PCG to pay $2m to settle with New York in pension scandal

An affiliate of the California-based gatekeeper was a minority partner in a co-investment fund accused of kicking back illegal fees for a $750m commitment from New York State Common Retirement Fund.

Pacific Corporate Group will pay $2 million and sign a code of conduct to settle with New York’s attorney general over its role in a wide-ranging, pay-to-play scandal involving the New York State Common Retirement Fund.

The $2 million, which will come from PCG Corporate Partners Advisors II, will be returned “for the benefit of pension holders”, New York Attorney General Andrew Cuomo said in statement.

PCG said the settlement allows the firm to move on from the “improper actions of a former executive”, but it is unclear who the former executive is. Cuomo did not return calls for comment and PCG declined to name the former executive.

“PCG is the third signatory to our code of conduct and the first pension fund advisor to adopt the code,” Cuomo said. “PCG’s adoption of the code sets a new standard for gatekeepers industry-wide. As a gatekeeper to public pension funds, PCG has a responsibility to exercise the highest level of ethical conduct in its work.”    

The Carlyle Group and Riverstone Holdings have also signed on to Cuomo’s code of conduct to resolve their roles in the pension scandal, respectively paying settlement amounts of $20 million and $30 million.

Pacific Corporate Group Capital Partners (PCGCP), an affiliate of PCG, was a minority partner in a joint venture called Strategic Co-Investment Partners, which received $750 million from the $109 billion New York Common in 2006. At the time, the commitment was the largest-ever made by New York Common.

Other parties in the joint venture included New York-based hedge fund Clinton Group and Barrett Wissman, a hedge fund manager and friend to David Loglisci, the then-chief investment officer of New York Common who has been indicted in the pension scandal.

According to Cuomo, Loglisci allegedly “sculpted and funded” the Strategic Co-Investment Partners investment to benefit his alleged partners in the scandal, Wissman and Henry Morris, a former New York political operative. Wissman and Loglisci allegedly hid Morris’ involvement in Strategic Co-Investment Partners from senior management at PCG and the New York Common investment staff. Wissman and Morris were allegedly paid $1.2 million in periodic and illegal payments, according to a complaint from the US Securities and Exchange Commission.

Cuomo also alleges the former PCGCP executive hid Morris' role in the joint venture. The PCGCP executive was informed proceeds of the joint venture would be split with Morris and that Morris would be a “concealed participant in the deal, and that there would be no [New York Common] investment without the inclusion of … Morris”, the complaint alleges. The PCG executive allegedly hid Morris' involvement from other partners at PCGCP and did not inform them that without Morris' involvement, the commitment from New York Common would not happen.

“We are taking these steps to make the public whole for the improper actions of a former executive, to put this episode behind us and to move our business forward,” PCG said in a statement.

It is unclear who the former PCGCP executive is who is named in the statement. Cuomo has indicted six people so far in the scandal, including Morris, Loglisci, Wissman, Julio Ramirez, a former executive with Blackstone-affiliated Park Hill, Raymond Harding, the former head of the New York Liberal Party, and Saul Meyer, the founder and head of private equity advisor Aldus Equity.

One former PCGCP executive, Steve Moseley, resigned as president of private equity advisor StepStone Group in May because of an “unfair and unnecessary distraction” from media reports connecting him to the pension scandal.

Moseley had served as a managing director and co-president of PCGCP at the time Strategic Co-Investment Partners was launched. The SEC complaint said a managing director with PCGCP and an executive with Clinton Group had agreed to set up the co-investment fund, and cut Morris in on the profits. Moseley has not been charged with wrongdoing.

Cuomo’s code of conduct bars investment firms from using placement agents to solicit public pensions for commitments. The code also prohibits investment firms from doing business with public pensions for two years after the firms make campaign contributions to an elected or appointed official who can influence the fund’s investment decisions.