New York Pension Fund
New York Pension Fund
Private Equity Firms in Pension Fund Scandal
New York state and federal authorities are investigating whether several private equity firms and hedge funds–including the Carlyle Group–participated in an illicit scheme to secure investments from the New York state pension fund.
According to the Washington Post:
New York Attorney General Andrew M. Cuomo has subpoenaed several firms that got business from the $122 billion pension fund after using the services of a middleman who connected investment firms with potential investors, the sources said. Cuomo and the Securities and Exchange Commission have alleged that the middleman won business for the firms through illicit payments.
Additionally, the firms are being investigated to see whether they failed to disclose their using the middleman to the pension fund, to find if the fund was aware of the special treatment that the various firms were receiving. According to court documents, the New York state pension fund has invested the most with the Carlyle Group. The private equity firm was involved in five investments with an estimated $730 million in capital from the pension fund.
Carlyle’s spokeman offered the following statement, “Carlyle has fully cooperated with the New York Attorney General’s investigation. We understand this is an industry-wide investigation and that we are not the focus of the investigation.” And referring to Carlyle Group’s previously scrutinized relationships with consultants the spokesman said, “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. Carlyle is pleased to currently serve the pensioners of New York, Illinois and Connecticut and has achieved excellent returns in several funds on their behalf.”
This investigation follows the criminal and civil charges filed by the New York Attorney General and the SEC against the former top aide to former New York comptroller and the pension fund’s former chief investment officer. The two have been accused of receiving bribes and gifts for directing pension fund money toward investment firms. While they deny any wrongdoing, court documents claim that they received $30 million in fees and gifts.
The use of consultants is not in itself unlawful, and many investment firms see consultants as a necessary means to receiving an audience with a pension fund. The accusation is that investment firms paid bribes and fees in order to obtain investments from the pension fund. The SEC’s complain asserts that at least some of the firms were fully aware of the illicit arrangement: “Private equity firms and hedge fund managers . . . together paid millions of dollars to Morris and others in the form of sham ‘finder’ or ‘placement agent’ fees in order to obtain those investments from the Retirement Fund. These payments to Morris and others were, in fact, little more than kickbacks that were made pursuant to undisclosed quid pro quo arrangements.”
The problem of pay-to-play practices is not exclusive to New York and the Attorney General Cuomo did not rule out the possibility of the investigation expanding to other firms and funds. Recently, the Connecticut Attorney General reached a near half-million dollar settlement in a case where a broker was secretly compensated for directing pension-plan business to insurers.
The New York investigation is ongoing and has been for over two years, and just recently the SEC joined the case.
Source: WP
Tags: New York Attorney General, SEC investigation, Private Equity, Private Equity Pension Funds, Private Equity Pension Fund Scandal, New York Pension Fund, Private Equity Hedge Fund Consultant
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Tags: New York Attorney General, New York Pension Fund, Private Equity, Private Equity Hedge Fund Consultant, Private Equity Pension Fund Scandal, private equity pension funds, SEC investigation
