Schwarzenegger Signs Law on Placement Agents

October 14, 2009 ( - California Governor Arnold Schwarzenegger has signed a bill clamping down on placement agents, the marketing middlemen hired by private equity groups and other investment firms to secure business from public pension funds.

The Sacramento Bee reports that Assembly Bill 1584 requires disclosure of fees paid by investment firms to placement agents. It also requires agents to notify pension system governing boards of any campaign contributions or gifts they’ve made to system board members.

The new rules are in response to a multi-state probe into whether placement agents improperly influence pension fund boards that began in New York, where a number of individuals have been indicted (see Cuomo Announces Guilty Pleas in Pay-to-play Probe ).

The New York probe broadened to other states, including New Mexico (see NM to Undergo Independent Review of Investment Practices ) and California, with subpoenas issued by California Attorney General Jerry Brown (see California AG Steps Up Pension Corruption Investigation ), the Securities and Exchange Commission, and others.

In May, a former employee of Los Angeles placement agent firm Wetherly Capital Group, which has successfully represented clients seeking business with the California Public Employees Retirement System (CalPERS) and California State Teachers Retirement System (CalSTRS), pleaded guilty to paying fees to New York political figures (see Ramirez Enters Pension Probe Guilty Plea ).

The Bee said it had previously reported that a Nevada placement agent firm Arvco Capital Research, headed by former CalPERS board member Alfred Villalobos, was among the most successful at securing business from CalPERS. In addition, CalPERS board member Charles Valdes is being investigated by the Fair Political Practices Commission for accepting campaign donations from firms doing business with the fund, including Arvco.

CalPERS adopted a policy in May requiring investment firms to disclose whether they’ve hired placement agents (see CalPERS Adds Placement Agent Disclosure Policy ). CalSTRS created a similar policy in 2006.

New York and Connecticut state officials and officials in Los Angeles have already adopted new private placement agent rules (see NYC’s Thompson Backs SEC Private Placement Agent Regulations ), as has New Jersey’s State Investment Council (see NJ Adopts New Placement Agent Standards ).