Carlyle Group Agrees to $20-million Settlement in NY Pension Probe

May 15, 2009 ( - Though accused of no wrongdoing by New York State Attorney General Andrew Cuomo in his probe of public pension fund money managers, Carlyle Group has agreed to a $20-million settlement that limits campaign contributions to officials who oversee state money.

Carlyle, the world’s second-largest private-equity firm, also agreed yesterday not to use placement agents to solicit investment business from public retirement plans nationwide, Bloomberg reports.

New York state has already banned the use of placement agents (see DiNapoli Bars Placement Agents for Empire State Fund ), but Cuomo seeks to have a rule adopted industry-wide (see Cuomo Announces Multi-state Effort on Pension Abuse ) that prohibits money managers from doing business anywhere in the country with a public pension plan for two years after making political donations to officials who can influence the fund’s investment decisions. The U.S. Securities and Exchange Commission has proposed the restriction (see An SEC Pay-to-Play Rule Expected by Mid-Summer).

Carlyle executives will not be subject to any criminal liability under the settlement, Cuomo said yesterday at a press conference, according to Bloomberg. Asked how soon to expect other settlements in the pension probe, Cuomo said he had brought “a number of criminal and civil cases and we will have more over the coming weeks.”

The Sacramento Bee said Carlyle Group is a huge California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS) investment partner. The firm's name turned up numerous times in the indictment of two political players charged with selling access to New York's public pension fund: Carlyle paid fees totaling $13 million to Henry Morris and obtained $730 million in investment commitments from the New York fund, according to the Bee.

CalPERS has $2.14 billion invested in various Carlyle investment funds, and CalSTRS' investments with Carlyle entities come to $434 million, the news report said.

Earlier this week, Cuomo revealed that a politically connected placement agent in Los Angeles pleaded guilty to securities fraud charges in the New York case (see Ramirez Enters Pension Probe Guilty Plea). Julio Ramirez Jr. worked for Wetherly Capital Group and Park Hill Group, both of which secured investments on behalf of money management firms from CalPERS and CalSTRS.

The scandal has prompted CalPERS to begin requiring private equity firms and other money managers to disclose any fees paid to placement agents (see CalPERS Adds Placement Agent Disclosure Policy ). CalSTRS instituted a similar policy in 2006.