension funds.

White, in his new job as chief investment officer of Fletcher Asset Management, told the authority’s pension board members in 2007 that he had devised an investment fund just for them, and that it was relatively low risk. They gave their prominent former leader $25 million to invest.

Nine months after Karl E. White left his job as chief of the MBTA pension fund to join a New York hedge fund, he visited his former colleagues in Boston to pitch them on an investment idea.


In a Globe interview, White said he does not know what happened to the MBTA’s money after he left Fletcher in November 2008. But even before that, White said, he never checked to see how the investments were doing. Though he held the title of investment chief, White said he was not in charge of managing the money.

“I wasn’t running the portfolio,’’ White said. He said his former boss, Alphonse “Buddy” Fletcher Jr., controlled the firm’s investments, which are estimated to have totaled nearly $300 million at one time.

A spokesman for the $1.6 billion MBTA pension board said it “exercised the same rigor in examining” the investment with White as it would apply to any firm it had invested with before. The fund had previously invested $10 million with Fletcher, in 2004, and made a profit.

But the pension fund did not disclose the White relationship in its 2007 annual report. Nor has it made public the losses in the Fletcher fund to pensioners or taxpayers, even though it has known of the problem since at least 2011.


MBTA pension spokesman Stephen Crawford said in a statement that the retirement fund has been cooperating with the bankruptcy trustee for “well over a year.’’ He said the pension fund “intends to continue to pursue recovery aggressively from both Fletcher and potentially responsible third parties who enabled Fletcher to commit the alleged fraud.’’

White, 48, said he was not involved in or aware of any wrongdoing. But the tale of how an executive once hired to help clean up the troubled MBTA retirement fund wound up selling it a bad investment raises new questions about oversight and transparency at the insular pension board.

A Florida native with an MBA in analytic finance from the University of Chicago, White rose up through a line of top investment firms, such as Putnam Investments and Goldman Sachs Asset Management. He served as the MBTA pension fund’s executive director from 2002 to 2006. A longtime trustee at the University of Massachusetts, he was a candidate to become chairman of the school’s board in 2006.

After he left the MBTA, White soon joined the hedge fund firm with which he had previously done business. He thought Fletcher had an “elegant” investment approach that could pay off handsomely.

In March 2007, White made a presentation to the pension fund board, called “Structured Market Neutral Investments in Mid-Sized Public Companies,’’ according to a 300-page report by the New York bankruptcy trustee trying to recoup money for the MBTA fund and other investors.


White recommended a fund called “Alpha,” which would use a complex strategy of buying stocks in private transactions, while making other trades that would pay off if shares of similar companies declined. The fund did all that while investing in a portfolio of bonds.

The MBTA pension board is exempt from Massachusetts public employee ethics rules that would have prohibited White from selling investments to his old employer for at least a year, and possibly forever. While the MBTA itself is a public agency, its retirement board is considered a private trust — a status upheld by the state’s highest court in 1993.

The Alpha fund investment was approved by the fund’s consultant at the time, New England Pension Consultants, and by the board, the fund’s spokesman said.

The MBTA took one extra precaution with the investment, according to the bankruptcy trustee’s report. The pension board insisted that it be given notice if the fund ever started investing in a different manner than White had described, so it could withdraw its money.

Such a letter never arrived. But according to the trustee, there was no profitable investment in the fund after August of 2007, and it was probably insolvent by 2008. Yet Fletcher continued to send the MBTA retirement board reports showing the value of the investments rising, the trustee reported. No one else ever invested in the fund.


As recently as May 2011, the MBTA and the Louisiana pension funds, which had invested a combined $125 million across a number of Fletcher funds, were told by the firm that their investments were worth $170 million, according to the trustee’s report.

“In many ways, the fraud here has many of the characteristics of a Ponzi scheme, where, absent new investor money coming in, the overall structure would collapse,’’ and did, wrote the trustee, Richard Davis of the US Bankruptcy Court in the Southern District of New York. His report says the trustee was subpoenaed by the US Department of Justice last April and by the SEC in July. White also acknowledged answering questions from the FBI about his former firm.

Davis also faults a number of intermediaries he said should have spotted the alleged fraud, including the audit firm Grant Thornton and an offshore administrator.

A spokeswoman for Chicago-based Grant Thornton said there are “no viable claims’’ against the firm and that the trustee’s report does not take into account all of its work for Fletcher.

No one answers the phone at Fletcher Asset Management, and an e-mail sent there went unreturned. An affidavit filed by Buddy Fletcher with the bankruptcy court denies that asset values were inflated in client accounts. It also says the SEC failed to find wrongdoing at the firm in an initial probe, but reopened one last summer because of the trustee’s investigation.

White said he cannot recall if he went back to the MBTA board for an annual update on the fund he sold them. He said he may have been working instead in Monaco, on a Fletcher acquisition.


By November 2008, White left Fletcher. He had been unable to attract much business beyond the MBTA and had not earned the bonuses he anticipated. Prospects looked bleak for luring new clients as the nascent financial crisis roiled Wall Street.

White did not tell the MBTA that he was leaving the firm managing $25 million of its pension money.

He said he saw no reason to advise them to pull the fund out of Fletcher. “If I had known, I would certainly have spoken up,’’ he said.

Buddy Fletcher would become mired in a highly public legal battle over a Manhattan co-op he accused of racial discrimination.

According to the trustee, Fletcher tapped some of the firm’s assets to pay for the litigation. As much as $27 million in client assets were used to acquire another firm, the trustee said; $8 million funded a movie directed by Fletcher’s brother.

In March 2011, the MBTA pension fund asked Fletcher to return $10 million. The request was never fulfilled, according to the trustee.

Yet there is no disclosure of this, or the looming legal issues with Fletcher in the fund’s annual report that year.

Indeed, a listing in the 2010 annual report that said, “The board invested in Fletcher Fixed Income Alpha Fund in 2007,’’ did not appear in the next year’s report.

The MBTA said it has reduced the value of the Fletcher investment on its books over the past few years, and is actively working with the trustee to recover the money.

White now works at a new financial firm he started. He faces tens of thousands of dollars in federal tax liens on his Beacon Hill home.

Reflecting on what went wrong, White blames a lack of oversight that allegedly allowed Fletcher to fool his customers and co-workers.

“Everywhere along the chain,’’ White said, “You need everybody to be diligent about their job.’’

Beth Healy can be reached at Beth.Healy@globe.com