Quadrangle, Global Strategy Group, Kevin McCabe, GKM, and Platinum Advisors Will Pay Nearly $12 Million to New York State and Comply with the Attorney General’s Code of Conduct
NEW YORK, NY (April 15, 2010) – The New York Attorney General’s Office today announced agreements with two investment firms and three unlicensed brokers in the Office’s ongoing public pension fund investigation. Good government groups Common Cause and NYPIRG also joined the Attorney General in calling for reforms to the sole trustee pension system in New York. Cuomo made today’s announcement as millions of Americans filed their tax returns.
Cuomo has authored a sweeping pension reform bill – “Taxpayers Reform for Upholding Security and Transparency” (“T.R.U.S.T.”) – that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay-to-play in state public pension funds.
Under the agreements, Quadrangle Group LLC (“Quadrangle”) 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.
Two of the agreements announced today (“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 (the “CRF”). The CRF is the biggest pool of money in the state and the third largest pension fund in the country, most recently valued at approximately $129 billion.
Quadrangle stated, “We wholly disavow the conduct engaged in by 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. 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 as to Rattner and others.
The three other agreements announced today (“Global”, Kevin McCabe, and “Platinum”) result from the Office’s inquiry into the use of unlicensed intermediaries (placement agents) at New York public pension funds. In May 2009, the Attorney General’s Office subpoenaed investment firms and their agents in connection with New York public pension fund investments after determining that 40 to 50 percent of agents acting to secure investments from the state and city pension funds were unregistered.
The facts found by the Attorney General’s Office in this regard are as follows:
* 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 decision-making 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 former Quadrangle Managing Principal 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 GKM Fund”). 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. Among other things, the Code of Conduct bans the use of placement agents to solicit investments from public pension funds, and prohibits investments within two years of any campaign contribution from the investment firm to the Comptroller or other elected trustee.
Under state and federal law, people engaged in the business of effecting transactions in securities are required to be licensed and registered with a broker-dealer. To determine whether a securities broker is licensed and registered, visit www.finra.org/investors/toolscalculators/brokercheck/index.htm.
Susan Lerner, Executive Director of Common Cause/NY said, “We need transparency and accountability - not just among our top state leaders and legislators, but also wherever and whoever handles public funds. Attorney General Cuomo’s sweeping investigation into the public pension fund has uncovered conflicts of interest, improprieties, and outright criminal acts by those we trust with our money. Common Cause applauds the Attorney General’s work on behalf of taxpayers and state pension recipients and will work to help him pass this important reform legislation.”
Russ Haven, Legislative Counsel for the New York Public Interest Research Group (NYPIRG), said, “After decades of controversies, we believe it’s time to follow the vast majority of other states and entrust investment decisions for the state’s $130 billion pension fund to an independent board. More decision makers and tight conflict of interest and pay-to-play prohibitions will create greater oversight and boost public confidence in the system.”
To view the agreements and documents related to today’s announcement, please visit www.ag.ny.gov.
PENSION REFORM BILL
Attorney General Cuomo has proposed a sweeping pension reform bill that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay-to-play in state public pension funds. The legislation, entitled, “Taxpayers’ Reform for Upholding Security and Transparency” (“T.R.U.S.T.”), has received bipartisan support.
The bill would institutionalize Cuomo’s Public Pension Fund Reform Code of Conduct and provide additional civil, criminal, and administrative penalties and sanctions to ensure firms and individuals are held accountable for violations of the new law. The bill would increase the rigor, integrity, and transparency of the investment process by eliminating campaign contributions by firms investing public pension money and banning the use of intermediaries paid to open the door to public pension fund investments. The legislation would also strengthen enforcement by adding misdemeanor and felony provisions and authorizing the Attorney General to commence civil actions to enjoin ongoing violations and impose civil penalties.
BACKGROUND INFORMATION
Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which, among other things, bans investment firms from compensating intermediaries for introductions to public pension funds. With today’s agreements, fifteen firms have endorsed the Code: investment firms The Carlyle Group, Riverstone Holdings LLC, Pacific Corporate Group Holdings, LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners, Falconhead Capital, Markstone Capital Group, Ares, Freeman Spogli, Quadrangle, and GKM; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; and lobbying firm Platinum Advisors.
Thirteen of these firms collectively have agreed to return more than $100 million associated with CRF investments; these funds will principally be provided to the CRF for the benefit of the pension holders. Payments from individuals bring that total to more than $130 million for the CRF and the State.
Attorney General Cuomo’s investigation into corruption at the CRF has also led to a number of criminal charges and six guilty pleas to date, including guilty pleas by former Liberal Party Chair Ray Harding, investment advisor Saul Meyer, hedge fund manager Barrett Wissman, Julio Ramirez, an unlicensed placement agent, and venture fund manager Elliott Broidy. A seventh indictment against Hank Morris remains pending and Morris is presumed innocent until and unless proven guilty in court.
The Attorney General thanked the United States Securities & Exchange Commission for their cooperation in the investigation. The SEC, in July 2009, proposed new pay-to-play rules that would institutionalize Cuomo’s Code of Conduct nationwide.
This investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz and Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel to the Attorney General Linda A. Lacewell.
Cuomo has authored a sweeping pension reform bill – “Taxpayers Reform for Upholding Security and Transparency” (“T.R.U.S.T.”) – that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay-to-play in state public pension funds.
Under the agreements, Quadrangle Group LLC (“Quadrangle”) 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.
Two of the agreements announced today (“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 (the “CRF”). The CRF is the biggest pool of money in the state and the third largest pension fund in the country, most recently valued at approximately $129 billion.
Quadrangle stated, “We wholly disavow the conduct engaged in by 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. 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 as to Rattner and others.
The three other agreements announced today (“Global”, Kevin McCabe, and “Platinum”) result from the Office’s inquiry into the use of unlicensed intermediaries (placement agents) at New York public pension funds. In May 2009, the Attorney General’s Office subpoenaed investment firms and their agents in connection with New York public pension fund investments after determining that 40 to 50 percent of agents acting to secure investments from the state and city pension funds were unregistered.
The facts found by the Attorney General’s Office in this regard are as follows:
* 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 decision-making 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 former Quadrangle Managing Principal 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 GKM Fund”). 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. Among other things, the Code of Conduct bans the use of placement agents to solicit investments from public pension funds, and prohibits investments within two years of any campaign contribution from the investment firm to the Comptroller or other elected trustee.
Under state and federal law, people engaged in the business of effecting transactions in securities are required to be licensed and registered with a broker-dealer. To determine whether a securities broker is licensed and registered, visit www.finra.org/investors/toolscalculators/brokercheck/index.htm.
Susan Lerner, Executive Director of Common Cause/NY said, “We need transparency and accountability - not just among our top state leaders and legislators, but also wherever and whoever handles public funds. Attorney General Cuomo’s sweeping investigation into the public pension fund has uncovered conflicts of interest, improprieties, and outright criminal acts by those we trust with our money. Common Cause applauds the Attorney General’s work on behalf of taxpayers and state pension recipients and will work to help him pass this important reform legislation.”
Russ Haven, Legislative Counsel for the New York Public Interest Research Group (NYPIRG), said, “After decades of controversies, we believe it’s time to follow the vast majority of other states and entrust investment decisions for the state’s $130 billion pension fund to an independent board. More decision makers and tight conflict of interest and pay-to-play prohibitions will create greater oversight and boost public confidence in the system.”
To view the agreements and documents related to today’s announcement, please visit www.ag.ny.gov.
PENSION REFORM BILL
Attorney General Cuomo has proposed a sweeping pension reform bill that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay-to-play in state public pension funds. The legislation, entitled, “Taxpayers’ Reform for Upholding Security and Transparency” (“T.R.U.S.T.”), has received bipartisan support.
The bill would institutionalize Cuomo’s Public Pension Fund Reform Code of Conduct and provide additional civil, criminal, and administrative penalties and sanctions to ensure firms and individuals are held accountable for violations of the new law. The bill would increase the rigor, integrity, and transparency of the investment process by eliminating campaign contributions by firms investing public pension money and banning the use of intermediaries paid to open the door to public pension fund investments. The legislation would also strengthen enforcement by adding misdemeanor and felony provisions and authorizing the Attorney General to commence civil actions to enjoin ongoing violations and impose civil penalties.
BACKGROUND INFORMATION
Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which, among other things, bans investment firms from compensating intermediaries for introductions to public pension funds. With today’s agreements, fifteen firms have endorsed the Code: investment firms The Carlyle Group, Riverstone Holdings LLC, Pacific Corporate Group Holdings, LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners, Falconhead Capital, Markstone Capital Group, Ares, Freeman Spogli, Quadrangle, and GKM; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; and lobbying firm Platinum Advisors.
Thirteen of these firms collectively have agreed to return more than $100 million associated with CRF investments; these funds will principally be provided to the CRF for the benefit of the pension holders. Payments from individuals bring that total to more than $130 million for the CRF and the State.
Attorney General Cuomo’s investigation into corruption at the CRF has also led to a number of criminal charges and six guilty pleas to date, including guilty pleas by former Liberal Party Chair Ray Harding, investment advisor Saul Meyer, hedge fund manager Barrett Wissman, Julio Ramirez, an unlicensed placement agent, and venture fund manager Elliott Broidy. A seventh indictment against Hank Morris remains pending and Morris is presumed innocent until and unless proven guilty in court.
The Attorney General thanked the United States Securities & Exchange Commission for their cooperation in the investigation. The SEC, in July 2009, proposed new pay-to-play rules that would institutionalize Cuomo’s Code of Conduct nationwide.
This investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz and Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel to the Attorney General Linda A. Lacewell.
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