The Carlyle Group will pay $20 million for its part in the pay-to-play scandal involving the $122 billion New York State Common Retirement Fund, Albany, New York Attorney General Andrew Cuomo said today in a conference call.
The private equity firm also agreed to limit employee campaign contributions and stop hiring politically connected marketers and placement agents for its investment funds.
Carlyle was one of a number of firms that paid fees to Henry “Hank” Morris, a political consultant and fundraiser for Alan Hevesi, the former New York state comptroller, Mr. Cuomo said. Carlyle employees contributed about $78,000 to Mr. Hevesi’s campaign for comptroller in 2005 and 2006, Mr. Cuomo revealed.
Mr. Morris was indicted in New York state Supreme Court and named in a securities fraud civil lawsuit brought by the SEC. Mr. Morris has pleaded not guilty to the criminal charges. Neither Carlyle nor Mr. Hevesi has been charged in either case.
Mr. Cuomo also said Carlyle agreed to be the first investment manager to sign a code of conduct limiting employee campaign contributions and also placing restrictions on the firm’s use of placement agents. ”The ultimate goal” is to get the code enacted as a federal or state regulation or law, Mr. Cuomo said.
The code is designed to set a standard for the industry, Mr. Cuomo said. “The SEC can make it a regulation,” he said.
Even if the code is not enacted, Mr. Cuomo said he is “creating a race to the top” for investment managers eager to do the right thing, as his office did when it got 30 to 40 student loan providers to sign a code of conduct that bars money mangers from hiring third-party marketers to negotiate commitments from public pension funds. The code also bans investment firms from investing assets for a public pension fund for two years after the firm makes a campaign contribution to a public official who has influence over investment decisions.
“For the past two years, Carlyle has cooperated extensively and voluntarily with the New York attorney general’s inquiry into the use of placement agents in regards to the New York Common Retirement Fund,” Carlyle said in a statement today. “We are pleased to announce today that we have reached a successful resolution with the attorney general and strongly support his efforts to implement reforms that usher in a new era of transparency and accountability into the pension fund investment process.”
In response to the announced resolution with Carlyle and the release of the code of conduct, Comptroller Thomas P. DiNapoli, sole trustee of the NYSCRF, praised Mr. Cuomo’s settlement with Carlyle Group. “The reform process is ongoing. The attorney general’s investigation continues to peel away layer upon layer of Hevesi-era abuse and misconduct,” Mr. DiNapoli said today in a news release.
Separately, Mr. DiNapoli said in the release that he wrote to SEC Chairwoman Mary L. Schapiro and asked the SEC to return to the fund any settlements it wins in the agency’s fraud litigation relating to the NYSCRF alleged pay-to-play scheme
