Private equity firm owner agrees to pay $20 million settlement

Nick Rees Dec. 9, 2009, 4:00pm

Andrew Cuomo (D)

NEW YORK (Legal Newsline) - The founder of a private equity firm has agreed to pay $20 million in restitution for his part in corruption uncovered by Attorney General Andrew M. Cuomo in the New York State Common Retirement Fund.

Under terms of the agreement, David Leuschen, founder of Riverstone Holdings, LLC, will pay $20 million to resolve allegations about his role in the scheme.

"It is important that both firms and individuals be held accountable for conduct that jeopardized the integrity of the New York State Common Retirement Fund," Cuomo said. "To date, we have collected over $100 million through this investigation for the retirement fund and the state. As these sums return value to the state pension fund, we continue to pursue the critical reforms that are necessary to prevent such rampant abuse from again corrupting the pension system."

Cuomo's investigation into the Common Retirement Fund revealed that after the fund invested $150 million in a joint venture between the Carlyle Group and Riverstone, Leuschen made a $100,000 investment in Chooch, a film produced by David Loglisci, the brother of then Chief Investment Officer to Comptroller Hevesi.

Carlyle was not aware of the investment, which was not disclosed to the Common Retirement Fund. Riverstone employees were also found to have made approximately $40,000 in campaign contributions to Comptroller Hevesi's 2004 campaign.

Riverstone was a joint venture partner with Carlyle beginning in 2003 on three investment deals with the Common Retirement Fund. Searle, a company associated with Henry Morris, the chief political aide to then Comptroller Hevesi, was retained by Carlyle/Riverstone to help in obtaining investments from the Common Retirement Fund.

The companies had experience limited success in obtaining investments from the Common Retirement Fund prior to retaining Searle. They obtained approximately $530 million in total investments after retaining Searle. In exchange, Searle was paid more than $10.6 million. The lion's share of placement fees received from Carlyle were then paid by Searle to PB Placement, LLC, a shell company controlled by Morris.

Morris, unbeknownst to Carlyle, had allegedly entered into a fee-splitting arrangement that would pay hedge fund manager Barrett Wissman half of all these fees.

The investment commitments made by the Common Retirement FUnd and the related fees paid to Searle and others included a $150 million commitment to Carlyle/Riverstone Global Energy & Power Fund II, L.P., in November 2003 that paid Searle $3 million in fees. Of that, $1.32 million went to PB Placement and $1.5 million to Wissman.

A $350 million commitment in October 2005 to Carlyle/Riverstone Global Energy & Power Fund III, L.P., paid Searle $7 million in fees, with $3.325 million paid to PB Placement and $3.5 million paid to Wissman.

A December 2005 commitment of $30 million to Carlyle/Riverstone Renewable Energy Infrastructure Fund I, L.P, through The Hudson River Fund II, L.P. - the Common Retirement Fund's fund-of-fund - paid Searle $600,000 in fees with $285,000 going to PB Placement and $300,000 paid to Wissman.

The investments are alleged as the basis of a Martin Act and other charges in a 123 count indictment returned by a grand jury and filed by Cuomo in March against Morris and Loglisci.

Riverstone, in June 2009, signed on to Cuomo's Public Pension Fund Reform Code of Conduct, paying $30 million restitution to the Common Retirement Fund. Carlyle signed onto the code in May 2009 and paid the State of New York $20 million to resolve its role.

"Riverstone and its founders are pleased to have resolved all issues with the New York Attorney General with respect to its investigation of fundraising activities at the New York Common Retirement Fund," Riverstone's founders said. "From the outset, we have cooperated fully with this investigation and we remain extremely proud of our track record of providing outstanding investment returns for the CRF and our other partners. We continue to support the efforts of the New York attorney general and his staff to level the fundraising playing field for all parties involved."

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