Carlyle to pay $20m after NY probe

Financial Times | May 15, 2009
By Julie MacIntosh and Henny Sender in New York

Carlyle Group, the politically influential private equity firm, yesterday agreed to pay $20m following an investigation by Andrew Cuomo, New York attorney-general, into alleged corruption at the state's biggest public pension fund.

Carlyle also agreed to a code of conduct promoted by Mr Cuomo that would ban use of outside agents to solicit public pension funds and prevent asset managers doing business with such funds for two years after making political donations to officials who could influence them.

Carlyle's move came as a result of a two-year investigation by Mr Cuomo into alleged kickbacks paid to secure money from New York's $122bn Common Retirement Fund.

It was the first buy-out firm to agree to Mr Cuomo's code of conduct or to pay money to the state following the investigation.

According to Mr Cuomo's office, Carlyle won $730m in investment commitments from the retirement fund after it hired Hank Morris - a political aide to Alan Hevesi, state comptroller and sole trustee of the fund - as its "placement agent".

Carlyle, which Mr Cuomo said had "experienced limited success in obtaining investments" from the pension fund before hiring Mr Morris, then paid nearly $13m to Searle & Company, a broker-dealer associated with Mr Morris.

Mr Morris has been charged in the case. Mr Hevesi has not been charged with any wrongdoing.

In 2006, two of Carlyle's three co-founders - David Rubenstein and Daniel D'Aniello - and two Carlyle internal fundraisers made political contributions to Mr Hevesi, the company confirmed. Carlyle said it introduced a policy in December that year requiring employees to obtain approval from its chief compliance officer for contributions to officials in states where Carlyle solicited the state pension plan.

Carlyle said yesterday it was "unaware of any improper conduct" by Searle or Mr Morris, and would sue Searle and Mr Morris for more than $15m.

Mr Cuomo said his code was designed to "eliminate the conflicts of interest and corruption". He said: "By banning campaign contributions to those who have sway over pension funds and eliminating the third-party intermediaries that have become dens of corruption, we will ensure reform."