Carlyle Group under pension fund probe
New York state officials, SEC investigate private-equity firms for alleged wrongdoing
WASHINGTON – Federal and state authorities are investigating whether Carlyle Group and other private-equity firms and hedge funds knowingly participated in a pay-to-play scheme to get investments from New York state’s pension fund, according to three people familiar with the case.
New York Attorney General Andrew Cuomo has subpoenaed several firms that got business from the $122 billion pension fund after using the services of a middleman who connected investment firms with potential investors, the sources said. Cuomo and the SEC have alleged that the middleman won business for the firms through illicit payments.
The Securities and Exchange Commission also is investigating whether these firms adequately disclosed their use of the middleman to the pension fund, to ensure that the fund was aware of any special access enjoyed by the firms, one of the sources said. The sources spoke on condition of anonymity because they were not authorized to discuss ongoing investigations.
Carlyle, based in Washington, D.C., has been one of the largest recipients of New York state pension money. Carlyle was involved in five investments totaling about $730 million in capital commitments from the state pension fund, according to court documents.
“Carlyle has fully cooperated with the New York Attorney General’s investigation. We understand this is an industry-wide investigation and that we are not the focus of the investigation,” Carlyle spokesman Christopher Ullman said in a prepared statement.
Carlyle’s use of politically connected consultants has come under scrutiny before, but Ullman defended its relationships with consultants.
“Our agreements with placement agents, whether large Wall Street firms or smaller broker-dealers, call for all parties to abide by all laws to ensure the integrity of the investment process,” he said. “Carlyle is pleased to currently serve the pensioners of New York, Illinois and Connecticut and has achieved excellent returns in several funds on their behalf.”
The inquiry comes after Cuomo and the SEC filed criminal and civil charges last month against Henry Morris, a former top aide to former New York comptroller Alan Hevesi, and David Loglisci, the pension fund’s former chief investment officer.
Morris and Loglisci were accused of directing pension-fund money toward investment firms in exchange for kickbacks and other bribes. They have denied wrongdoing. They obtained $30 million in fees and gifts, according to court documents.