Cuomo's pension code gets two more

By Nick Rees | Feb 8, 2010


NEW YORK (Legal Newsline) - Agreements have been announced by New York Attorney General Andrew Cuomo with a venture capital firm and a placement agent firm to resolve allegations of their roles in pay-to-play practices involving the New York State Common Retirement Fund.

As part of the agreements, both the Israeli venture capital firm Markstone Capital Group LLC and the California-based Wetherly Capital Group LLC placement agent firm and its broker-dealer DAV/Wetherly Financial will adopt Cuomo's Public Pension Fund Reform Code of Conduct.

Additionally, Markstone will return $18 million to the CRF and Wetherly will return $1 million associated with CRF investments. Wetherly also agreed to exit the placement agent business.

"Markstone and Wetherly are the eighth and ninth firms to adopt our Code of Conduct, which ends pay-to-play political contributions and the selling of access to public pension money nationwide," Cuomo said.

"New York's taxpayers deserve rigorous protection against political influence in our public pension funds. I commend these firms for furthering our reform efforts and returning a combined $19 million to the state pension fund through our agreements."

Markstone founding partner Elliott Broidy, beginning in Nov. 2002, gave gifts, political contributions and other benefits, valued in excess of $1 million, to top decision-makers at the CRF as well as their friends and family members, Cuomo says.

The gifts were given to influence officials with the Office of the State Comptroller to invest in Markstone Capital Partners L.P., Markstone's first private equity fund, Cuomo says.

As a result, a $200 million investment was awarded to Markstone by the CRF, which was subsequently increased to $225 million and then to $250 million. Approximately $18 million was awarded to Markstone in management fees from the CRF associated with its investment.

Broidy resigned his management position at Markstone in December and pled guilty to a felony charge of rewarding official misconduct, pursuant to a plea and cooperation agreement with Cuomo's office.

Wetherly had agreed to introduce the California-based private equity firms of Ares Management LLC, Freeman Spogli & Co., and Levine Leichtman Capital Partners to the CRF in exchange for placement fees in the form of a percentage of the CRF's investments. These fees were then split with Henry "Hank" Morris, then-Comptroller Alan Hevesi's paid political adviser. The three private equity firms were not informed of this arrangement.

Wetherly was paid in excess of $1.3 million in placement fees by the three firms. Of this, $500,000 was paid to Morris and $140,000 was paid to unlicensed placement agent Julio Ramirez, Jr., who secured the relationship with Morris.

Ramirez pled guilty to a securities fraud charge in May under the Martin Act, pursuant to a plea and cooperation agreement with Cuomo's office.

The CRF committed to $50 million to Areas in Dec. 2003, with Areas paying placement fees of $637,500 to Wetherly, who then paid $225,000 to Morris.

The CRF committed $50 million to Freeman Spogli in Jan. 2004. Freeman Spogli then paid Wetherly $500,000 in placement fees with $200,000 of that paid to Morris.

The CRF indirectly invested $20 million with Levine Leichtman in March 2005 through Aldus Equity. Wetherly was then paid $200,000 in placement fees by Levine Leicthman. Searle $ Co., a broker-dealer then affiliated with Morris, was paid 40 percent of Wetherly's fees and passed 95 percent of that to Morris.

Levine Lecithman's role in the investigation was resolved in an agreement with Cuomo in September.

Cuomo's Code of Conduct, which both firms in the agreement have agreed to, bans investment firms from hiring, utilizing or compensating placement agents, lobbyists or other third-party intermediaries to communicate or interact with public pension funds to obtain investments.

The code also prohibits investment firms from doing business with a public pension fund for two years following a campaign contribution to an elected or appointed official who can influence the fund's investment decisions. Firms currently doing business with the pension fund are also barred by this provision from making such campaign contributions.

Under the code, investment firms are required to disclose any conflicts of interest to public pension fund officials or law enforcement authorities, which allows for an increase in transparency and the avoidance of abuse in the management of public pension funds.

Nine investment firms have signed on to the Public Pension Fund Reform Code of Conduct following today's announcement, including The Carlyle Group, Riverstone Holdings LLC, Pacific Corporate Group Holdings LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners and Falconhead Capital.

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