Posted by AzBlueMeanie:
Mortgage bubble bursts… the financial markets collapse… investment banks are bailed out with taxpayer funds… Bernie Madoff… criminal investigations into TARP recipients… and now a mushrooming New York pension fund scandal that is going national.
Last Friday, New York Attorney General Andrew Cuomo announced that his office was issuing more than 100 new subpoenas to investment firms and intermediaries who brokered deals with public pension funds, in the latest expansion of his corruption investigation. Cuomo Issues 100 Subpoenas in Pension Fund Inquiry
Mr. Cuomo said a preliminary review by his office found that as many as half of the intermediaries in pension fund transactions in New York State and New York City were not properly licensed and registered with a broker-dealer, as required by federal securities laws. Failing to register could violate both federal securities laws and the Martin Act, a sweeping state securities law.
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He also conferred with the offices of 35 other attorneys general Friday afternoon by teleconference. The pension corruption inquiry has raised questions about public investment practices in other states, in particular New Mexico and California.
Afterward, Mr. Cuomo said the group had “decided to create a multistate task force to explore pension fund abuse.”
Mr. Cuomo’s office has been working with the Securities and Exchange Commission, which is conducting a parallel investigation. Federal investigators are also reviewing public investment transactions in New Mexico, and the S.E.C. is reviewing pension transactions in California.
Among the firms being scrutinized in the latest round of Mr. Cuomo’s inquiry is Wetherly Capital Group, according to people with knowledge of the inquiry.
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Wetherly has come under scrutiny in California for paying a firm affiliated with Hank Morris, a top aide to Alan G. Hevesi, the former New York State comptroller, as part of an investment deal it brokered for Calpers, the giant California pension fund.
Another California firm being scrutinized in the latest round of the investigation is Gold Bridge Capital, which has acted as a placement agent on at least one deal involving the New York State pension fund.
The inquiries by Mr. Cuomo and the S.E.C., under way for two years, have focused on the millions of dollars that friends, relatives and aides of Mr. Hevesi’s gained by selling access to the $122 billion New York State pension fund. Mr. Morris and David Loglisci, another former top aide to Mr. Hevesi, have been indicted on a variety of corruption-related fraud charges, and Raymond B. Harding, the former head of the state Liberal Party, has also been charged in the case. All three have pleaded not guilty. Mr. Hevesi has not been charged.
The inquiries took on more national relevance on Thursday when Mr. Cuomo charged a top consultant to pension funds around the country, Saul Meyer, with a fraud-related felony. Mr. Meyer and his firm, Aldus Equity, which is based in Dallas, were also charged in a civil complaint by the S.E.C. Both Mr. Meyer and Aldus denied wrongdoing.
The new phase of the inquiry focuses on lobbyists, political consultants and others who brokered deals between investment firms and the New York pension funds but were not properly registered to do so.
Talkingpointsmemo.com has done an excellent job of reporting on this scandal. Cuomo Charges Dallas Money Manager, Says NY Pension Scammers Are Part Of A "National Network" | TPMMuckraker:
New York AG Andrew Cuomo added a new name to the growing list of indictments in the New York Pension Fund scandal: Saul Meyer… the founder of the private equity fund Aldus Equity. Meyer won't be the last, Cuomo assured reporters at a press conference announcing the charges today:
"I believe we are disclosing a national network of actors who often acted in concert and did this all across the country," Mr. Cuomo said. "They collaborated, they often partnered and victimized states and taxpayers across the country. It's also an ongoing scam."
We said as much yesterday, when we showed you how a key figure in the pension scandals in New Mexico and New York was a direct descendant-in-law of a key figure in a California pension scam of the nineties. And we told you about Aldus, a key name linking the New York fraud to a suspected scheme to scam the teachers' retirement fund in New Mexico and possibly other public pension funds, last week.
Aldus's usual business was advising state pension funds on private equity investments. But it went a step further in New York, using its access to the pension's billions to arrange a $375 million investment to create its own private equity fund. The idea was hatched by Hank Morris, the top adviser to former state comptroller Alan Hevesi who is charged with defrauding the pension fund in a scheme to collect phony "finder's fees." According to the indictment, Aldus paid Morris about $320,000 to secure itself a $375 million investment from the pension fund. Not bad for a private equity firm that, according to this Dallas Business Journal puff profile that ran (all of) two months ago: "started in 2003 with no clients."
More than a dozen hedge funds and private equity firms allegedly paid $35 million in phony fees to Morris and his conspirators, according to the indictments. Most prominent thus far has been Quadrangle, the private equity firm founded by auto czar Steve Rattner. But Aldus was different because the retirement was paying for its advice — meaning its fiduciary responsibility was to the pension. Aldus had similar consulting relationships with numerous other public pension funds, including the retirement funds of firefighters in Los Angeles and the teachers in New Mexico, both of which are also under investigation for pay-to-play practices.
New Mexico Gov. Bill Richardson officially fired Aldus yesterday after relying on the firm's advice for private equity investment decisions since 2004. No one has been charged in New Mexico, but the former chief investment officer of the teachers retirement fund filed a massive whistleblower lawsuit last year alleging that the fund's board steered money to politically-connected investment vehicles — in one case forcing teachers to eat a 95% loss on a "toxic" CDO.
Another firm mentioned (but not charged) in today's indictment that would have been the legal fiduciary of the fund when it got caught up in Morris' alleged scam is Pacific Corporate Group. PCG "already managed certain Retirement fund investments," according to the indictment, when the pension fund's now-indicted chief investment officer David Loglisci suggested that his PCG contact form a joint venture with a friend of his into which the retirement fund agreed to invest $750 million in exchange for passing back an alleged $1.26 million in fees back to Morris, Loglisci and Dallas hedge fund manager Barrett Wissman, who earlier this month pleaded guilty to fraud charges in the scheme and agreed to repay $13 million in fees.
The Pacific Corporate Group executive, who is not named in the indictment, no longer works for PCG. But as we explained yesterday, the La Jolla, California-based advisory firm is no stranger to public pension money — or conflict-of-interest accusations: in 1994 PCG founder Chris Bower advised California's biggest public pension fund to invest $100 million in the Dallas private equity firm Hicks, Muse, Tate & Furst. A few months later, firm co-founder Tom Hicks bought Bower's two-year-old yacht for $45,000 more than Bower had paid. That firm, now known as HM Capital, was also named in the New York indictment for paying fees to Morris in exchange for investments. Two years ago, Aldus Equity advised the New Mexico Educational Retirement Board to invest $20 million in an HM Capital Fund.
Back in 1999 the SEC proposed comprehensive regulation of pension fund placement agents and other potential conflicts-of-interest, but the stock market was in the headiest stretch of an epic bull market and the proposal died on the vine. Cuomo Subpoenas 100 Hedge Funds, Enlists 36 States In Mushrooming Pension Probe | TPMMuckraker