Feds Indict Illinois PE Attorneys

Federal prosecutors last week announced indictments against Stuart Levine, a former trustee of the Illinois Teachers’ Retirement System (TRS) and two attorneys. The three are accused of soliciting kickbacks of hundreds of thousands of dollars from private equity firms that sought investments from the $31 billion pension system.

Illinois TRS said that it was cooperating with the investigation.

The federal government charged Levine with eight counts of wire fraud, two counts of mail fraud, two counts of soliciting a bribe and one count of attempted extortion.

Levine allegedly concealed information from Illinois TRS related to four investment firms that were seeking funding. The indictment says that he conspired with a placement agent for three of the funds and arranged for fees to be given to the placement agent in exchange for those funds being shared with associates of Levine.

Levine was appointed to the Illinois TRS board in 1996 and resigned last year. His attorney did not return calls for comment.

Robert Matlin, a partner with the law firm of Thelen Reid & Priest and co-chair of its private equity and venture capital practice group, says the indictments are unlikely to damage the partnership agreements outside of those directly involved in the accusations.

What it will certainly bring, he says, is increased scrutiny of Illinois TRS. But he notes that the private equity industry should not suffer any harm.

“It’s rare for something like this to happen,” says Matlin, who is not involved in the case.

The two attorneys under indictment, Joseph Cari and Steven Loren, expect to plead guilty to charges that include attempted extortion and impeding the Internal Revenue Service. Both are cooperating with the investigation. Cari’s attorney expects his client to be arraigned this week, but is not sure if Cari will enter a plea at that time.

The federal indictment alleges that Levine attempted to extort $850,000 last year from an unnamed Virginia-based real estate and asset management firm that sought an $85 million investment from the Illinois TRS. The funds were to be transferred using a bogus consulting service.

Cari allegedly served as Levine’s liaison to the asset management firm. The firm ultimately balked at the scheme, and Levine tried to pull the proposal from consideration, but the investment was approved anyway.

Loren served as an outside counsel to Illinois TRS while a partner with the law firm Gardner Carton & Douglas. Prosecutors say he drafted phony legal agreements designed to mask kickbacks involving Levine and the placement agent.

Cari, partner in the Chicago law firm of Ungaretti & Harris, is the former National Democratic Committee finance chairman and a key backer of Delaware Democratic Sen. Joseph Biden, who is exploring a 2008 run for the presidency.

Cari served as a managing director with New York-based private equity firm HealthPoint Capital, which received $35 million from Illinois TRS for its $200 million inaugural fund during the time that the indictment covers. However, the U.S. Attorney’s office does not allege any wrongdoing surrounding that investment. Illinois TRS remains an LP of HealthPoint.

A person close to HealthPoint who spoke with PE Week downplayed Cari’s role with the firm and pointed out that Cari was still a full-time partner at Ungaretti & Harris during his HealthPoint tenure, and not its principal fund-raiser.

Levine, a Republican Party fund-raiser, was appointed to the Illinois TRS board by former Illinois Gov. George Ryan. Levine was indicted in May for a separate incident involving a consulting contract for the Chicago Medical School. Another firmer Illinois TRS trustee and Ryan advisor, John Glennon, as well as another man, were indicted for playing a role in that scheme. The three men pleaded not guilty to those charges.

Email Matthew.Sheahan@thomson.com