HARTFORD, Conn. -- Veritas Capital has been identified as the private equity firm that, when soliciting an investment from the State of Connecticut Trust Funds, used a placement agent who paid kickbacks to former state Treasurer Paul Silvester.
New York-based Veritas paid $675,000 to KCATS LLC, a consulting company operated by Christopher Stack, according to state Treasury Department records released last month.
In a September guilty plea in federal court, Mr. Silvester admitted he "improperly directed two private equity consulting agreements" to Mr. Stack; arranged for Mr. Stack and another unnamed associate to split a $2 million consulting contract from a private equity firm; and solicited cash payments totaling hundreds of thousands of dollars from Mr. Stack.
Veritas President Robert McLeon declined to comment.
Mr. Silvester committed an additional $50 million to Veritas Capital Fund in December 1998; it previously had received $75 million from Connecticut in March 1997, according to Treasury Department records.
In all, Mr. Silvester admitted to investing more than $500 million in five private equity partnerships in the final three months of his term in exchange for a portion of marketing commissions, and to secure employment for himself and his associates.
Mr. Stack and KCATS are the only participants in the scheme identified by U.S. Attorney Stephen Robinson, who has said the investigation is continuing. Mr. Stack's attorney has said his client is cooperating with the government in exchange for immunity from prosecution.
Veritas' involvement with Mr. Stack and KCATS was revealed when Connecticut State Treasurer Denise Nappier released the results of a request for information she made to all vendors to the state Treasury. The purpose was to identify if a finder's, or marketing, fee was paid, to whom it was paid and the amount paid.
The information reveals other private equity firms used placement agents operated by ex-politicians and lobbyists. Some firms declined to release information or gave only partial information about payments made to third-party marketers.
The Carlyle Group, a Washington-based buyout firm whose chairman, Frank Carlucci, was a Reagan administration secretary of defense, declined to disclose to whom it paid a finder's fee for the pension fund's earlier $100 million investment in Carlyle European Partners partnership.
The company did disclose that it did not use a placement agent when Mr. Silvester invested $50 million in Carlyle Asia Partners LP in the fourth quarter of 1998, according to Treasury records. Telephone calls to Mr. Carlucci were not returned.
In addition to Mr. Carlucci, former Reagan Budget Director Richard Darman is a Carlyle partner.
Upon leaving office, Mr. Silvester joined Park Strategies LLC, a Washington business consulting firm headed by Wayne Berman.
Mr. Silvester admitted that he secured employment for himself by agreeing to make an investment in an unnamed private equity fund.
Mr. Berman, a George W. Bush supporter, was raising money for the Texas governor's presidential campaign until the Connecticut scandal erupted.
Don Evans, national finance chairman for George W. Bush for President, said Mr. Berman has "voluntarily stopped all activities on behalf of the campaign until this matter has been cleared up."
Calls to Park Strategies were referred to lawyer Fred Fielding, who did not return several calls.
Thayer Capital Partners paid two placement agents for Connecticut's $75 million investment in its Thayer Equity Investors IV LP, according to Treasury records. The firm paid Merrill Lynch & Co. almost $1.1 million of a $2 million fee and $374,500 to North Cove Ventures.
Thayer agreed earlier this year to voluntarily return $21.5 million of the commitment to Connecticut.
Merrill is a major private equity placement agent.
North Cove Ventures listed as its principal William DiBella, a former state senator from Hartford and a Democratic Minority Leader. Attempts to reach Mr. DiBella at his home and business were unsuccessful.
Kevin Albert, managing director with Merrill Lynch, declined to comment about sharing the fee with North Cove.
It is not unusual for two placement agents to team up, especially if one has a relationship with an investor, according to a placement agent professional who did not want to be identified.
Merrill Lynch also served as placement agent for Connecticut's $200 million investment in Triumph Connecticut Partners II LP. Triumph had not used a placement agent in three previous investments with Connecticut, all of which were investments within the state.
"This was the first national marketing of a fund that Triumph did, and they used Merrill Lynch as a placement agent," said Steven Anreder, a spokesman for Triumph. "There were 15 to 20 investors involved other than Connecticut."
Triumph agreed to return $10 million from Triumph Connecticut Partners LP, an earlier fund.
Two agents used
It appears Greenwich Street Capital Partners also paid two placement agents to deliver Connecticut as a client.
The New York-based buyout firm paid Salomon Smith Barney Inc. and Atlantic-Pacific Capital Inc. undisclosed amounts.
Greenwich Street, which received $50 million in late December, was one of the firms that received allocations late in Mr. Silvester's term. It and another fund -- Westport Senior Living Investment Fund LP -- declined to voluntarily reduce those allocations after unsuccessful talks with the state, said Bernard Kavaler, a spokesman for Ms. Nappier. Two other firms -- Keystone Venture Capital, Philadelphia, and Veritas -- declined to reduce their allocations, and did not try to negotiate.
Calls to Greenwich Street Capital were not returned.
Ms. Nappier regained about $150 million from five private equity firms that received late fourth-quarter allocations from Mr. Silvester (Pensions & Investments, Oct. 4).
Landmark Partners Inc. paid $625,000 to Rogers & Wells, a law firm, which then "engaged" Ben Andrews Jr. to get Connecticut to invest $150 million in the Landmark Private Equity VIII LP. Mr. Andrews, a Republican, was defeated last year in his bid to become Secretary of State.
He is a former Hartford city councilman and former head of the Connecticut branch of the National Association for the Advancement of Colored People.
Mr. Andrews has been engaged several times over the years as a placement agent by other money managers seeking business from the Connecticut pension fund. Telephone calls to his Simsbury, Conn., home were not returned.
Telephone calls to former Rogers & Wells partner Jerome Wilson and Landmark Partners Chairman Stanley Alfeld also were not returned.
It's uncertain why Landmark used Rogers & Wells and Mr. Andrews to market to the Connecticut pension fund.
The firm already had a relationship with the fund: An affiliate bought most of the state's interests in real estate commingled funds in 1996 when Mr. Silvester's predecessor, Christopher Burnham, was treasurer.
Landmark also hired former state Treasurer Francisco Borges as president of Landmark Partners Inc. earlier this year.
Keystone Venture Capital was the only firm that refused to respond to the request for information, according to Ms. Nappier. She said she would not do business with companies that refused to comply.
An attorney for Keystone said the principals did not refuse to respond.
"They expressed some concerns over confidentiality," said Eric Sitarchuk, Keystone's lawyer. "They expressed a desire to begin a dialogue with the treasurer's office to make sure those concerns could be addressed."
New York-based PaineWebber Inc. paid M.P. Guinan Associates $39,200 to help it get business from Connecticut.
Principal Mary Phil Guinan is a lobbyist, former head of the Democratic Party in Hartford and an adviser to Ms. Nappier's campaign, said Mr. Kavaler.
Treasury records aggregated PaineWebber accounts with its Mitchell Hutchins asset management subsidiary. It was not disclosed if Ms. Guinan was paid for help with one or more relationships.
Mr. Silvester, in his last days in office, committed $100 million to a PaineWebber real estate fund and $100 million to Mitchell Hutchins Realty Advisors for "government relations services" and "managing relationships with the state."
Connecticut invested $100 million in Westport Senior Living Investment Fund LP in September 1998.
Westport also paid New York Capital Partners close to $1.1 million for helping it raise capital.
Pioneer Ventures Associates, Windsor, Conn., made a payment of an undisclosed amount to Sullivan & LaShane, according to Connecticut's records.
"Any inference that we have done anything improper is not true," said John Ferraro, a partner with the firm. "We have done nothing illegal or improper."
Pioneer voluntarily reduced its $75 million commitment from Connecticut by $25 million.
Crescendo Venture Management LLC, Minneapolis, previously disclosed that it used Truro Associates as a placement agent when Connecticut invested $25 million in the Crescent Venture Fund III.
The firm used a different placement agent when Connecticut invested an undisclosed amount in the Crescendo World Fund. The firm said it used St. James Associates LLC on this investment.
Crescendo took a $60 million voluntary reduction in the Crescendo Venture Fund III.
Telephone calls to Crescendo were not returned.
Took money back
Another private equity firm that had its entire commitment with Connecticut rescinded was not listed among the pension fund's vendors. Connecticut took back the $25 million commitment that Mr. Silvester made to Dallas-based Pharos Capital Partners LP.
Mr. Stack also was the placement agent on the Walton Real Estate Fund II LP. Walton Street paid Mr. Stack $494,062. Connecticut records show that the state's investment occurred in early 1998.
Ira Schulman, Walton Street chief investment officer, said the firm has fully cooperated with the U.S. attorney and that it is not the target of any investigation.
"We knew nothing of his involvement with Silvester and nothing of their activities," said Mr. Schulman.
Mr. Stack also is the president of Collegiate Capital Corp., which administers the state's higher education trust. Ms. Nappier said in September that Collegiate will be replaced as administrator.