NY State Pension Probe Nets another Deal

December 10, 2009 (PLANSPONSOR.com) – A private equity executive has agreed to pay $20 million to settle pay-to-play charges in connection with the New York State Common Retirement Fund (CRF).

A news release from New York state Attorney General Andrew M. Cuomo said prosecutors have worked out the agreement with David Leuschen, the founder of private equity firm Riverstone Holdings LLC.

The Attorney General’s investigation revealed that after the CRF invested $150 million in a joint venture between the Carlyle Group and Riverstone, Leuschen made an “investment” of $100,000 in Chooch, a film produced by the brother of then Chief Investment Officer David Loglisci. Carlyle was unaware of that investment and the investment was not disclosed to the CRF.

Riverstone employees also made approximately $40,000 in campaign contributions to former Comptroller Alan Hevesi’s campaign in 2004, according to Cuomo.

“It is important that both firms and individuals be held accountable for conduct that jeopardized the integrity of the New York State Common Retirement Fund,” said Cuomo, in the announcement. “As these sums return value to the state pension fund, we continue to pursue the critical reforms that are necessary to prevent such rampant abuse from again corrupting the pension system.”

Cuomo contended that Riverstone was a joint venture partner with Carlyle on three investment deals with the CRF starting in 2003.

Carlyle/Riverstone retained Searle, a company associated with Henry Morris, the chief political aide Hevesi, as a placement agent to help obtain investments from the CRF. Prior to doing so, the companies had experienced limited success in obtaining investments from the CRF. However, after retaining Searle, they obtained approximately $530 million in total investment commitments from the CRF in Carlyle/Riverstone funds, Cuomo asserted.

In exchange, Carlyle paid Searle over $10.6 million. Searle then paid the lion’s share of placement fees received from Carlyle to PB Placement, LLC, a shell company controlled by Morris. Unbeknownst to Carlyle, Morris had allegedly entered into a fee-splitting arrangement to pay hedge fund manager Barrett Wissman half of all these fees.

According to the Attorney General, investment commitments made by the CRF and the related fees paid to Searle and others included:

  • A $150,000,000 commitment to Carlyle/Riverstone Global Energy & Power Fund II, L.P. made in November 2003 for which Searle was paid $3 million in fees, $1.4 million went to PB Placement and $1.5 million went to Wissman;
  • A $350 million commitment to Carlyle/Riverstone Global Energy & Power Fund III, L.P. made in October 2005 for which Searle was paid $7 million, $3.3 million went to PB Placement and $3.5 million went to Wissman; and
  • A $30 million commitment to Carlyle/Riverstone Renewable Energy Infrastructure Fund I, L.P. through CRF’s fund-of-funds, The Hudson River Fund II, L.P. made in December of 2005 for which Searle received $600,000 in fees, $285,000 went to PB Placement and $300,000 went to Wissman.

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