Key Takeaways
- • Four private-equity firms—Falconhead Capital, HM Capital Partners, Levine Leichtman Capital Partners, and Access Capital Partners—collectively agreed to return more than $4.5 million to New York's state pension fund as part of a corruption settlement announced by state Attorney General Andrew Cuomo on September 17, 2009.
- • The firms, which were not charged with wrongdoing, agreed to cease using placement agents as intermediaries to solicit public pension fund business and to adopt a code of conduct for pension fund management reforms.
- • New York's broader pay-to-play investigation has expanded to multiple states and resulted in seven total firm settlements, including private-equity giant The Carlyle Group, with two guilty pleas and criminal charges against four defendants including campaign strategist Hank Morris and former comptroller aide David Loglisci.
- • The investigation targeted alleged kickbacks and bribes paid to public officials and intermediaries in exchange for lucrative pension fund management awards, a practice Cuomo characterized as remaining "rampant" across the nation's pension fund ecosystem.
Summary
Four private-equity firms have agreed to settle their involvement in New York state's ongoing pension fund corruption investigation, with state Attorney General Andrew Cuomo announcing the agreements on September 17, 2009. Falconhead Capital, HM Capital Partners, Levine Leichtman Capital Partners, and Access Capital Partners will collectively return more than $4.5 million to the state pension fund and implement business reforms as conditions of settlement.
The firms, which did not face criminal charges, agreed to eliminate their use of placement agents—intermediaries that historically facilitate introductions between investment managers and pension fund decision-makers—in pursuing public pension fund business. Additionally, all four firms committed to adopting a code of conduct that Cuomo drafted to govern future pension fund management practices and relationships.
The New York probe represents a broader enforcement effort against what is informally known as "pay-to-play" arrangements in the pension fund industry. Cuomo's office has secured settlements with seven firms to date, including The Carlyle Group, one of the world's largest private-equity firms. The investigation has expanded beyond New York into several other states and has produced tangible criminal consequences: two guilty pleas and criminal charges against four defendants, including nationally known campaign strategist Hank Morris, who served as the top political adviser to former state comptroller Alan Hevesi, and David Loglisci, a former Hevesi aide. Both defendants have pleaded not guilty.
According to indictments filed earlier in 2009, Falconhead and HM Capital each allegedly agreed to compensate Morris through a broker-dealer in exchange for securing New York pension fund awards. Cuomo emphasized that such corrupt practices remain widespread in pension fund management nationwide, and he characterized the settlements as momentum-building steps toward systemic reform. The enforcement actions signal heightened regulatory scrutiny of the intermediaries and compensation structures that facilitate investment manager access to large institutional capital pools.
The firms, which did not face criminal charges, agreed to eliminate their use of placement agents—intermediaries that historically facilitate introductions between investment managers and pension fund decision-makers—in pursuing public pension fund business. Additionally, all four firms committed to adopting a code of conduct that Cuomo drafted to govern future pension fund management practices and relationships.
The New York probe represents a broader enforcement effort against what is informally known as "pay-to-play" arrangements in the pension fund industry. Cuomo's office has secured settlements with seven firms to date, including The Carlyle Group, one of the world's largest private-equity firms. The investigation has expanded beyond New York into several other states and has produced tangible criminal consequences: two guilty pleas and criminal charges against four defendants, including nationally known campaign strategist Hank Morris, who served as the top political adviser to former state comptroller Alan Hevesi, and David Loglisci, a former Hevesi aide. Both defendants have pleaded not guilty.
According to indictments filed earlier in 2009, Falconhead and HM Capital each allegedly agreed to compensate Morris through a broker-dealer in exchange for securing New York pension fund awards. Cuomo emphasized that such corrupt practices remain widespread in pension fund management nationwide, and he characterized the settlements as momentum-building steps toward systemic reform. The enforcement actions signal heightened regulatory scrutiny of the intermediaries and compensation structures that facilitate investment manager access to large institutional capital pools.
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