Thayer Capital Partners, a major Washington DC private equity firm, and its chairman, Frederic Malek, will pay a $250,000 penalty to settle SEC charges related the payment of an unusual finder’s fee.
According to a Securities and Exchange Commission statement, the penalty relates to Thayer Capital’s failure to disclose to the State of Connecticut fees related to a $75 million capital commitment from a former state treasurer, Paul Silvester.
Acting on a ‘request’ from Silvester in 1998, Malek paid a total of $375,000 to William DiBella, described in the SEC document as a ‘friend and political supporter’ of Silvester.
In Connecticut, the office of the treasurer is an elected position and carries with it the role of sole fiduciary of the state’s public pension. After Silvester failed to be re-elected to a second term, he made a quick series of capital commitments to a number of private equity firms. The next treasurer, Denise Nappier, opened an investigation into fees and favours surrounding these commitments.
Silvester is now serving a two-year prison sentence for arranging and accepting kickbacks while treasurer.
The DiBella fee was understood to be a ‘reward’ for the state’s capital commitment to a Thayer Capital fund, according to the SEC. In fact, the commission notes, Silvester actually increased his commitment to the firm in order to garner a better fee for DiBella, who funneled the money through his ‘consulting firm,’ North Cove Ventures. DiBella is the former majority leader of the Connecticut State Senate.
“The Treasurer made this request after due diligence on the proposed investment was already completed and the investment was nearly finalized,” the SEC statement reads.
The SEC also notes: “DiBella had no prior involvement with the transaction and ultimately performed no meaningful work related to the investment.”
In paying the penalty, Thayer Capital and Malek neither admit nor deny the findings of the SEC. Thayer capital will pay $150,000 while Malek will personally pay $100,000.
In conjunction with the Thayer Capital settlement, the SEC has filed fraud charges against DiBella and his consulting firm.
In February, the former head of another private equity firm, Boston-based Triumph Capital, was sentenced to one year in prison for his role in the Silvester scandal. After months of vehement denial, Fred McCarthy pled guilty to criminal gratuity related to his awarding bogus consulting contracts to friends of Silvester in exchange for a capital commitment to a Triumph fund.
Triumph capital has been shut down by its remaining partners.
In 2000, Simsbury, Connecticut private equity secondary specialist Landmark Partners agreed to pay a $150,000 penalty for failing to disclose a finder’s fee related to a Connecticut capital commitment. In that case, some of the finder’s fee was kicked back through an associate to Silvester. Landmark similarly neither admitted nor denied any of the SEC’s charges. Landmark’s then-chairman, Stanley Alfeld, argued he had no idea Silvester would share in the fee.
In its most recent action, the SEC stated that Thayer Capital and Malek “willfully violated Section 17(a)(2) of the Securities Act and Section 206(2) of the Advisers Act.”
A year ago, Thayer Capital’s then-chief operating officer Rick Rickertsen unexpectedly left the firm.
Another private equity firms that has touched by the ongoing Silvester investigation includes Philadelphia venture capital firm Keystone Venture Capital. In 2002, Keystone settled a complaint with the Connecticut State Ethics Commission. Pioneer and Veritas have not been charged with any wrongdoing.