Cuomo announces two firms have settled kickback probe

Israeli venture capital firm Markstone Capital Group agreed to pay $18 million to settle its role in an ongoing corruption probe of the New York State Common Retirement Fund, Attorney General Andrew Cuomo said last week.

In addition to the cash settlement, Markstone also has signed Cuomo’s “code of conduct,” which essentially promises not to use placement agents for future fund-raising efforts in the United States.

The money Markstone is returning is its investment fees for what became a $250 million investment by the state pension fund, Cuomo said.

The announcement confirms a report in PE Week last week, citing an Israeli news report, that Markstone Capital Partners was near a settlement with Cuomo over its role in the state’s pay-for-play scandal.

Cuomo also announced last week that the Wetherly Capital Group, a placement agent that served as a broker for investment companies eager to invest in the state’s pension fund, will return $1 million associated with the pension investments.

“Wetherly has also agreed to exit the placement agent business,” the Democratic attorney general said.

Los Angeles-based Wetherly had also served as a placement agent for the California Public Employees’ Retirement System. Cuomo said Wetherly helped three California-based private equity funds, Ares Management, Freeman Spogli & Co. and Levine Leichtman Capital Partners, win business from New York State Common.

To date, Cuomo said $120 million has been collected for the state and its $126 billion pension fund from a probe into the way placement agents exploited their political ties under former Democratic Comptroller Alan Hevesi to win lucrative investment contracts for their clients.

Markstone founding partner Elliott Broidy resigned in December, pleading guilty to a felony and has been cooperating with Cuomo’s probe.

Broidy gave gifts, political contributions and other “benefits” worth more than $1 million to the top decision makers at the state pension fund, Cuomo said.

Former Wetherly Capital associate Julio Ramirez also pleaded guilty to charges that stemmed from “corrupt arrangements” between Ramirez and Henry Morris, a top fund raiser for New York state’s former comptroller, Cuomo said. Morris got part of Wetherly’s fees for the placements, Cuomo said.

Broidy still faces sentencing, and a ruling on that is not expected to occur until there is finality to the cases against Morris and former New York CIO David Loglisci.

Morris, whose lawyer says his client is not guilty, faces numerous charges, including securities fraud, bribery and money laundering. —Joan Gralla, Reuters and Dan Primack