Over 100 Investment Firms and Agents Subpoenaed in Widening Pension Fund Probe

NY AG Cuomo expands investigation into corruption and kickback schemes.

May 1, 2009, 2:23 PM

May 1, 2009— -- A national network of investment firms and their middlemen are conspiring in fraudulent practices and kickback schemes to receive lucrative business opportunities with state and local pension funds, according to New York Attorney General Andrew Cuomo. A probe that began two years ago focusing on the New York State and City pension funds is now looking at possible firms and agents in other states, including Texas, California, Oklahoma, and New Mexico that may be involved. Cuomo described the scam as "ongoing" and "the worst of both worlds."

"This is the nexus of private sector fraudulent operators meeting government and political fraudulent operators," said Cuomo, who on Friday issued over 100 subpoenas to investment firms and their agents.

Under federal and NY state law, any agent that brokers deals between the private investment firms seeking pension fund money and the government or political officials doling out the money, must be a registered securities broker, with the occasional exception allowed. Cuomo's investigation, however, found that 40-50% of so-called 'placement agents' seeking investments from the NY State and City pension funds are unregistered.

"The troubling pattern of unlicensed agents highlights yet another systemic weakness in New York's pension fund," said Cuomo, "creating a situation which is fraught with peril and prone to abuse. This investigation will continue until public trust has been restored and reform has been achieved."

Valued at $122 billion, the NY State pension fund is the biggest pool of public money in the state. Cuomo alleges that a "network of middlemen", many of whom are not registered, have been selling access to state comptrollers' offices in what has blossomed into a national network.

"It's the wild west of government relations and financial brokers," said Cuomo. The NY Attorney General held a conference call Friday with 36 Attorneys General offices later today to formalize an information sharing process as his probe expands across state lines.

"We decided to create a multi-state task force to explore pension fund abuse so states can share vital information to prosecute wrongdoing and facilitate nationwide reform. The task force will allow us to have a unified, efficient method for gathering information as we fight to combat corruption and restore transparency and integrity to public pension funds," said Cuomo.

Steven Rattner's Firm Under Scrutiny

One of the firm's under scrutiny is the Quadrangle Group, which was founded by Steven Rattner who now heads President Obama's auto task force. Cuomo on Thursday would not rule in or out the possibility that Rattner, who has since left the firm, or anyone else could be charged.

Cuomo did not release the names of the individuals who received subpoenas on Friday. Instead his office referred reporters to the NY State and City comptrollers' offices who maintain lists of placement agents involved in transactions by the state and city pension funds. Neither office immediately returned calls from ABC News.

New York City Comptroller William C. Thompson, Jr. did issue the following statement on his website Friday.

"I fully support the Attorney General's investigation of this issue and will provide whatever assistance he needs from my office. I have already recommended to all of the City pension funds that they immediately suspend the use of any placement agents, firms or middlemen in their investments," said Thompson Jr.

NY State comptroller Thomas DiNapoli, whose predecessor Alan Hevesi is still being investigated, says he "is outraged by the alleged wrongdoing of the former administration and has taken steps to strengthen oversight of the Fund and fix New York's weak campaign finance laws," according to his website. DiNapoli has since banned the involvement of placement agents and registered lobbyists in investments with the pension fund.

Just yesterday, Cuomo announced criminal charges against pension fund adviser Saul Meyer of the Dallas-based Aldus Equity firm. Meyer allegedly paid illegal kickbacks in exchange for doing business with the NY state pension fund. His lawyer says he did nothing wrong. Four other people have been previously charged in the two-year long investigation.

An editorial in Friday's New York Times said, "New York State's pension system offers an open invitation to political corruption and is desperately in need of reform."

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