Carlyle is the first firm to sign the Code of Conduct, which Cuomo first proposed in April. The Code eliminates the role of middlemen who are hired, retained or compensated for the specific purpose of obtaining pension dollars. The language is carefully worded to allow for the use of marketing department employees and marketing firms.
According to union records, Carlyle received $878 million in private equity investment from "the New York State Common Retirement Fund." The fund's $122 billion in assets is for the retirement benefits of state and local employees in New York. The state paid total management and incentive fees of $37.5 million between 2005 and 2008 to Carlyle, according to fund records. The fund is the third largest in the nation.
The firm has allowed only two outside partners into its ranks over the years.
The nations largest public retirement fund-- the California Public Employee Retirement Fund--paid $175 million for 5.5 percent of Carlyle: now worth a considerable amount more.
The other is Abu Dhabi, the once high growth sheikhdom that paid about $1.5. billion for 7.5 percent of the firm.
Cuomo's wide ranging probe has already resulting in two guilty pleas in New York State. According to published accounts it is said to be one of 30 such probes across the nation. The Securities and Exchange Commission has filed a related civil suit.
In the closely regulated and monitored world of public employee fund investment, the use of unregulated middlemen has been a loophole through which, in return for passing public funds to private firms, at least in some cases, public corruption has resulted, Cuomo's office has charged. The practice is rife with the potential for quid-pro-quo, including pay-for-play political contributions, and revolving door government to private sector job hopping, his office and union officials have said.
At the end of April, Cuomo said that practice of using unregulated middlemen to garner public pension fund dollars results in "the worst of both worlds."
"This is the nexus of private-sector fraudulent operators meeting fraudulent government and political operators," Cuomo said, according to Bloomberg News.
At the center of the storm is one time New York Democratic Party operative Morris who is accused of steering state pension fund business to firms that paid him millions in kickbacks. Morris is the target of a 123 count indictment unsealed by Cuomo's office in March. It accuses Morris of pension fund related activities including "enterprise corruption, securities fraud, grand larceny, bribery and money laundering."
At the time of the indictment Cuomo's office said in a statement, "If proven, the allegations in the indictment reveal a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels of the Office of the State Comptroller. The charges entail a web of corrupt acts for both political and personal gain.
Also under scrutiny is a firm co-founded by Steve Rattner, President Obama's auto industry Czar. That firm, Quadrangle, used Morris firm and is under the spotlight for allegedly failing to disclose the relationship.
Carlyle began receiving New York dollars when Alan Hevesi was state comptroller. Hevesi pled guilty for a single felony unrelated to his fund management. Morris was Hevesi's political consultant.