Cuomo Secures Agreement With Riverstone Founder David Leuschen To Pay $20 Million In Restitution To Resolve Role In Continuing State Pension Fund Investigation
NEW YORK, NY (December 9, 2009) - Attorney General Andrew M. Cuomo today announced an agreement with David Leuschen, the founder of private equity firm Riverstone Holdings LLC (“Riverstone”), to resolve Leuschen’s role in Cuomo’s investigation of corruption involving the New York State Common Retirement Fund (“the CRF”). Under the terms of today’s agreement, Leuschen will pay $20 million in restitution for the benefit of the CRF. With this agreement, Cuomo’s investigation has collected over $100 million for the retirement fund and the state.
“It is important that both firms and individuals be held accountable for conduct that jeopardized the integrity of the New York State Common Retirement Fund,” said Attorney General Cuomo. “To date we have collected over $100 million through this investigation for the retirement fund and the state. As these sums return value to the state pension fund, we continue to pursue the critical reforms that are necessary to prevent such rampant abuse from again corrupting the pension system.”
The Attorney General’s investigation revealed that after the CRF invested $150,000,000 in a joint venture between the Carlyle Group (“Carlyle”) and Riverstone, Leuschen made an “investment” of $100,000 in Chooch, a film produced by the brother of then Chief Investment Officer to Comptroller Hevesi, David Loglisci. Carlyle was unaware of that investment and the investment was not disclosed to the CRF. Riverstone employees also made approximately $40,000 in campaign contributions to Comptroller Hevesi’s campaign in 2004.
Beginning in 2003, Riverstone was a joint venture partner with Carlyle on three investment deals with the CRF. Carlyle/Riverstone retained Searle, a company associated with Henry (“Hank”) Morris, the chief political aide to then Comptroller Alan Hevesi, as a placement agent to help obtain investments from the CRF. Prior to retaining Searle, the companies had experienced limited success in obtaining investments from the CRF. However, after retaining Searle, they obtained approximately $530,000,000 in total investment commitments from the CRF in Carlyle/Riverstone funds. In exchange, Carlyle paid Searle over $10,600,000. Searle then paid the lion’s share of placement fees received from Carlyle to PB Placement, LLC, a shell company controlled by Morris. Unbeknownst to Carlyle, Morris had allegedly entered into a fee-splitting arrangement to pay hedge fund manager Barrett Wissman half of all these fees. The investment commitments made by the CRF and the related fees paid to Searle and others included:
- A $150,000,000 commitment to Carlyle/Riverstone Global Energy & Power Fund II, L.P. made in November of 2003 for which Searle was paid $3,000,000 in fees, $1,425,000 of which went to PB Placement and $1,500,000 of which went to Wissman;
- A $350,000,000 commitment to Carlyle/Riverstone Global Energy & Power Fund III, L.P. made in October of 2005 for which Searle was paid $7,000,000 in fees, $3,325,000 of which went to PB Placement and $3,500,000 of which went to Wissman; and
- A $30,000,000 commitment to Carlyle/Riverstone Renewable Energy Infrastructure Fund I, L.P. through CRF’s fund-of-fund, The Hudson River Fund II, L.P. made in December of 2005 for which Searle received $600,000 in fees, $285,000 of which went to PB Placement and $300,000 of which went to Wissman.
These investments are alleged as the basis for Martin Act and other charges in the 123-count indictment returned by the grand jury and filed by Cuomo’s office in March against Morris and Loglisci.
In June 2009, Riverstone became the second company to sign on to Cuomo’s Public Pension Fund Reform Code of Conduct and paid $30 million in restitution to the CRF. Carlyle signed onto the code in May 2009 and paid $20 million to the State of New York to resolve its role in the Attorney General’s ongoing investigation. Leuschen’s payment brings to $70 million the total amount collected by Attorney General Cuomo on the Carlyle/Riverstone investments.
Riverstone is an energy and power-focused private equity firm founded in 2000. It has approximately $17 billion under management across six investment funds. Riverstone conducts buyout and growth capital investments in the midstream, exploration and production, oilfield services, power, and renewable sectors of the energy industry. With offices in New York, London, and Houston, the firm has committed more than $11.5 billion to 59 investments in North America, Latin America, Europe, and Asia.
Riverstone founders said, “Riverstone and its founders are pleased to have resolved all issues with the New York Attorney General with respect to its investigation of fundraising activities at the New York Common Retirement Fund. From the outset, we have cooperated fully with this investigation and we remain extremely proud of our track record of providing outstanding investment returns for the CRF and our other partners. We continue to support the efforts of the New York Attorney General and his staff to level the fundraising playing field for all parties involved.”
Riverstone previously signed the Attorney General’s Public Pension Fund Reform Code of Conduct, which:
- Bans Placement Agents: Investment firms are prohibited from using Placement Agents, Lobbyists, or any other third-party intermediary to communicate or interact with Public Pension Funds for any purpose. The prohibition does not apply to the use of consultants and investment banks to otherwise directly assist investment firms by, for example, preparing marketing materials or performing due diligence;
- Bans “Pay to Play”: Prohibits investment firms (and their principals, agents, employees and family members) from doing business with a public pension fund for two years after the firm makes a campaign contribution to any elected or appointed official who can influence a public pension fund's investment decisions. The prohibition also applies to candidates for such positions, but does not apply to contributions of $300.00 or less to elected officials or candidates for whom the person making the contribution can vote;
- Increases Transparency: Requires rigorous, ongoing disclosure of information relating to campaign contributions, the identities, responsibilities and qualifications of investment fund personnel and any payments by investment firms to third-parties in connection with public pension fund matters. Also requires investment firms to promptly publish such information on their websites;
- Imposes Higher Standard of Conduct: Holds investment firms to a higher, standard of conduct that avoids even the appearance of impropriety. The Code prohibits (1) improper relationships between pension fund officials and an investment firm's personnel or agents, (2) “revolving door” employment by investment firms of former public pension fund officials and employees, and (3) improper gifts by investment firms to public pension fund employees and officials;
- Enhances Conflicts of Interest Policies: Investment firms are required to promptly disclose and cure any actual, potential and apparent conflicts of interest to public pension fund officials or law enforcement authorities where appropriate;
- Ensures Ongoing Compliance: Investment firms must certify annually to the Office of the Attorney General (and any public pension fund that asks) that they are in compliance with the Code of Conduct. Violations of the Code constitute grounds for either termination of an existing investment, disqualification from doing further business with the public pension fund for up to ten years, or both.
Today’s announcement arises from a two-year, ongoing investigation into corruption involving the New York State Comptroller’s Office and the Fund. The charges to date allege a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi, in which the New York state pension fund was used as a piggy bank for the Comptroller’s chief political aide and a favor bank for political allies and other friends.
Attorney General Cuomo’s investigation into corruption at the CRF has led to a number of criminal charges to date, including charges against Morris and Loglisci, former Liberal Party Chair Ray Harding, and investment advisor Saul Meyer. Meyer, Harding, Barrett Wissman, and Julio Ramirez, an unlicensed placement agent, have pled guilty to Martin Act securities fraud charges, and Elliott Broidy, a founder of Markstone Capital Group LLC, pled guilty to rewarding official misconduct, all for conduct related to the pension fund. Morris and Loglisci are presumed innocent until they are proven guilty in court.
Cuomo also issued subpoenas in May to over 100 investment firms and agents after his investigation found that 40 to 50 percent of agents obtaining investments from New York pension funds were unregistered.
Earlier this year, Cuomo announced his Public Pension Fund Reform Code of Conduct, which would eliminate pay to play in state public pension funds. To date, seven firms have signed onto the Code: The Carlyle Group, Riverstone Holdings, Pacific Corporate Group, HM Capital, Falconhead Capital, Levine Leichtman Capital Partners, and Access Capital Partners. These firms collectively have agreed to return nearly $60 million associated with New York State Common Retirement Fund investments; these funds will principally be provided to the CRF for the benefit of the pension holders.
In July, the United States Securities & Exchange Commission proposed new pay-to-play rules that would institutionalize Cuomo’s Code of Conduct nationwide.
The investigation was conducted by Deputy Chief of the Public Integrity Bureau Stacy Aronowitz and Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, under the supervision of Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben and Special Counsel Linda A. Lacewell.