Attorney General Cuomo Secures Agreement With National Law Firm In Ongoing State Pension Fund Investigation
NEW YORK, NY (October 12, 2010) - Attorney General Andrew M. Cuomo today announced an agreement with national law firm Manatt Phelps & Phillips, LLP ("Manatt") in the Attorney General's ongoing state pension fund investigation. The agreement arises from Manatt's conduct on behalf of financial firms seeking investments from public pension funds without a securities license.
Manatt has agreed to a five-year ban from appearing before any public pension fund in New York. Manatt will pay $550,000 to the State of New York and will cooperate with the Attorney General's investigation. Manatt will also comply with the Attorney General's Public Pension Fund Reform Code of Conduct, which, among other things, bans the use of placement agents to solicit investments from public pension funds and prohibits investments within two years of any campaign contribution from the investment firm to the Comptroller or other elected trustee.
To date, Cuomo's investigation has recovered more than $139 million for the state through agreements with sixteen firms and two individuals. The investigation has also resulted in seven guilty pleas.
The investigation showed that Manatt made introductions and secured meetings on behalf of firms seeking investments from public pension funds in New York, California, and elsewhere. Neither Manatt, nor any of the Manatt partners who made the introductions, were licensed placement agents or securities brokers under state and federal law. In New York, Manatt made and attempted to make introductions to the New York State Common Retirement Fund ("state pension fund"), the New York City pension funds, and the New York State Teachers Retirement System. The state pension fund is the biggest pool of money in the state and the third largest pension fund in the country, most recently valued at approximately $124.8 billion. Manatt received fees for successfully placing one investment with the California Public Employees' Retirement System ("CalPERS"). Its other efforts failed.
"Unlicensed agents are untrained, unsupervised, and typically traffic in political and personal connections to get access to public money. We have seen all varieties of this risky behavior, and now it includes a prominent national law firm," said Attorney General Cuomo. "We will continue to protect the integrity of public pension funds, which are supported by New York taxpayers."
The investigation by the Attorney General's office found the following instances in which Manatt sought to help firms obtain investments from public pension funds without a securities license:
- In 2003, in partnership with California-based lobbyist Platinum Advisors, Manatt helped to place a $25 million investment by CalPERS in Levine Leichtman Capital Partners Fund III, for which Manatt and Platinum each received $187,500 in fees from 2004 through 2006. Platinum later paid part of its fees to Wetherly Capital Group.
- In 2003, a California-based partner asked several Manatt partners, including members of management in California and Washington, D.C., to meet with principals of Levine Leichtman to discuss facilitating additional introductions to various institutional investors. Although efforts were made by certain partners, no investments or compensation to Manatt resulted from these discussions.
- From January 2004 to May 2005, certain Manatt partners introduced or sought to introduce additional alternative investment firms to various institutional investors.
- In March 2004, an Albany-based partner/lobbyist at Manatt arranged a meeting between an investment firm and investment staff at the New York State Teachers Retirement System. This individual also attempted to arrange a meeting for the same investment firm with the state pension fund, but was unsuccessful. In January 2007, the Albany-based partner/lobbyist at Manatt attempted to arrange a meeting at the state pension fund for a different investment firm, but the meeting did not occur.
- In August 2008, the Albany-based partner/lobbyist at Manatt attended a meeting between investment firm Kellner DiLeo & Co ("Kellner") and New York State Comptroller Thomas DiNapoli. The Manatt partner/lobbyist also attended a follow-up meeting with Comptroller's Office staff and generally took the lead on communications between Kellner and the Comptroller's Office.
Other than the CalPERS investment in 2003, no investments resulted from Manatt's efforts and Manatt did not receive compensation.
Manatt Phelps & Phillips, LLP said, "We commend Attorney General Cuomo for investigating the placement process for pension fund investments and we embrace his new Reform Code of Conduct. The firm is pleased to put this matter behind us."
Under state and federal law, people engaged in the business of effecting transactions in securities are required to be licensed and registered with a broker-dealer. To determine whether a securities broker is licensed and registered, visit www.finra.org/investors/toolscalculators/brokercheck/index.htm.
To view the agreement related to today's announcement, please visit www.ag.ny.gov/media_center/2010/oct/pdfs/Manatt_AOD_Executed.pdf.
In May 2009, the Attorney General's office subpoenaed investment firms and their agents in connection with New York public pension fund investments after determining that 40 to 50 percent of agents acting to secure investments from the state and city pension funds were unlicensed.
Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which, among other things, bans investment firms from compensating intermediaries for introductions to public pension funds. To date, sixteen firms have endorsed the Code: investment firms The Carlyle Group, Riverstone Holdings LLC, Pacific Corporate Group Holdings, LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners, Falconhead Capital, Markstone Capital Group, Ares, Freeman Spogli, Quadrangle, and GKM; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; lobbying firm Platinum Advisors; and law firm Manatt Phelps & Phillips, LLP. Two individuals have also agreed to abide by the Code of Conduct: unlicensed placement agents Kevin McCabe and Williams ("Bill") White.
These firms collectively have agreed to return more than $100 million associated with pension fund investments; these funds will principally be provided to the pension fund for the benefit of the pension holders. Payments from individuals, including criminal defendants, bring that total to $139 million for the pension fund and the State.
Attorney General Cuomo's investigation into corruption at the pension fund has led to a number of criminal charges and seven guilty pleas to date, including guilty pleas by the following individuals: former Comptroller Alan Hevesi; former Chief Investment Officer at the Office of the State Comptroller David Loglisci; former Liberal Party Chair Ray Harding; investment advisor Saul Meyer; hedge fund manager Barrett Wissman; unlicensed placement agent Julio Ramirez; and venture fund manager Elliott Broidy. An indictment against former Comptroller Hevesi's paid political adviser, Henry "Hank" Morris, is pending and Morris is presumed innocent unless and until proven guilty in court.
This investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz, Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, and Legal Aide Michael Ellis, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel to the Attorney General Linda A. Lacewell.
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