Scandal: Pension Fund Pay to Play
The SEC and New York Attorney General Andrew Cuomo are investigating allegations that investment firms made improper payments to politically connected middlemen in exchange for investments from New York’s $122 billion pension fund. The SEC’s investigation has apparently spread to a California fund, as well.
The probe puts a spotlight on so-called placement agents, who connect investment firms seeking money from pension funds with the pension staff and board members who make investment decisions. Paying fees to placement agents is not in and of itself illegal as long as the placement agency is providing some sort of tangible service, like help putting together pitch materials. But it’s an opaque system with a track record for ethical - and legal - breaches.
In the case of New York’s pension fund, authorities allege that Hank Morris, the former state comptroller’s top political adviser, crossed that line in his role as placement agent. He and David Loglisci, the chief investment officer of the New York fund, allegedly orchestrated a pay-to-play scheme in which private-equity firms and hedge funds had to pay kickbacks to Morris’ firm and other associates in exchange for lucrative business with the pension fund. Lawyers for both Morris and Loglisci, who were indicted in March, have denied the accusations.
Morris allegedly began influencing the fund in 2003, after having helped Alan Hevesi become state comptroller, a position that oversees the pension fund. Hevesi resigned in late 2006, after pleading guilty to defrauding the government on an unrelated charge involving the use of a state official to chauffer his ill wife.
Between 2003 and 2008, Morris and his associates raked in millions of dollars in proceeds on more than twenty investments with the fund, according to the attorney general’s indictment. Although no investment firm has been accused of wrongdoing, the SEC says that investment managers “knew, or were at least reckless in not knowing” that the fees were improper. The SEC describes payments to Morris by at least nine firms, including Carlyle Group, the world’s second-largest private-equity firm. Carlyle recently said it would stop using placement agents in any U.S. pension deals.
A firm co-founded by Steven Rattner, now the head of President Obama’s auto task force, is also under scrutiny. Quadrangle reportedly paid Morris’ company, Searle & Co., to help it win investments not only from New York’s fund, but also pension funds in Los Angeles, New Mexico and New York City. Neither firm has been accused of any wrongdoing, and nor has Rattner.
And, as ProPublica first reported, California-based Wetherly Capital Group shared fees with Morris’ firm in two deals at the New York fund and three deals in California.
Firms Paid Middlemen $125 Million to Win CalPERS Business Los Angeles Times, 1/15
Prominent Political Fundraiser Pleads Guilty in N.Y. Pension Scandal ProPublica, 12/4
Calif. Pension Fund Probes Oversight of Hedge Fund Advisers Los Angeles Times, 11/25
Calif. Pension Board Member Directed Funds to Firm With Ties to His Los Angeles Times, 11/20
CalPERS Probes Loan to Build Deal Maker’s Mansion Los Angeles Times, 11/12
CalPERS Discloses More Fees Paid to Middleman Los Angeles Times, 11/5
Consultant Earned $53 Million Opening Doors to CalPERS Money Los Angeles Times, 11/3
After Decade-Plus Together, Calpers Reviews Apollo Ties Wall Steet Journal ($), 10/23
Calif. Pension Fund Rocked by ‘Pay to Play’ Wall Steet Journal ($), 10/15
NY’s A.G. Cuomo Proposes Reforms to Pension System ProPublica, 10/8
Lagging Pension Fund’s Money Managers Donated to Comptroller New York Times, 8/19
Calif. AG Returns Contributions from Donors in Pension Probe Sacramento Bee, 7/8
NY AG’s Money Manager Received Funds Tied to Pension Scandal Bloomberg, 6/24
Pay to Play Scandal in NY Nabs Another Investment Firm ABC News, 6/12
Can You Pass the SAT of Influence? Our Placement Agent Guide ProPublica, 5/18
Pension Inquiry Reveals a Power Broker’s Web New York Times, 5/14
LA Man Pleads Guilty in NY Pension Scandal Sacramento Bee, 5/13
‘Pay to Play’ Probe Ensnares Another Wall Street Journal ($), 5/12
SEC Trains Its Sights on ‘Pay to Play’ Participants Wall Street Journal ($), 5/11
Pension Scandal Prompts Two Resignations in LA ProPublica, 5/7
More States Start Pension Inquiries New York Times, 5/7
Pension Probe Targets Firm Controlled by Calif. Lobbyist Sacramento Bee, 5/6
Links Between NY, New Mexico Pension Scandals TPMMuckraker, 5/4
NY AG Charges Dallas Money Manager in Pension Scandal TPMmuckraker, 5/1
New Arrest Heats Up Pension Kickback Scandal ProPublica, 4/30
Decoder: The Pension Fund Scandal ProPublica, 4/30
California Pension Fund to Regulate Placement Agents ProPublica, 4/27
Disclosure Issue Emerges for Quadrangle Wall Street Journal ($), 4/27
SEC Letters Outline “Informal Inquiry” into California Pension Deals ProPublica, 4/24
Probe Into Auto Adviser’s Firm Expands Washington Post, 4/23
Inquiry of Pension Funds Turns to NYC Comptroller New York Times, 4/23
California Firm Split Fees With Figure in N.Y. Pension Scandal ProPublica, 4/22
Ban on Placement Agents Marks Blow to Industry Wall Street Journal, 4/22
Political Adviser Emerges as Central to Probe of New York Fund Bloomberg, 4/21
Rattner’s Firm Paid Finders Fees to Indicted Political Adviser’s Firm Wall Street Journal ($), 4/21
In State Pension Inquiry, a Scandal Snowballs New York Times, 4/20
Scrutiny of New York Pension Deals Spreads Wall Street Journal ($), 4/20
NY Pension Probe Turns to Investment Firms Wall Street Journal ($), 4/16
NY Pension Deals Seen as Focus of Wide Inquiry New York Times, 4/14