Four GPs receive 'pay-to-play' wrist slaps

Levine Leichtman, HM Capital, Access Capital and Falconhead Capital will pay a total of $4.5m to settle with the New York attorney general’s office.

Four more private equity firms have agreed to sign New York Attorney General Andrew Cuomo’s Pubic Pension Fund Reform Code of Conduct, as well as return a combined $4.5 million to the New York State Common Retirement Fund. The addition of HM Capital Partners, Levine Leichtman Capital Partners, Access Capital Partners, and Falconhead Capital Partners brings code’s signatories up to seven.

HM Capital will pay $1.56 million, Falconhead will pay $1.3 million, Levine Leichtman will turn over $200,000 that it has recovered from its former placement agent, and Access will return $1.6 million in fees that it withheld from its former finder.

According to a statement from Cuomo, HM Capital and Falconhead paid Hank Morris – chief political aide to the Common Retirement Fund’s former-comptroller, Alan Hevesi – to obtain investments from the Common Retirement Fund. The fund committed $70 million to HM Capital, and indirectly committed $30 million to Falconhead through a fund of funds managed by Aldus Equity. HM Capital did not actually pay any finder’s fees, because Hevesi was under investigation before the fees came due.

Levine Leichtman hired Wetherly Capital Group, a Los Angeles-based broker dealer, as a placement agent for its interactions with the Common Retirement Fund. The terms of service required Wetherly to obtain approval before engaging any sub-finders. Cuomo alleges that Wetherly agreed to pay Morris through a sub-finder agreement with Morris’s broker-dearler firm, Searle & Co, whereby Searle would receive 40 percent of any placement fees that Wetherly received from any Common Retirement Fund investment with Levine Leichtman. The fund indirectly invested $20 million with Levine Leichtman through Aldus, and Levine Leichtman paid Wetherly a one percent placement fee. Wetherly paid Searle 40 percent of its fee, of which Searle passed on 95 percent to Morris.

Paris-based fund of funds Access hired Barrett Wissman as a finder. Like Wetherly, Wissman agreed in writing to get approval from Access before engaging any sub-finder. Cuomo said Wissman “secretly” agreed to pay Morris 45 percent of any fees he might earn on a Common Retirement Fund investment with Access. The fund committed €500 million Euros to Access, and Wissman gave 45 percent of the fees to Morris. Wissman has since pled guilty to Martin Act securities fraud charges partly in connection with his misrepresentations to Access.

Pension fund adviser Pacific Corporate Group signed the code in July, and paid $2 million to settle. Private equity firms The Carlyle Group and Riverstone Holdings paid $20 million and $30 million, respectively.

The code bans investment firms from hiring, utilising, or compensating placement agents, lobbyists, or other third-party intermediaries to communicate or interact with public pension funds to obtain investments. It also prohibits investment firms from doing business with a public pension fund for two years after the firm makes a campaign contribution to an elected or appointed official who can influence the fund's investment decisions.