US law firm settles in pay-to-play case

Manatt Phelps, which took a fee from an LA buyout firm for arranging a CalPERS meeting, has agreed to pay a fine and accepted a five-year ban on facilitating business with New York pension funds.

Law firm Manatt Phelps & Phillips has agreed to a five year ban on soliciting business from any New York public pension fund and will pay $550,000 in a settlement with New York Attorney General Andrew Cuomo’s office.

Cuomo announced the agreement earlier this week.

In 2003, Manatt, in partnership with lobbying firm Platinum Advisors, helped place a $25 million investment from the California Public Employees' Retirement System with Levine Leichtman Capital Partners Fund III. Manatt and Platinum each received $187,500 in fees from 2004 through 2006. CalPERS invested in Leichtman Capital’s first two funds, according to pension documents.

Manatt lacked the proper licenses to broker such a deal, said Cuomo. “Unlicensed agents are untrained, unsupervised, and typically traffic in political and personal connections to get access to public money. We have seen all varieties of this risky behavior, and now it includes a prominent national law firm,” said Cuomo in a statement.

Cuomo’s investigation found that in 2003 a California-based Manatt partner asked several other law firm partners to meet with executives of Beverly Hills-based private equity firm Levine Leichtman Capital Partners to discuss facilitating additional introductions to various institutional investors.

Tuesday's announcement places Levine Leichtman back in the spotlight after the firm settled its own involvement with the case last year.

In September 2009, Levine Leichman along with HM Capital Partners, Access Capital Partners, and Falconhead Capital Partners settled with Cuomo’s office. Levine Leichtman turned over $200,000 that it had recovered from its former placement agent Wetherly Capital Group.

Levine Leichtman hired Wetherly Capital Group, a Los Angeles-based broker dealer, as a placement agent for its interactions with the New York State Common Retirement Fund. Wetherly agreed to pay Hank Morris – chief political aide to the Common Retirement Fund’s former-comptroller, Alan Hevesi, 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.

As for Manatt, other than the CalPERS investment in 2003, no investments resulted from Manatt’s efforts and Manatt did not receive compensation. The law firm, however, did attempt to place investments with New York state pension funds.

In March 2004, an Albany-based partner at Manatt arranged a meeting between an investment firm and investment staff at the New York State Teachers' Retirement System. This individual also attempted to arrange a meeting for the same investment firm with the state pension fund, but was unsuccessful.

In August 2008, the Albany-based partner at Manatt attended a meeting between investment firm Kellner DiLeo & Company and New York State Comptroller Thomas DiNapoli. The Manatt partner also attended a follow-up meeting with comptroller’s office staff and generally took the lead on communications between Kellner and the comptroller’s office.

Manatt is a large law firm with practices including: M&A, bankruptcy, insurance, real estate, and banking in offices located in Los Angeles, New York, Palo Alto, San Francisco, and Orange County, California. Manatt’s website notably states: “Our offices in Sacramento and Albany – the capitals of California and New York – provide connections to government decision makers and to solutions that are unavailable from our competitors.”

“We commend Attorney General Cuomo for investigating the placement process for pension fund investments and we embrace his new reform code of conduct. The firm is pleased to put this matter behind us,” said a Manatt spokesperson in a statement.

Manatt Phelps is the latest firm in state’s pay to play saga.

Earlier this month, former New York state comptroller Alan Hevesi pleaded guilty to a felony charge in connection with the wide-ranging pension pay-to-play scandal involving New York’s massive $125 billion pension system.

Hevesi, who served as state comptroller from 2003 to his resignation in 2006, admitted to accepting nearly $1 million in exchange for approving a $250 million investment in Markstone Capital Partners from the New York State Common Retirement Fund. He will cooperate in New York attorney general Andrew Cuomo’s ongoing pension fund investigation and faces up to four years in prison.