Hevesi Donor's Selection Spotlights Pay-to-Play at Pension Fund
Bloomberg - Karen Freifeld - Jul 17, 2009
July 17 (Bloomberg) -- EnTrust Capital Inc., a hedge-fund firm whose founders contributed to the campaign of New York Comptroller Alan Hevesi, received millions of dollars of pension money to invest while he was running the state retirement fund, public records show.
Hevesi’s staff suggested the state use EnTrust to invest its money, according to Consulting Services Group LLC, a company hired to vet and choose firms. EnTrust was one of 50 firms recommended by the fund in 2006 and 2007 to CSG and one of 15 firms chosen, said a person familiar with the matter. EnTrust’s vetting was a priority, a person familiar with the process said.
Hevesi, comptroller from 2003 to 2006, and CSG are being investigated by U.S. regulators and New York’s attorney general over corruption at the fund, valued at $140 billion in 2006. To show criminality or liability, it must be established that the parties involved had the intent to trade a kickback or a campaign contribution for state business, lawyers said.
“Pay-to-play is absolutely at the core of all this,” said John Coffee, Columbia University securities law professor. “Underlying is an unwritten norm of reciprocity. If you want money, you have to contribute and, if you do contribute, you can expect that money will be given to you for investment.”
Coffee said it’s harder to prosecute contribution-related deals for state business than kickbacks paid as fees. “You have to be able to show a specific quid pro quo,” he said.
Hevesi received campaign donations from 46 percent of the hedge fund and private-equity managers he picked to manage state money for the first time, according to state records.
Hevesi Defense
Investment managers were selected by staff and independent advisers “solely on the basis of whether the funds are good investments,” David Neustadt, Hevesi’s then-spokesman said when the statistics were disclosed in 2006.
It’s not current practice to suggest to vetting companies such as CSG which firms should be given state money, said Robert Whalen, a spokesman for the New York state comptroller’ office.
EnTrust’s situation came to light when CSG told clients in a June 30 letter that state pension fund personnel “suggested” EnTrust as a money manager. After vetting, EnTrust got $15 million on July 1, 2006, the same day CSG, which also managed a so-called fund of funds for New York, got $200 million to parcel out to investment firms, according to Whalen.
CSG chose 13 other firms on its own during the same 2006- 2007 period, the person familiar with the matter said. It didn’t specify which personnel steered it toward EnTrust or if it was told of the contributions to Hevesi. Hevesi pushed EnTrust as a fund recipient, a person familiar with his recommendations said.
CSG Comment
“CSG has no comment on the letter or its contents,” Ellen Moskowitz, a spokeswoman for the Memphis-based company, said.
Hevesi’s fund role is an “ongoing matter” in a two-year investigation, New York Attorney General Andrew Cuomo said last month when asked why the former comptroller, named in indictments of others in the pension-fund scandal, had not been charged or cleared. Alex Detrick, a spokesman for Cuomo, said there has been no change in Hevesi’s status.
“Alan Hevesi categorically denies pushing EnTrust at anytime and to anyone,” his lawyer, Bradley Simon, said in an e-mailed statement.
Hevesi resigned as comptroller in December 2006 after pleading guilty to using state employees to chauffeur his wife. Thomas DiNapoli was named in February 2007.
Cuomo’s office has said EnTrust is not being investigated. Cuomo, who used EnTrust to invest personal and campaign funds, recused himself on any matters involving the firm. His office has been focusing on illegal kickbacks paid by financial firms to so-called placement agents, including Henry “Hank” Morris, to win pension-fund investment business.
Hank Morris Charged
Morris, Hevesi’s former chief political consultant, was indicted in March by Cuomo and accused of taking kickbacks and pressuring fund managers for campaign contributions. CSG is among the firms that hired Morris. It denies wrongdoing.
“The CSG matter is ongoing, and we therefore cannot comment on it,” Detrick said in an e-mailed statement. “There has been no change with respect to the status of EnTrust.” CSG is in preliminary talks with Cuomo’s office to resolve his probe of the firm, according to a person briefed on the investigation.
EnTrust has not been named by the U.S. Securities and Exchange Commission, which sued Morris. The SEC previously declined to say if it is investigating EnTrust or CSG, which is named in the agency’s complaint against Morris. CSG said in its letter that the SEC had warned the company of a possible agency suit against it involving placement agents and pension funds.
John Heine, a spokesman for the SEC, declined to comment on whether the disclosures in the CSG letter will be investigated.
Liberty Oak
EnTrust’s Capital Waters Fund Ltd. received the $15 million in 2006 through CSG’s Liberty Oak Capital Fund LP, a portfolio of hedge-fund investments. CSG created Liberty Oak in 2006 for the state pension fund. CSG, as a general partner of the fund, managed hedge-fund investments for the state. After Hevesi left office, Entrust received another $5 million in state funds through Liberty Oak on June 1, 2007, Whalen said.
“EnTrust never retained or made any payments to Hank Morris or any other third party in connection with the Liberty Oak investment, nor did it ever ask Alan Hevesi or any CRF personnel to direct CSG to allocate funds to EnTrust,” Brandy Bergman of Sard Verbinnen & Co. in New York, a spokeswoman for EnTrust, said in a statement, referring to New York’s Common Retirement Fund.
“EnTrust had absolutely no role in CSG’s manager selections, and only received funding after successfully completing the same due diligence process CSG applied to all hedge funds,” she said.
EnTrust Was Qualified
CSG said in its letter that it concluded EnTrust was qualified to manage the investments.
EnTrust never used or paid Morris as a placement agent so there was no investigation of it, Cuomo’s Chief of Staff Steven Cohen said last month in disclosing Cuomo’s recusal.
Cuomo and the SEC are investigating money managers and their placement agents who used ties to public officials and kickbacks to buy and sell access to the $2 trillion in U.S. public pension systems. The regulators’ indictments and civil complaints depict officials allowing political and personal ties and financial self-interest to trump merit when deciding who was to be entrusted to invest taxpayer money.
Cuomo recused himself over EnTrust when he took office in 2007, Cohen said. Cuomo has received campaign contributions from EnTrust’s principals, just as Hevesi had, public records show.
EnTrust was founded in 1997 by Goldman Sachs Group Inc. alumni Gregg Hymowitz, Michael Horowitz and Mark Fife, according to the firm’s Web site.
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Where will it all end, that is the question many are asking. I have said many times Pensiongate scandal is bigger than Watergate, and for the most part it is all about well contacted and RIch Democrats trying to get richer.
VJ Machiavelli
NO MORE SCHUMER
NO MORE PELOSI
NO MORE RANGEL
NO MORE ENGEL AND HIS MILLION DOLLAR HOME IN MARYLAND
