Sunday, April 19, 2009

NY AG & SEC Probe Pension Fund Investments

By DAVID B. CARUSO Associated Press Writer

A corruption scandal at the state's retirement fund is the latest in a long
string involving politically connected intermediaries called placement agents
sometimes hired by investment firms hoping to land rich investment deals with
pension officials, experts said.

New York Attorney General Andrew Cuomo and the Securities and Exchange
Commission are examining millions of dollars in payments that several hedge
funds and private equity firms paid to placement agents during the tenure of
state comptroller Alan Hevesi.

Several people already face criminal charges in the case, including two top
Hevesi aides who are accused of shaking down payments from companies hoping to
do business with the fund.

The companies whose payments are under scrutiny include the Carlyle Group, one
of the nation's largest private equity firms.

The inquiry focuses on an industry practice that has been criticized for years
as a potential source of corruption.

Firms hoping to win lucrative work managing pieces of huge government employee
retirement funds have often employed agents whose primary qualification is
political influence: Many are champion political fundraisers who have showered
influential state officials with campaign contributions and other political

"Frankly, it borders and often tips into bribery," said Susan Lerner, the
executive director of the good government group Common Cause New York.

Among those facing charges in New York is the longtime political power broker
Raymond Harding, who had no experience in high finance when, at age 70, he
obtained a securities license and suddenly began earning money as a placement

In three short years, Harding, the former chairman of the state's now-defunct
Liberal Party, collected at least $800,000 in finder's fees related to pension
fund deals.

Prosecutors said Harding performed no work for the payments, which they said
were arranged by Hevesi aides David Loglisci and Hank Morris as rewards for his
political support.

One of Harding's lawyers acknowledged his client had been paid by investment
firms but said there was nothing illegal about the arrangement.

Morris, a longtime political consultant to Hevesi, also is accused of accepting
millions of dollars in finder's fees from companies in exchange for his help
getting pension fund business.

Morris and Loglisci have pleaded not guilty to a long list of criminal charges.

The scandal is part of a long tradition of problems at pension funds where
politics has played a role in determining which investment companies get
considered for big deals.

In Illinois, a trustee of the Teachers Retirement System, Stuart Levine, pleaded
guilty in 2005 to squeezing payouts from private equity firms.

Connecticut's state treasurer Paul Silvester pleaded guilty in 1999 to demanding
that firms pay finder's fees in return for investment of state pension money.

The chairman of the California State Teachers' Retirement System was indicted in
the early 1980s for taking a $1 million bribe in exchange for making a
questionable loan to a Texas oil company.

The companies being scrutinized now for their dealings with New York pension
fund officials have largely not been charged with any wrongdoing, but the SEC
has been critical of some of them — although not by name — in public filings in
the case.

"In many such instances, the investment management firm personnel also knew, or
were at least reckless in not knowing," that their investment proposals wouldn't
be approved at the fund unless they were willing to shell out fees to Morris or
other agents, the commission said.

Asked Wednesday during a news conference whether the firms could also ultimately
face charges, Cuomo hedged, saying only that the investigation was not over and
that he anticipated that more people would be brought to justice.

A spokesman for the Carlyle group, Christopher Ullman, said the company was
cooperating with the probe and did not believe it was a target of the

"Our agreements with placement agents, whether large Wall Street firms or
smaller broker-dealers, call for all parties to abide by all laws to ensure the
integrity of the investment process," he said.

Carlyle won $730 million in pension fund asset placements, while paying nearly
$13 million in fees to Morris and another politically connected agent charged in
the case, Barrett Wissman.

Other companies that made payments included Aldus New York Emerging Fund, GKM/NY
Venture Capital Fund, Olympia John Street Fund LP and the Quadrangle Group,
which won $100 million worth of pension fund business shortly after it invested
about $89,000 in a low-budget movie called "Chooch," produced by Loglisci's

A spokesman for Hevesi's successor, Thomas P. DiNapoli, said the office now
discloses monthly whether any placement agents have received fees in connection
with a pension fund investment.\

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