Saul Meyer, founding partner of Dallas-based financial advisor Aldus Equity, has been indicted by New York’s Attorney General Andrew Cuomo for his alleged role in a kick-back scandal that has shaken the private equity world.
Meyer was arrested Thursday and released after being charged, according to special counsel to the attorney general Linda Lacewell. The US Securities and Exchange Commission also said Thursday it had charged Aldus and Meyer in the scheme.
Meyer allegedly paid illegal kick-backs to Henry Morris, a former political operative affiliated with former New York State Comptroller Alan Hevesi, in exchange for business with the $122 billion New York State Common Retirement Fund.
Meyer also is accused of helping one of Hevesi’s sons, Dan Hevesi, secure a $25 million commitment from the New Mexico State Investment Council while Aldus was employed as a private equity advisor to SIC. Aldus assisted Hevesi’s son at the same time that the firm was looking for business from the Hevesi-controlled New York pension. Hevesi and his son have not been charged in the scheme.
The SEC's civil complaint against Aldus is “appalling and careless withthe law and peoples' reputations”, Matthew Orwig, an attorney withAldus, said. The SEC added Aldus to the civil complaint “without completing an investigation or even having a conversation with Aldus partners before it took legal action”, Orwig said.
In regards to the criminal charges against Meyer, Aldus said, “we can't begin to describe our disappointment and astonishment regarding the unexpected legal developments in New York today. At the firm, we are working rapidly to communicate with our clients, employees and associates”.
The New York state and city pensions will terminate their relationships with Aldus, Cuomo said during a press conference Thursday. New Mexico Governor Bill Richardson on Wednesday ordered the state teachers’ pension and $11.8 billion oil and gas endowment to end their relationships with Aldus as well.
“We’re disclosing a national network of actors who often acted in concert and did this all across the country,” Cuomo said. “They collaborated … and victimised taxpayers across the country.”
The investigation is ongoing and the New York attorney general will formally announce coordination with other state agencies in the next few days, Cuomo said.
“We are purposefully and aggressively looking to cooperate with other law enforcement agencies across the country,” Cuomo said. “This is sort of like, when you pull a thread on a sweater, and one thread starts to unravel the whole fabric. We’ve pulled threads, and the other end of the thread is in New Mexico, or Connecticut, or Illinois, or California. Coordination is necessary.”
Cuomo added his office has uncovered evidence of further “manifestations” of corruption within the public pension investment market.
Cuomo has indicted four people so far in the scandal, including Morris and David Loglisci, former chief investment officer with the NY Common, for allegedly collecting sham finder’s fees from investment firms looking for commitments from the pension.
Cuomo also has charged the former head of the New York Liberal Party Raymond Harding and Barrett Wissman, the former head of Texas-based hedge fund Hunt Financial Ventures, for allegedly participating in the scheme.
Aldus has served as an advisor with several US based public pensions, including the New York state and city pension systems; the LA Fire and Police Retirement Fund; the Louisiana State Employees’ Retirement System; the San Antonio Fire and Police Pension Fund, the City of Fort Worth Pension Fund and the Teachers’ Retirement System of Oklahoma.
The firm was also in the the running to become the private equity consultant to the California Public Employees' Retirement System, the biggest pension in the US. Aldus was one of four firms vying for the job, but the CalPERS board decided last week to move two of the four firms forward into the final phase of the selection process, and Aldus was not one of the firms, according to a pension spokesperson. The investigation had nothing to do with CalPERS' decision to not move Aldus forward in the process, the spokesperson said.
According to Cuomo’s complaint, Meyer entered into the scheme in 2004, when the New York pension was searching for a firm to manage the pension’s emerging managers’ fund, which would invest in minority-owned and women-owned funds.
The leading candidate to manage the fund was a minority-owned firm, but the firm refused to pay fees to Morris, and Loglisci rejected the firm, the complaint states. Morris then allegedly sent word through an associate that Aldus could get the job if Aldus agreed to pay fees to Morris and the associate, the complaint states.
Aldus allegedly agreed, and the emerging fund was created with an initial $175 million in capital from the pension.
Morris allegedly was paid more than $300,000 in illegal fees from the relationship, which he shared with his associate. Aldus allegedly knew about this set up and agreed to it, the complaint states. The limited partner agreement between the pension and Aldus requires the firm to disclose all “fees, bonuses and other compensation” Aldus paid to placement agents and finders.
Aldus also sought a $200 million increase to the size of the fund at the same time that the firm was helping Dan Hevesi, son of former New York Comptroller Alan Hevesi, secure a $25 million commitment from the $11.5 billion New Mexico State Investment Council for Hevesi’s client Catterton Partners. Aldus was a private equity advisor to the New Mexico SIC and recommended the endowment commit the money to Catterton, the complaint states.
Ultimately, Aldus obtained the increase in the emerging fund and Hevesi got the $25 million commitment from New Mexico, which earned him $250,000 in fees. Meyers’ work with Hevesi was not disclosed to the pension, the complaint states.
Catterton fully disclosed the role Hevesi's firm, Praetorian, played as a placement agent before the New Mexico SIC commitment was made, a firm spokesperson said.
“Our contract with Praetorian included explicit legal representations that, among other things, 'Praetorian will comply with all applicable laws, including and without limitation, laws related to providing gifts or other remuneration to public officials, public employees, their advisors or representatives,'” the spokesperson said. “We have no knowledge, nor reason to believe, that Praetorian did not comply with its obligations under its contract.”
At one point, in 2006, Meyer considered terminating the relationship with Morris because Deutsche Bank was pondering buying an interest in Aldus and he believed the bank would not approve of Aldus’ contract with Morris, the complaint states.
Morris allegedly became angry when he heard about Meyer’s doubts, and allegedly said “'tell that little peanut of a man that I can take the business away as easily as I provided it’”, the complaint states.
According to the complaint, the pension paid Aldus a total of $3.4 million in fees for the Aldus/NY Emerging Fund from 2004 through 2008. Aldus paid Morris, through a Morris-affiliated shell company Pantigo, $182,639 in 2005 and $136,736 in 2006.