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Post date: July 1 2009

Cuomo Secures Agreement With Leading Pension Fund Advisor Pacific Corporate Group Holdings To Adopt Code Of Conduct And Eliminate Pay-to-play In Pension Funds Nationwide

NEW YORK, NY (July 1, 2009) - Attorney General Andrew M. Cuomo today announced that leading pension fund advisor Pacific Corporate Group Holdings, LLC (“PCG”) has adopted Cuomo’s Code of Conduct to reform the public pension fund system and to end pay-to-play nationwide. Under the terms of the agreement announced today, PCG Corporate Partners Advisors II, an affiliate of PCG, will also return over $2 million in proceeds associated with a New York State Common Retirement Fund (“CRF”) investment. This payment will be returned to the CRF for the benefit of the pension holders. The agreement resolves PCG Corporate Partners Advisors II’s (“PCGCP”) role in Cuomo’s investigation of corruption involving the CRF.

“PCG is the third signatory to our Code of Conduct and the first pension fund advisor to adopt the Code. The Code of Conduct reforms the public pension fund system by ending pay-to-play campaign contributions and the use of intermediaries to sell access to public money,” said Attorney General Cuomo. “PCG’s adoption of our Code sets a new standard for gatekeepers industry-wide. As a gatekeeper to public pension funds, PCG has a responsibility to exercise the highest level of ethical conduct in its work. By proactively adopting our Code, PCG has set an important example for the industry.”

Attorney General Cuomo’s Code of Conduct bans investment firms from hiring, utilizing, or compensating placement agents, lobbyists, or other third-party intermediaries to communicate or interact with public pension funds to obtain investments. To avoid pay-to-play schemes, the Code 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 an elected or appointed official who can influence the fund's investment decisions. This provision would also bar all firms currently doing business with the pension fund from making such campaign contributions. Investment firms must also disclose any conflicts of interest to public pension fund officials or law enforcement authorities, to increase transparency and avoid abuse of the fund for personal gain.

PCG is headquartered in La Jolla, California and maintains offices in New York, San Diego, Boston, Singapore, Washington D.C., and Hong Kong. PCG offers consulting services to institutional investors, such as public pension funds. In its role as a consultant, PCG is responsible for conducting due diligence on private equity investments on behalf of institutional investors, essentially evaluating whether and to what extent a particular investment is suitable for that investor. PCG has acted as a consultant for the California Public Employees’ Retirement System (the nation’s largest public pension fund), New York City, the State of Oregon, and the State of Connecticut, among others. PCG also manages private equity funds with a net asset value of over $1 billion. PCG and PCGCP have cooperated in the Attorney General’s investigation.

The Attorney General’s investigation revealed that PCGCP was a minority partner in a joint venture known as Strategic Co-Investment Partners (“SCP”), along with New York-based hedge fund manager the Clinton Group and Barrett Wissman, a hedge fund manager and friend to then-CRF Chief Investment Officer David Loglisci. As previously charged in court documents, SCP was the brainchild of Loglisci, and received a $750 million capital commitment from the CRF in October of 2006. At that time, SCP was the largest single private equity investment ever made by the CRF. Loglisci allegedly sculpted and funded the SCP investment substantially in order to benefit Wissman and Henry (“Hank”) Morris, the chief political aide to then Comptroller Alan Hevesi. Wissman and Loglisci allegedly hid Morris’s secret ownership interest from senior management at PCGCP and the CRF investment staff.

The SCP transaction is 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. Wissman has pled guilty to Martin Act securities fraud charges for conduct related to the pension fund.

Under today’s agreement, PCG has embraced the Code of Conduct and its affiliate, PCGCP, has agreed to return over $2 million in proceeds resulting from the SCP transaction, given that Morris’s secret ownership interest was hidden from the senior management at PCGCP, along with CRF investment staff.

A PCG Holdings spokesperson stated, “We are taking these steps to make the public whole for the improper actions of a former executive, to put this episode behind us and to move our business forward. Adopting Attorney General Cuomo's Code of Conduct represents a natural next step in our efforts to meet or exceed the high fiduciary standards adhered to by PCG Holdings, and that are expected of those entrusted with public funds. It will help maintain trust in the public pension systems' investment process by enhancing transparency and accountability into the pension fund investment process.”

The Attorney General’s Public Pension Fund Reform Code of Conduct:

- 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.

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. In addition to Wissman, Julio Ramirez, an unlicensed placement agent associated with Wetherly Capital, has pled guilty to Martin Act securities fraud charges for conduct related to the pension fund. Morris, Loglisci, Meyer, and Harding are presumed innocent until they are proven guilty in court.

Cuomo also issued subpoenas last month to over 100 investment firms and their agents after his investigation found that 40 to 50 percent of agents obtaining investments from New York pension funds were unregistered.

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.

The investigation is being conducted by Stacy Aronowitz, Deputy Chief of the Public Integrity Bureau, and Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, under the supervision of Ellen Nachtigall Biben, Special Deputy Attorney General for Public Integrity, and Linda A. Lacewell, Special Counsel, and with the assistance of Richard Jackson, Assistant Solicitor General.


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