DiNapoli Bars Placement Agents for Empire State Fund

April 22, 2009 (PLANSPONSOR.com) - With an ongoing state-federal probe continuing into the role of paid intermediaries doing business with the New York State Common Retirement Fund (CRF), New York state Comptroller Thomas P. DiNapoli has now banned use of such "placement agents."

According to a DiNapoli news release, the new rule covers paid intermediaries and registered lobbyists “compensated on a flat fee, a contingent fee or any other basis.”

The comptroller said he had hired the Day Pitney LLP law firm and Pension Consulting Alliance, an independent investment consulting company, to help investigate any of the fund’s holdings connected to targets of the investigation by the state Attorney General and the U.S. Securities and Exchange Commission (SEC).   

“Since I took office, we’ve worked to implement reforms that will help restore integrity and trust in this office,” DiNapoli said in the news release. “Banning placement agents and lobbyists from involvement in investments is the next step, and it’s a big step.”

The state and federal investigators are examining millions of dollars in payments made by the hedge funds and private equity firms – known as “placement fees” – to middlemen firms. The middlemen companies, in turn, give the hedge funds and private equity firms a tie-in to the pension program. While the “placement fees” are common and not illegal, investigators are focusing on whether investment managers were knowingly involved in a scheme under which they would pay for being chosen as one of the $122-billion funds outside money managers.

Recent media reports have indicated that an investment firm owned by Obama auto czar Steven Rattner, Quadrangle Group, is one of about a dozen private equity companies and hedge funds involved in the state-federal investigation.  (see Report: Auto Czar’s Investment Firm Focus of Pay-to-Play Probe ).

An SEC complaint filed in the investigation is available here .