Cuomo Garners Five Pension Probe Settlements

According to a Cuomo news release, Quadrangle Group LLC will pay $7 million; GKM Newport Generation Capital Services, LLC (GKM) will pay the equivalent of $1.6 million; political consulting firm Global Strategy Group (Global), Jon Silvan, CEO, will pay $2 million; California lobbying firm Platinum Advisors (Platinum) will pay $500,000; and unlicensed placement agent Kevin McCabe will pay $715,000. Along with the nearly $12 million that will be repaid to New York State, the parties will comply with the Attorney General’s Public Pension Fund Reform Code of Conduct.

Cuomo said in the news release that two of the agreements (Quadrangle and GKM) are with investment firms that paid fees to Henry (“Hank”) Morris, then-Comptroller Alan Hevesi’s paid political adviser, to arrange investments from the New York State Common Retirement Fund (CRF).  

“We wholly disavow the conduct engaged in by (former Quadrangle Managing Principal) Steve Rattner, who hired the New York State Comptroller’s political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund,” Quadrangle officials said in that Cuomo’s news release. “That conduct was inappropriate, wrong, and unethical.  We embrace the reforms in the Attorney General’s Code of Conduct, including the campaign contribution and placement agent ban, which are vitally necessary to eliminate pay-to-play practices from the public pension fund investment process.  We urge others in the industry to follow.”

Quadrangle has agreed to fully cooperate with the Attorney General’s investigation of Rattner and others.

The Allegations

Cuomo said in the announcement that the probe uncovered evidence that:

• Quadrangle retained Morris as a placement agent to increase from $25 million to $100 million an investment Quadrangle was seeking from the CRF.  In the middle of the investment decisionmaking process, Quadrangle also arranged a DVD distribution deal for a movie produced by the brother of then-CRF Chief Investment Officer David Loglisci.  Under the agreement with the Office, Quadrangle will pay $7 million, $5 million of which will be returned to the CRF and $2 million of which will go to the State Treasury.  The Office’s agreement with Quadrangle expressly does not cover Steven Rattner.
• Global received a total of approximately $1.3 million for facilitating public pension fund investments in private equity funds managed by Intermedia Advisors, LLC and Clayton, Dubilier & Rice. Global has agreed to pay a total of $2 million to New York State.
• Kevin McCabe partnered with Hank Morris in Purpose LLC (Purpose), a company that was not a broker-dealer.  Through Purpose, Morris and McCabe facilitated an investment in the GKM Fund from the CRF in 2004, with an additional allocation in 2006.  McCabe’s share of the fees amounted to approximately $477,000.  McCabe has agreed to pay New York State a total of $715,000.
• GKM paid Morris and his partner, Kevin McCabe, to arrange $800 million in capital commitments from the CRF to GKM’s captive fund-of-funds. The CRF has terminated GKM as the general partner of the GKM Fund.  Under its agreement with the Attorney General’s Office, GKM has agreed to relinquish all interest it had as general partner of the GKM Fund, including but not limited to paid-in capital, the right to carried interest, and unpaid management fees.  This interest, which has been valued at approximately $1.6 million, will now go to the CRF.
• Platinum and its founding principal Darius Anderson are registered lobbyists in California.  In 2004, before Anderson obtained a securities license, Ares Management LLC paid Platinum fees totaling approximately $337,000 in connection with investments from both the CRF and the New York City pension funds.  Platinum and Anderson have agreed to pay New York State a total of $500,000.

All five of the signatories have agreed to comply with Attorney General Cuomo’s Public Pension Fund Reform Code of Conduct.