Carlyle Pulls Plug On Placement Agents After Indictments

Apr 20 2009 | 11:08am ET

In the wake of a New York corruption scandal, The Carlyle Group will stop using so-called “finders” to drum up business from public pension funds.

The Washington-based private equity giant will no longer use placement agents in its dealings with the pensions, the Financial Times reports. According to the Securities and Exchange Commission and New York attorney general, Carlyle paid $12 million in finders’ fees to Hank Morris, who served as the chief fundraiser for former New York Comptroller Alan Hevesi. Hevesi, whose office oversaw the $122 billion New York State Common Retirement Fund, has not been charged in the case, although Morris and three others, including the former leader of New York’s once-powerful Liberal Party, have been.

“Since this happened, we stopped using finders to ensure the integrity of the investment process,” Carlyle, which had been among the most active users of placement agents, said. “If you remove that part of the puzzle, the possibility that there are kickbacks is gone.”

Carlyle has not been charged with any wrongdoing in the investigation, which has focused on some $4 billion in allocations from the pension fund. Carlyle, which says it is cooperating with the probe, received $1.3 billion in allocations from the New York pension through its ties with Morris, who “concealed his role from the funds that hired him,” according to the indictment against him.

Among the alternative investment firms caught up in the New York scandal are Pequot Capital Management, Paladin Capital Management and HFV Asset Management, whose Barrett Wissman has already pleaded guilty to securities fraud as part of a plea deal. What’s more, Morris and his alleged partner-in-crime, David Loglisci, the former New York deputy comptroller and chief investment officer of the pension, ran the fraud through their relationship with Quadrangle Group, the alternatives firm co-founded by President Barack Obama’s pointman on the automotive industry, Steven Rattner.

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