Markstone to pay $18m to settle with Cuomo

Markstone Capital Group, a private equity firm based in Tel Aviv, has agreed to pay $18 million to end the investigation against the firm by New York Attorney General Andrew Cuomo relating to pension kick-backs.

The $18 million, which will be paid to the New York State Common Retirement Fund, represents the amount of management fees the firm collected from the pension.

Cuomo’s investigation focused on the conduct of the firm’s co-founder and former chairman, Elliott Broidy. Broidy pleaded guilty in December to a felony count of “rewarding official misconduct”.

Andrew Cuomo

The charge relates to a $250 million commitment in Markstone by the New York State Common Retirement Fund in 2005, making the pension the firm’s anchor investor. Broidy allegedly attracted the investment by giving about $1 million in gifts to officials at the pension.

Broidy resigned from the firm after pleading guilty, and was replaced by Dan Gillerman, former Israeli ambassador to the United Nations.

Markstone eventually collected $800 million for its debut fund for buyouts of companies in Israel. The California Public Employees’ Retirement System is also an investor in the fund with a $50 million commitment. CalPERS has been re-assessing its relationship with Markstone.

Markstone has invested $562 million in 10 companies since the close of its debt fund, and has distributed $218 million to investors, primarily from the sale of two investments.

Cuomo has collected settlement money from several firms and individuals since making his investigation into pension kick-backs public in March 2009. In December, David Leuschen, the founder of New York-based Riverstone Holdings, agreed to pay $20 million to end the investigation against him. Riverstone, in a separate deal, agreed to pay Cuomo $30 million to settle its case in New York.