Pay to Play Scandal in NY Nabs Another Investment Firm

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The nationwide probe into the "pay-to-play" scandal involving Wall Street firms that paid politically-connected fixers to get them business from pension funds controlled by state officials has ensnared another investment firm. Calling the state government in New York "corrupt," the NY Attorney General Andrew Cuomo announced Thursday that Riverstone Holdings LLC will pay $30 million in restitution and has signed on to a new code of conduct that eliminates middlemen and lobbyists from the process of procuring hundreds of millions in investments from the state's pension fund.

The announcement was made against the backdrop of an almost farcical drama for power in the state's capital which one local newspaper, the New York Post, called a "Circus Maximus" where "bozos" battled for senate power. Cuomo acknowledged his office is watching the battle for control which is now entering the courts.

"We see the dysfunction of Albany on a daily basis," Cuomo said in response to a question on that issue. "Some days more clearly."

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, public corruption has at times resulted, Cuomo's office charges. Two people have already pled guilty as part of Cuomo's probe into the use of these middlemen.

"It is the system that is the problem," Cuomo said. "By the current design of the system it has created loopholes that people have exploited. Well why doesn't anyone change the system?" Cuomo asked, "because people are benefiting the system."

Riverstone, which reportedly has about $17 billion in assets under management, worked with the politically connected Carlyle Group three times beginning in 2003 on investment deals with the NY State pension fund. Carlyle settled with Cuomo last month for $20 million and also agreed to the new code of conduct eliminating the use of middlemen.

A spokesperson for Riverstone said Thursday that the settlement is best for their investors and the firm.

"Today, we have come to an agreement with the Office of the Attorney General whereby Riverstone has agreed to make a $30 million payment to the Office of the Attorney General for the benefit of the New York State Common Retirement Fund in resolution of this matter. Riverstone also has agreed to adopt the Attorney General's new Public Pension Fund Code of Conduct, which we believe provides for greater transparency, accountability and ethics in the solicitation of private equity commitments from the public pension fund community," said the spokesperson.

Cuomo said his investigation found that Riverstone had also used a firm associated with a powerful political fixer, Hank Morris, who is currently facing a 123 count criminal indictment on corruption charges that stem from his alleged activities in connection with pension fund investments.

Cuomo said that both Riverstone and Carlyle used a firm associated with Morris, and soon after both received hundreds of millions in investments from CRF.

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