A federal judge has shot down the US Securities and Exchange Commission's argument that the head of a private equity firm in California has not been fully cooperative with the government in its nation-wide pay-to-play investigation.
The SEC accused Elliott Broidy, who runs Markstone Capital Group, of not fully complying with document requests and said he has failed to appear for testimony, despite receiving subpoenas compelling him to appear.
The US regulator said Broidy has failed to produce all requested documents despite receiving six extensions to do so in a three-month period.
One example of documents the SEC is looking for relates to Broidy's firm, Markstone. According to the SEC, Broidy served for about seven years on the board of the Los Angeles Fire and Police Pensions system, which invests in private equity. During his tenure, the California Public Employees' Retirement System committed $50 million to Markstone. In connection with this, the SEC is seeking documents related to payments made or paid to Broidy relating to the commitments.
CalPERS made the $50 million commitment to Markstone in two, $25 million investments made in 2003 and 2005. For the second investment, Markstone used a placement agent that was not registered as a broker-dealer, the SEC said. The filings do not name the placement agent.
“Broidy's continued refusal to comply with subpoenas is hindering the commission staff's efforts to determine what, if any, violations of the securities laws have occurred or continue to occur,” the SEC said.
According to the SEC filings, Broidy has had to delay production of the documents for a variety of reasons, including a “busy schedule of business meetings, a family celebration, and a summer vacation”.
“We have responded in a timely fashion to each of the many document requests we have received from them over the summer,” Broidy's spokesperson said. “Specifically we have had to go through more than 100,000 pages of documents and produced 40,000 documents delivered to the SEC per their request.”
Judge Stephen Wilson rejected the SEC's request to compel Broidy to immediately testify and set deadlines of 12 October to produce all the documents the SEC has requested, and 22 October to appear for testimony, according to Broidy's spokesperson.
A full transcript of the court hearing was not available at press time.
Broidy, who also has been interviewing with New York Attorney General Andrew Cuomo, has not been accused of wrongdoing. Along with his role running Markstone, Broidy served as a member of the board of the Los Angeles Fire and Police Pensions system for seven years.
The SEC sent letters of inquiry to Broidy and fellow LA Fire and Police pension board member Sean Harrigan in May. Both men stepped down from the pension board at the time.
The SEC's investigation relates to a wide-ranging probe that began in New York by Attorney General Andrew Cuomo on pay-to-play practices involving public pensions. Cuomo has indicted six people so far in the probe for allegedly taking part in the scheme to collect sham finder's fees from investment firms in exchange for commitments from pensions.