Markstone Capital Group and Wetherly Capital Group agreed to return $18 million and $1 million, respectively, to the New York State Common Retirement Fund, Albany, to settle an investigation by New York Attorney General Andrew Cuomo into a pay-to-play scandal at the $126 billion fund.
Both firms also adopted Mr. Cuomo's Public Pension Fund Reform Code of Conduct as part of the settlement, according to a news release from Mr. Cuomo's office. Wetherly also agreed to exit the placement agent business.
Elliott Broidy, a founding partner and former chairman at Markstone, pleaded guilty in December to a felony charge of rewarding official misconduct. Mr. Broidy “gave gifts, political contributions and other benefits valued in excess of $1 million to top decision-makers at the CRF, as well as their friends and family members,” to gain investments from the fund, according to Mr. Cuomo's news release. The pension fund ultimately invested $225 million in private equity fund Markstone Capital Partners and paid investment fees of $18 million.
“Markstone is pleased that we have reached an agreement with the attorney general today. This enables us to move forward with our core business, investments in Israeli companies,” said Dan Gillerman, Markstone's chairman, in the attorney general's news release.
Officials at Markstone's Tel Aviv, Israel, headquarters could not be reached for additional comment.
Wetherly Capital and its broker-dealer subsidiary, DAV/Wetherly Financial, acted as a third-party agent between the state retirement fund and three private equity firms — Ares Management, Freeman Spogli and Levine Leichtman Capital Partners. The NYSCRF committed $50 million each to Ares and Freeman Spogli and $20 million to Levine Leichtman Capital, according to the news release.
Wetherly introduced the three private equity managers to pension fund officials in exchange for placement fees totaling $1.3 million, according to the news release. Wetherly split the placement fees with Henry “Hank” Morris, a political adviser to former state Comptroller Alan Hevesi, who faces a state indictment for allegedly accepting kickbacks in exchange for placing investments with the state pension fund.
“Throughout this entire investigation, Wetherly and its principals have cooperated fully and voluntarily with the attorney general and his staff ... we are very pleased to have this matter resolved,” said an unnamed Wetherly spokesman in the news release.
Wetherly officials did not return a call seeking additional comment.
To date, Mr. Cuomo's office has collected $120 million from nine investment firms connected with the pay-to-play scandal. The investigation is ongoing.