NYS Pension Pay To Play Investigation Expands To Include NYC Comptroller's Office

New York City Comptroller William Thompson called for an investigation of his own office into dealings with Quadrangle and placement agents, but NYS Attorney General Andrew Cuomo looks like he's going to expand that investigation even further.

Scrutiny in recent days has focused on deals between the city pension funds, overseen by Mr. Thompson, and the Quadrangle Group, a private equity firm whose deals are one of the focuses of parallel corruption inquiries by Mr. Cuomo’s office and the Securities and Exchange Commission.

Mr. Thompson, the leading Democratic challenger to Mayor Michael R. Bloomberg in this fall’s election, called for the investigation of his own office and its transactions with Quadrangle to clear the air, though Mr. Cuomo suggested in his own statement that he was undertaking a broader review. (Also see The New York Post.)

Quadrangle was founded by Steve Rattner, who is now serving as President Obama's car czar. Quadrangle hired Hank Morris to serve as a placement agent, and Quadrangle is under investigation as to whether it failed to disclose the hiring of Morris to various pension funds around the nation, including New York City and New York State.

That's on top of an ongoing SEC probe:

The development is the latest in a widening investigation by Cuomo's office and the Securities and Exchange Commission. At the center of the two-year probe are millions of dollars in payments made by private-equity firms and hedge funds to middlemen known as placement agents who helped the firms win investments from New York state's pension fund. The firms include District-based Carlyle Group and New York-based Quandrangle, co-founded in 2000 by Steven Rattner, who stepped away from the company in February to lead Obama's auto industry task force.

The scandal prompted New York State Comptroller Thomas P. DiNapoli on Wednesday to declare a ban on the use of placement agents by investment firms that do business with the state pension fund. DiNapoli also announced his own review of pension fund investments in firms under investigation by Cuomo and the SEC.

Paying fees to placement agents is a common industry practice and is not illegal -- unless it was a kickback to win business. While the former chief investment officer for New York's state pension fund, David Loglisci, and two politically connected placement agents, Hank Morris and Ray Harding, have been charged on multiple felony counts, none of the investment firms or their executives have been charged with any wrongdoing.
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Placement agents are paid fees for performing work such as arranging meeting with potential investors and preparing marketing materials for them, and coaching investment managers on how to pitch their funds. Authorities allege that Morris did nothing of the sort and conspired with Loglisci to sell access to the $122 billion he managed.

Firms that did not play along allegedly suffered, according to a source familiar with the case. A Dallas-based private equity firm, Pharos Capital, has told investigators that it was approached about the need to pay a middleman after it was already far along in discussions about a potential investment. Pharos was then told by Loglisci that that person, a friend and hedge fund manager, Barrack Wissman, needed to be hired. Sensing something was not right, Pharos declined, the source said, and ended up losing the potential investment. Wissman last week pleaded guilty to a felony charge.

For the moment, it appears that Cuomo is looking to get concessions from various investment managers instead of seeking prosecutions in a rather difficult set of circumstances.

UPDATE:
The Daily News reports that Assembly Speaker Shelly Silver was busy trying to shepherd several equity funds in seeking business with the NYS pension fund. In fact, Silver sat in on meetings between the Comptroller's office and these private equity firms. It smacks of impropriety, although Silver's flack claims no wrongdoing:

Silver twice arranged sitdowns with the controller, who has sole control over pension investments, the Daily News has learned.

One of the most powerful men in Albany, Silver a few years ago accompanied investor Shlomo Kalish of Jerusalem Global Ventures to meet with then-Controller Alan Hevesi to discuss a possible deal.

More recently, Silver and Richter met with Controller Thomas DiNapoli. Richter, the hero of the 1994 Stanley Cup team, is a partner with Environmental Capital Partners.

The pension fund ultimately took a pass on both deals.

But the involvement of Silver - whose spokesman Dan Weiller confirmed the meetings - has raised serious questions among government watchdog groups.

"At a minimum, it's an appearance of impropriety," said Susan Lerner, of Common Cause-New York. "It's very inappropriate because it looks as if the speaker is using his office as the most powerful elected official in the Assembly to try and influence the controller, an independent elected official," Lerner added.

"It has a tacit stamp of approval from the speaker when he's sitting there during the meeting, and that's extremely troubling," Lerner said.

Weiller said the speaker has no financial connection to Kalish, Richter or their firms, and that there had been no deals for him to receive any fees. He said Silver met Kalish, who could not be reached for comment, during a trip to Tel Aviv with the American Israel Friendship League.