Moore was prepared to hire Crow's Dallas-based investment firm to manage up to $100 million in state pension dollars, but first he wanted to meet the chief executive. The chat went well, and Crow Holdings got the investment.

Less than a year later, Crow and six others tied to the firm gave $28,000 to Moore's political campaign on the same day.

To critics, that's a conflict of interest. For Moore, it's not unusual. About half of the companies that manage money for the $70 billion-plus pension fund have employed people who have contributed to Moore's political campaigns, according to an Observer investigation.

State officials in North Carolina and elsewhere often take contributions from business people that do work for the state. But the actions of state treasurers have long raised special concern because of the billions of dollars in retirement money they oversee. Critics say that could open the door to a "pay-to-play" arrangement in which investment decisions are influenced by political considerations.

Bob Hall, research director for watchdog Democracy North Carolina, said even the appearance of a conflict is bad.

"It's a rotten system," Hall said. "Even when politicians do the right thing, the public is going to second-guess them when they see so much money from special-interest groups or donors that are doing business with the agency."

In North Carolina, the potential for a conflict of interest is particularly acute because of an unusual system in which the state treasurer has sole responsibility for running the pension fund. Moore has a staff that advises him, but he is ultimately in charge of all investment decisions.

Only four states have this kind of so-called sole fiduciary setup, and lawmakers here said they're not looking to change it.

The issue is important because the pension fund covers 700,000 retired and working teachers, state and local government employees and others in the public sector. Workers put money in the fund from their paychecks, and so do the governments that employ them. More money comes from investment returns.

Pay-to-play is a hot topic in North Carolina. This month, former House Speaker Jim Black, a Democrat, admitted taking illegal payments from chiropractors who wanted legislation from the General Assembly. Black also received thousands in legal contributions.

No one has accused Moore of breaking any laws.

The fund has done relatively well with a 7.23 percent return last fiscal year, and it is one of the few in the country that is fully stocked to make all of its future payouts.

Taking contributions from firms the pension fund does business with, however, contrasts with his high-profile efforts to police conflicts of interest on Wall Street and to improve business practices in corporate America.

A Democrat and likely candidate for governor in 2008, he says it would be "incredibly shortsighted" to make any investment decisions that weren't in the interest of beneficiaries. He says the pension system has performed well in North Carolina because there is "clear accountability."

Asked whether he should be taking contributions from investment managers, Moore said he's working within the current rules. The only fair change, he said, would be to bar the treasurer and any challengers from taking the donations.

Opponents say the practice needs to be stopped.

"This is an old problem the [U.S. Securities and Exchange Commission] should have solved years ago," said Mercer Bullard, a law professor at the University of Mississippi and longtime critic of the practice. Elected officials in charge of pension systems "have an extra incentive to invest with those who make contributions."

88 firms involved

The N.C. retirement system, one of the largest in the country, manages its own bond holdings, but pays 88 outside firms to invest in stocks, hedge funds, private equity funds and real estate for the state.

In return, these firms receive fees -- about $156 million in fiscal 2006, according to information obtained through a state records request. Overall, the system's fees are in line with other public pension funds.

Moore, a former federal prosecutor and state crime control secretary, said he has created a professional system for choosing managers that has resulted in a stable of "world-class" firms investing the fund's money.

Asked if he solicits contributions from the firms, he said: "To my knowledge, there is no organized effort in my campaign to say, 'This person does business with the pension fund. We ought to solicit them.' "

Still, investment managers continue to fill his campaign coffers.

According to the Observer's analysis, 42 of 88 firms that managed state pension money as of June 30, 2006, have employed people who have given to Moore's campaigns.

Contributions connected to the 42 firms total $736,200 since 1999, when Moore first ran for treasurer. The money came from firm employees, their immediate family members and the companies' political committees. The amount equals about 13 percent of the $5.5 million Moore has raised.

These companies received $101.8 million in fees for investing the state's money in the year ending June 30, 2006. That equals about two-thirds of the fees paid by the state that year.

Five of the six hedge funds that work with the state employ people who have given. Those five have given an average of $38,500. Hedge funds are loosely regulated investments for the wealthy and institutions.

In 2001, Moore successfully lobbied the General Assembly for permission to invest up to 5 percent of the pension fund in so-called alternative investments, including hedge funds and buyout funds. These investments, increasingly popular with pension funds, are riskier but can bring bigger returns.

These funds provided a 14.1 percent return in the last fiscal year, about double the pension fund's overall return. But they also reaped a disproportionate chunk of fees -- a quarter of them when they manage only 2 percent of assets.

Crow's firm is the investment arm of the Trammell Crow family, known for the development company of the same name. It managed $8.3 million in real estate investments for the pension fund at the end of the fiscal year, but the state didn't have performance data because it's so new.

Firm members did not return calls seeking comment. Moore spokeswoman Sara Lang said Crow is a well-respected firm with a good track record.

States with this setup

Connecticut, Michigan and New York are the only other statewide pension systems with one official responsible for investments, according to the National Association of State Retirement Administrators. The treasurer in Michigan is appointed, not elected.

This system has led to problems in the past. In 1999, Connecticut Treasurer Paul Silvester pleaded guilty to federal charges he received kickbacks in exchange for sending state investment money to certain funds.

"It's awful," Dana Cope, executive director of the State Employees Association of North Carolina, says of North Carolina's system. "Why would you ever do that, especially vesting that power and authority in one elected official?"

Experts say pension systems typically have a board that includes politicians and members of the retirement system. A system with one official in charge offers more efficient decision-making but loses checks and balances, they said.

N.C. checks, balances

North Carolina's setup is a result of state law. There are trustees that monitor the system, but they focus on the pension fund's overall health, not its investments. Moore also sits on a five-member investment advisory board he appoints, but the panel doesn't have any decision-making powers.

The treasurer's office has a staff of about 16 involved in managing pension money. Gov. Mike Easley, a Democrat, is asking the legislature to pay for three more positions. Moore plays a key role but doesn't micromanage, said Pat Gerrick, the retirement system's chief investment officer.

Gerrick said she has never felt any pressure to make a decision based on campaign contributions. A couple of times she has received calls from people who wanted to contribute to Moore's campaign and she referred them to the treasurer, she said.

When the fund is looking for a new manager, staff will research firms and prepare a list of semifinalists for the treasurer. With his OK, staff visits the firms, then makes further recommendations. Candidates meet with the treasurer before getting final approval.

Moore said he meets with managers to "look them in the eye" before handing over huge sums of money. He also wants to pick their brains about investment trends. He says he has spiked deals because of a bad feeling about a firm. "I didn't think they were serious about doing a good job for the state of North Carolina," he said.

In the pension fund industry, pay-to-play has long been a concern.

But there are few restrictions on state treasurers' fundraising nationwide. Voters in 37 states elect their treasurers.

The SEC attempted to ban the practice in the late 1990s, but created only a narrowly tailored federal regulation that discourages bond dealers from contributing campaign money to certain public officials. The SEC says there are no new rules in the works.

In Illinois, home to a number of recent corruption scandals, the new treasurer last month banned his campaign from taking contributions from firms that do business with his office.

Get $150+ in coupons in every Sunday N&O. Click here for convenient home delivery.