Pay to Play Scandal in NY Nabs Another Investment Firm

"Carlyle/Riverstone retained Searle, a company associated with Henry ("Hank") Morris, the chief political aide to then Comptroller Alan Hevesi, as a placement agent to help obtain investments from the CRF [Common Retirement Fund]. Prior to retaining Searle, the companies had experienced limited success in obtaining investments from CRF. However, after retaining Searle, they obtained approximately $530,000,000 in total investment commitments from CRF in Carlyle/Riverstone funds. In exchange, Carlyle paid Searle over $10,600,000," Cuomo said in a statement released this morning.

Cuomo said his ongoing two year investigation outlines the scope of corruption in Albany. "In many ways that's the story of Albany, ongoing dysfunction, ongoing corruption," Cuomo said.

Cuomo said that an investigation into Riverstone Principal David Lucien remains open, and was not a part of the settlement agreement. "It is an open investigation," he said in a conference call.

"We have no comment on that," Michael Freitag, a spokesman for Riverstone.

Cuomo, widely rumored as a potential Democratic gubernatorial candidate, said his probe is designed to not merely bring individual cases but to fix the system.

"We seek justice in the individual cases and we seek to fix the problem," Cuomo said. Speaking of the system in which the state comptroller is the sole person responsible for allocating investments in the $109 billion New York Common Retirement Fund, Cuomo said, "The system is corrupt. It has been corrupt for many years."

Cuomo's code of conduct bans investment firms from hiring, utilizing, or compensating placement agents, lobbyists, or other third-party intermediaries to communicate or interact with public pension funds to obtain investments.

To avoid pay-to-play schemes, the Code prohibits investment firms (and their principals, agents, employees and family members) from doing business with a public pension fund for two years after the firm makes a campaign contribution to an elected or appointed official who can influence the fund's investment decisions, Cuomo said in a statement. It also bars all firms currently doing business with the pension fund from making such campaign contributions.

"Riverstone has not used a placement agent in connection with any investment by a state or municipal pension fund since early 2006, and we believe that our agreement to abide by the Attorney General's Code of Conduct reflects another step toward our goal of meeting or exceeding best practices," the firm noted in its statement," said the spokesperson for Riverstone.

Riverstone is an energy and power-focused private equity firm. Founded in 2000 it conducts buyout and growth capital investments in the midstream, exploration & production, oilfield services, power and renewable sectors of the energy industry, according to Cuomo's office and industry reports.

Cuomo's probe alleges "a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi, in which the New York state pension fund was used as a piggy bank for the Comptroller's chief political aide and a favor bank for political allies and other friends," he said. He declined to comment on whether current officials linked to the pension fund are under investigation.

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