HARTFORD, Conn. -- Five of the seven private equity partnerships that former State Treasurer Paul Silvester committed state pension money to in his final days in office are at the center of a continuing investigation that already has led Mr. Silvester to plead guilty to six counts of bribery, money laundering and racketeering.
The U.S. Attorney hasn't identified the five firms. A source familiar with the pension fund's operations said Mr. Silvester committed almost $700 million to the seven partnerships.
Mr. Silvester and his brother Mark pleaded guilty almost two weeks ago to charges that they solicited cash, consulting contracts and future employment from private equity investment firms in exchange for selecting them as investment advisers for the state's $18 billion pension fund. At the same time, their brother-in-law Peter Hirschl pleaded guilty to conspiracy to launder money.
Mr. Silvester, a Republican, faces up to 40 years in prison when he is sentenced in March.
The seven commitments
U.S. Attorney Stephen C. Robinson said that between July 1998 and Dec. 28, 1998, Mr. Silvester made commitments that "breached his fiduciary duties and corrupted the investment process by soliciting and accepting bribes and rewards for himself and numerous associates in exchange for the investments."
The benefits included cash, employment and lucrative consulting agreements, the complaint said.
According to pension fund investment records, Mr. Silvester's private equity commitments include: $50 million to Carlyle Asia Partners LP; $100 million to Crescendo Venture Fund III LP; $25 million to Pharos Capital Partners LP; $75 million to Thayer Equity Investors IV LP; $200 million to Triumph Conn. Partners II LP; $150 million Landmark Partners VIII LP; and $75 million to Pioneer Ventures Fund LP.
Most commitments cut
Treasurer Denise Nappier, to whom Silvester lost the post, has reduced or eliminated most of those commitments since she took office, regaining around $150 million for the fund.
Connecticut so far has received a $10 million reduction in the Carlyle Europe Partners LP -- an earlier investment -- rather than Carlyle Asia Partners LP because that fund already was invested; $10 million was taken from the Triumph Conn. Partners fund instead of Triumph Conn. Partners II because all of the capital in the latter fund already had been called.
Connecticut's investment in Crescendo was reduced by 60% or $60 million; the investment in Thayer Equity Partners was reduced by 29% or $21.5 million; and the investment in Pioneer Ventures was reduced by 33% or $25 million.
Pharos Capital Partners had its contract canceled and returned $25 million to Connecticut.
Other late fourth-quarter investments made by Mr. Silvester and rescinded by Ms. Nappier include: a $100 million commitment to the New York-based PaineWebber Real Estate Fund LP; a follow-up commitment of $100 million to Mitchell Hutchins Asset Management Inc., New York, for bond management; and $200 million to Spectrum Asset Management Inc., Newport Beach, Calif., also for bond management.
"All of these were fourth-quarter investments, and we were looking to reduce them," said Bernard Kavaler, a spokesman for Ms. Nappier. "Where the contract language allowed us to withdraw, we did that. On the others, we had to negotiate voluntary reductions."
Telephone calls were placed to executives at several pension funds that use the same general partners as Connecticut. Most were only vaguely aware of the unfolding situation in Connecticut. Those who responded said they had not been contacted by law enforcement authorities nor had they begun any investigation into their relationships with the general partners.
Sticking with it
Scott Henderson, executive director of the $27 billion Massachusetts Pension Reserve Investment Trust, Boston, said his fund had invested in several of Landmark's funds, but not the last one because "it wasn't a good fit" with the fund's private equity portfolio.
"Our portfolio is pretty seasoned, so we can pick and choose," said Mr. Henderson. "That is not a knock on Landmark. My understanding is that product (Landmark Fund VIII) has performed well in the short term."
Mr. Henderson described Landmark, based in Simsbury, Conn., as a fine organization with top-notch people. "In my dealings with Landmark, they have always exhibited a high level of integrity," said Mr. Henderson.
Landmark Chairman Stanley Alfeld was unavailable for comment, as were executives of the other firms implicated by the scandal.
A spokesman for Boston-based Triumph Capital Group Inc. said the firm has not been accused of wrongdoing and that it has an excellent track record as a private equity manager for the Connecticut pension fund.
James Griffin Jr., a vice president with Washington-based The Carlyle Group, said the firm does not discuss its limited partnership relationships.
Mr. Silvester also wasn't doing much talking. He answered the telephone when a reporter called his West Hartford home last week, but hung up without saying a word,
after learning the caller's identity.
In his guilty plea, Mr. Silvester admitted he directed private equity firms to use placement agents of his choice to receive sales commissions from those private equity partnerships.
Placement agents are third-party marketers for investment management firms. The commissions then kicked back to Mr. Silvester, who told the U.S. Attorney he used the money to pay off personal debts and finance his unsuccessful campaign.
One of those placement agents was Christopher A. Stack, president of Collegiate Capital Corp., which administers the Connecticut Higher Education Trust, which Mr. Silvester oversaw as part of his duties as treasurer.
Mr. Silvester also arranged for Mr. Stack's consulting company, New York-based KCATS LLC, to split a $2 million contract from one of the private equity firms with another unnamed "consultant."
Cleaning up afterward
Ms. Nappier last week said Collegiate would be removed as administrator within 45 days, even though the trust and the company are not the subject of any ongoing federal investigation.
Mr. Stack's involvement with the fund would end immediately, she said.
Reached in his New York office, Mr. Stack declined to speak with a reporter and referred questions to his attorney.
In his guilty plea, Mr. Silvester has so far admitted to investing with five private equity firms in an attempt to defraud the pension fund. The first two instances involved the use of placement agents to kickback sales commission to him.
In one instance -- Fund Three in the complaint -- Mr. Silvester secured employment for unnamed associates in exchange for an investment in that fund.
Mr. Silvester took care of himself in making commitments to Fund Four; he admitted he invested money in that fund in exchange for future employment with the company.
Upon leaving office, Mr. Silvester joined Park Strategies, a Washington business consulting firm headed by Wayne Berman, a fund-raiser for presidential candidate George W. Bush. (Mr. Berman has stopped all fund-raising activities on behalf of Mr. Bush, pending resolution of the investigation, said a spokesman).
Mr. Berman referred questions to attorney Fred Fielding, who was unavailable for comment.
Carlyle Partners has particularly strong Republican Party ties. Frank Carlucci and Richard Darman, both Carlyle general partners, served as secretary of defense and budget director, respectively, for Ronald Reagan.
Mr. Silvester opened a Hartford office for Park Strategies, but resigned in June when the investigation intensified.
The fifth fund was used to employ Mr. Stack and another unnamed person as consultants in exchange for Mr. Silvester investing in that fund, according to the list of charges.