NY AG and SEC Investigate Money Managers Who Used Ties to Public Officials and Kickbacks to Buy/Sell Access to Pension Funds

May 18, 2009

Bloomberg reports that New York Attorney General Andrew Cuomo and the SEC say they are investigating agents and money managers who used ties to public officials and kickbacks to buy and sell access to pension funds. Placement agents call on institutions and wealthy individuals to sell investments on behalf of hedge, private- equity and venture-capital funds. Their targets go beyond public pensions, which held $2.23 trillion at the end of 2008, and include corporate retirement plans, foundations, insurers and endowments. Such institutions held $27.1 trillion in assets at the end of 2006, according to the New York-based Conference Board’s latest annual tally.

Indictments and civil complaints filed by regulators so far depict public officials allowing such connections and financial self-interest to trump merit when deciding who will be entrusted to invest taxpayer money. The inquiry has sparked debate over placement agents, with New York State and City and New Mexico moving to ban them as Florida and Massachusetts officials defend them.

Regulators announced their first legal actions in March, and some pension officials only now are discovering their hired money managers paid fees to middlemen with connections. For example, managers of the Los Angeles Department of Fire and Police Pensions expressed bafflement over $150,000 in fees paid to Henry “Hank” Morris — a New York political adviser turned placement agent now under indictment — by Quadrangle Group LLC for helping secure a $10 million investment from their fund.

The Third Party Marketers Association, a forum for investment marketing firms, says its member firms typically employ “highly experienced investment management marketing executives.” The business also includes middlemen with political ties, including Marc Correra, son of a supporter of New Mexico Governor Bill Richardson; Marvin Rosen, a former DNC finance chairman; and one-time New York State Comptroller H. Carl McCall.

Firms that employed Correra earned more than $15 million on investments from New Mexico’s endowment and teacher-pension fund, data compiled by officials in the aftermath of Cuomo’s probe show. Correra’s father, Anthony, gave Governor Richardson’s campaign about $27,000 and served on one of his political committees.

Cuomo has said he uncovered “a national network” that “victimized states and taxpayers all across the country” and shows “the inherent risks” that placement agents pose. Cuomo previously had announced guilty pleas from one fund manager and one agent, and charges against four others: Henry “Hank” Morris, who allegedly orchestrated a kickback scheme by exploiting political work he did for former New York State Comptroller Alan Hevesi; one-time state Liberal Party chief Raymond Harding; Hevesi’s ex-deputy, David Loglisci, and Saul Meyer, a Dallas money manager for Aldus Equity Partners, which New York has also sued for unspecified losses. All the defendants deny wrongdoing and face SEC civil actions, too.

The fallout has spread to other states, including some of the 36 Cuomo asked to join his probe. He announced sending more than 100 subpoenas to investment firms and agents. Two members of the Los Angeles fund’s oversight commission quit May 7th after the SEC queried them about ties to firms under scrutiny in New York; both denied wrongdoing. Aldus was fired or suspended by officials in Los Angeles, New Mexico, Connecticut and Louisiana.

Even President Barack Obama was drawn in. Steven Rattner, head of his auto industry rescue effort since February, ran New York-based Quadrangle when the private-equity firm paid Morris about $1.1 million for a $100 million investment from New York’s pension fund. A spokesman for Rattner and Quadrangle declined to comment and neither has been charged.

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Federal-Executive, In the News and State-Executive