Attorney General Cuomo Secures Agreements With Major Lobbyist And Pension Fund Advisor In Public Pension Fund Investigation
NEW YORK, NY (December 8, 2010) - Attorney General Andrew M. Cuomo today announced agreements with major Albany-based lobbyist Patricia Lynch Associates, Inc. (“PLA”) and with pension fund advisor Aldus Equity (“Aldus”) in the Attorney General’s public pension fund investigation.
PLA will pay $500,000 to the State of New York. PLA founder Patricia Lynch will be banned from appearing in any capacity before the New York State Comptroller’s Office (“OSC”) for any purpose for five years.
The PLA agreement concerns both lobbying and securities misconduct. The investigation showed that Patricia Lynch sought to curry favor at the OSC by arranging contributions for Alan Hevesi’s campaign, a consulting contract for the daughter of the Chief of Staff’s girlfriend, and gifts worth thousands of dollars for the daughter. The contract for the daughter was with a PLA client then lobbying the OSC.
In addition, Lynch improperly obtained $52,000 in placement fees from a New York City pension fund investment without having the necessary securities license. Lynch made repeated efforts to persuade the New York State Common Retirement Fund (“CRF”) to approve investments proposed by her lobbying clients. Top staff at the CRF entertained these proposals at meetings with Lynch, where she had preferred access, but then ultimately declined to make the investments because they were unsuitable for CRF.
“Gifts, favors, and campaign contributions are not a legitimate basis for government contracts or special treatment,” said Attorney General Cuomo. “Lobbyists whose stock-in-trade is pay-to-play have no business appearing before government agencies that safeguard taxpayer dollars. Those who market investments must follow the rules, and lobbyists are no exception.”
Separately, the Aldus agreement concerns the firm’s responsibility for securities fraud engaged in by former Aldus principal Saul Meyer, who pleaded guilty in October 2009 to a Martin Act securities fraud felony charge for his conduct. At the time of his conduct, Aldus was a leading outside advisor to numerous public pension funds including the CRF and New York City pension funds. Meyer is scheduled to be sentenced in the criminal case on December 16.
Under the terms of the agreement, Aldus and its current and former partners will pay restitution to the CRF for fees that Aldus received in connection with pension fund investments. The agreement provides for restitution through the payment of $1 million in cash, forfeiture of certain fees owed to Aldus, and forfeiture of interest in the Aldus/NY Emerging Fund, the fund Aldus had been managing on behalf of the CRF, worth millions of dollars.
PLA and Aldus will cooperate with the Attorney General’s investigation and comply with the Attorney General’s Public Pension Fund Reform Code of Conduct, which, among other things, bans the use of placement agents to solicit investments from public pension funds.
With today’s agreements, Cuomo’s investigation has secured agreements with eighteen firms and three individuals, garnering over $160 million for New York and the pension fund. The investigation has led to eight guilty pleas, including pleas by Hevesi, his chief political consultant, and his Chief Investment Officer.
DETAILS OF PLA’S INVOLVEMENT
During the Hevesi administration, PLA enjoyed preferred access to the New York State Comptroller and his top staff, contributing and bundling tens of thousands of dollars in contributions to the Comptroller’s reelection campaign and his son’s campaign. Specifically:
- In July 2003, Lynch, through consulting firm LW Strategies, LLC, met with pension fund staff for the purpose of persuading the pension fund to retain an investment with a LW Strategies client. The pension fund retained the investment. During this time, LW Strategies received $10,000 per month in lobbying fees from the client.
- Beginning in February 2004, Lynch and officers from a PLA client company met with Hevesi and others at the pension fund concerning pension fund business. In April 2004, the Comptroller’s Chief of Staff asked Lynch to help his girlfriend’s daughter get a job with that client. Lynch introduced the daughter to the client, which then gave the daughter a consulting contract paying $12,000 per month. Lynch herself paid approximately $8,500 in travel expenses for the daughter to take a business trip to Tokyo in March 2006, which she characterized as an investment in the daughter’s business. PLA received $10,000 per month in lobbying fees from the client throughout this time period.
- In September 2005 and March 2006, Lynch introduced PLA clients to the Chief of Staff and the Chief Investment Officer of the pension fund so the clients could pitch investments. The pension fund declined each investment. PLA received $10,000 in monthly lobbying fees from each of these two PLA clients during this time.
- In 2007, Lynch, through LW Strategies, received half of the $104,000 in placement fees that were garnered from a $13 million investment by the New York City Police and Fire pension fund in a fund managed by GF Capital Management & Advisors. Lynch and her partner in LW Strategies were not licensed securities brokers and LW Strategies was not a registered broker-dealer.
DETAILS OF ALDUS’S INVOLVEMENT
Aldus is a Dallas-based private equity services firm that was formed in 2003. Prior to 2009, Aldus served as a private equity advisor to several public pension funds across the United States, including the CRF. In its role as advisor, Aldus evaluated the suitability of proposed investments for public pension funds and was a fiduciary to public pension funds in this capacity.
The Attorney General’s investigation revealed that:
- Aldus obtained an investment from the pension fund under Hevesi by agreeing to pay Hevesi’s paid political advisor, Henry “Hank” Morris. Morris promised Aldus he could secure a pension fund investment for Aldus if Aldus agreed to pay fees to Morris. In total, Aldus paid Morris over $300,000 in fees.
- In December 2004, the CRF made an initial capital commitment of $175 million into the Aldus/NY Emerging Fund and subsequently committed a total of $475 million in capital.
Under state and federal law, people engaged in the business of effecting transactions in securities are required to be licensed and registered with a broker-dealer. To determine whether a securities broker is licensed and registered, visit www.finra.org/investors/toolscalculators/brokercheck/index.htm.
In May 2009, the Attorney General’s office subpoenaed investment firms and their agents in connection with New York public pension fund investments after determining that 40 to 50 percent of agents acting to secure investments from the state and city pension funds were unlicensed.
Last year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which, among other things, bans investment firms from compensating intermediaries for introductions to public pension funds. To date, eighteen firms have endorsed the Code: investment firms The Carlyle Group, Riverstone Holdings, LLC, Pacific Corporate Group Holdings, LLC, HM Capital Partners I, Levine Leichtman Capital Partners, Access Capital Partners, Falconhead Capital, Markstone Capital Group, Ares, Freeman Spogli, Quadrangle, GKM, and Aldus Equity; placement agent Wetherly Capital Group; political consulting firm Global Strategy Group; law firm Manatt Phelps & Phillips, LLP; and lobbying firms Platinum Advisors and Patricia Lynch Associates. Three individuals have also agreed to abide by the Code of Conduct: David Leuschen of Riverstone, and unlicensed placement agents Kevin McCabe and William (“Bill”) White.
These firms collectively have agreed to return more than $100 million associated with pension fund investments; these funds will principally be provided to the pension fund for the benefit of the pension holders. Payments from individuals, including criminal defendants, bring that total to over $160 million for the pension fund and the State.
Attorney General Cuomo’s investigation into corruption at the pension fund has led to a number of criminal charges and eight guilty pleas to date, including guilty pleas by the following individuals: former Comptroller Alan Hevesi; Hevesi’s former paid political advisor Henry “Hank” Morris; former Chief Investment Officer at the Office of the State Comptroller David Loglisci; former Liberal Party Chair Ray Harding; investment advisor Saul Meyer; hedge fund manager Barrett Wissman; unlicensed placement agent Julio Ramirez; and venture fund manager Elliott Broidy.
The investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz, Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, and Legal Aide Michael Ellis, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel to the Attorney General Linda A. Lacewell.