Carlyle Groups Settles in "Pay to Play" Scandal Probe

Carlyle

The Carlyle Group, a giant Wall Street firm best known for its ties to former President George H.W. Bush and other prominent public officials, made more than $13 million in payments to a indicted political fixer who arranged for the firm to receive business from a New York pension fund, New York attorney general Andrew Cuomo said today.

Cuomo said Carlyle had agreed to $20 million to "resolve its role" in the ongoing corruption investigation and agreed to a new code of conduct that prohibits the use of such middlemen.

Cuomo said the code would "help eliminate the conflicts of interest and corruption inherent in a system that allows people to buy access to those holding the pension fund purse-strings."

Carlyle is the latest high-profile firm to be ensnared in a nationwide probe known as the "pay for play" scandal because Wall Street firms allegedly paid politically-connected fixers to get them business from pension funds controlled by public officials.

According to Cuomo, his corruption investigation found that in 2003, Carlyle hired Hank Morris, the chief political aide to then New York state comptroller Alan Hevesi, as "a placement agent" to help obtain investments from the New York Common Retirement Fund.

"If Boss Tweed were alive today, he would be a placement agent," Cuomo said.

In a statement, Carlyle said it "was unaware of any improper conduct" and "was victimized by Hank Morris' alleged web of deceit." Carlyle said it intended to file suit against Morris and has "cooperated extensively and voluntarily" with Cuomo.

Carlyle paid Morris through shell companies he controlled, according to Cuomo. Morris allegedly shared the payments with a hedge fund manager, Barrett Wissman, who pleaded guilty earlier this year to securities fraud in connection with the investigation.

Until it hired Morris, said Cuomo, Carlyle had "experienced limited success in obtaining investments" from the New York state fund.

Carlyle then received more than $730 million in New York state pension funds for five different projects, according to Cuomo.

Carlyle employees also made about $78,000 in campaign contributions to Comptroller Hevesi's campaign in 2005 and 2006, according to Cuomo, some solicited by Morris.

Morris was indicted in March in the "pay for play" investigation for allegedly arranging "sham placement fees" for himself and other Hevesi "political cronies" and for extracting "millions of dollars in campaign contributions" to ensure "the Comptroller's approval of their proposed investments."

Morris has pleaded not guilty to the charges.

Hevesi has not been charged.

Politically-Connected Powerhouse Firm

Carlyle is a politically connected powerhouse whose board of advisors has been graced by the names of numerous political luminaries from both the Democratic and Republican Parties including former President Bush, his Secretary of State James Baker III, former Secretary of State Colin Powell, former SEC Chairman Arthur Levitt, Britain's former Prime Minister John Major, ex-Time magazine media glitterati Norman Pearlstein and former Clinton White House Chief of Staff, Mack McLarty. The firm is currently headed by the highly regarded ex-IBM CEO Lou Gerstner.

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