4 private-equity firms pay to settle pay-to-play pension fund case

Four private-equity firms that have surfaced in a corruption investigation of New York state's pension fund have agreed to pay settlements and implement business reforms to end their role in the case, state Attorney General Andrew Cuomo said Thursday.

Falconhead Capital, HM Capital Partners, Levine Leichtman Capital Partners and Access Capital Partners collectively will return more than $4.5 million to New York's state pension fund. The firms, which have not been charged with wrongdoing, also agreed to stop using intermediaries known as placement agents to seek public pension fund business. Cuomo's office has settled with seven firms, including private-equity giant The Carlyle Group, in a case that has expanded to several states.

The investigation targets alleged kickbacks and bribes paid to public officials and others in exchange for receiving lucrative awards to manage public pension fund investments. That practice, informally known as pay-to-play, remains rampant, said Cuomo, who drafted the code of conduct the four firms agreed to join as part of the settlements.

"Hopefully these additional companies will add more momentum to the movement that is growing ... to reform pension fund management, not just in New York, but all across the nation," Cuomo said.

The New York probe so far has produced two guilty pleas and criminal charges against four defendants. They include Hank Morris, a nationally known campaign strategist who was the top political adviser to former state comptroller Alan Hevesi, and David Loglisci, a former Hevesi aide. Both have pleaded not guilty.

Falconhead and HM Capital each allegedly agreed to pay Morris through the broker-dealer where he worked in exchange for New York pension fund awards, according to the indictment earlier this year against Morris. Levine Leichtman and Access Capital hired intermediaries who split fees with Morris without the firms' knowledge, the indictment alleged.

The four companies issued statements saying the code of conduct would establish new standards of transparency and accountability for investments by public pension funds.

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