International private equity firm The Carlyle Group has agreed to pay $20 million to the state of New York, following an investigation by New York Attorney General Andrew Cuomo into an alleged kickback scheme involving the state’s largest pension fund.
The firm has also agreed to adopt a new code of conduct put forward by Attorney General Cuomo, which bans investment firms from using third-party agents to solicit investment from public pension funds. Under the code, firms are also prevented from doing business with a fund for two years after donating to a politician who could influence it.
“Our code of conduct will help eliminate the conflicts of interest and corruption inherent in a system that allows people to buy access to those holding the pension fund purse-strings,” says Attorney General Cuomo.
Carlyle’s move follows a two-year investigation into alleged kickbacks paid to secure investment from the $122 billion New York Common Retirement Fund (NYCRF). Carlyle won $730 million in investment from the fund after hiring Henry ‘Hank’ Morris as a placement agent. At the time, Morris was chief political advisor to then New York State Comptroller Alan Hevesi, sole trustee of the retirement fund.
Carlyle paid nearly $13 million in placement fees to Searle & Co, a broker-dealer associated with Morris, the majority of which was then given to PB Placement, a shell company controlled by Morris.
“Carlyle disclosed its retention of Searle & Co to NYCRF and was unaware of any improper conduct by Searle & Co or Mr Morris. Carlyle was victimised by Hank Morris’s alleged web of deceit,” the firm says in a statement. “We are pleased to announce today that we have reached a successful resolution with the Attorney General and strongly support his efforts to implement reforms that usher in a new era of transparency and accountability into the pension fund investment process. Carlyle will be the first company to adopt the New York Attorney General’s Code of Conduct and set a new standard for ethics in the industry.”
Morris was charged in connection with the alleged kickback scheme earlier this year, and Hevesi has not been charged with any wrongdoing.
Carlyle is seeking over $15 million in damages from Morris and Searle & Co.
D.C.