Hicks, Muse, Tate & Furst (HMTF) has run afoul of state ethics regulators in Louisiana, and has paid a $5,000 civil penalty to settle the matter.
At issue is a Louisiana statute that prohibits state employees from receiving personal gifts or services from parties that do business with the state. HMTF is one such party, as several of its funds feature the Teachers Retirement System of Louisiana as a limited partner.
The Dallas-based buyout firm acknowledges that it provided Louisiana state employees with such items as hockey tickets (Tom Hicks owns the Dallas Stars) and bottles of champagne, but argues that it was just conducting business as usual. Moreover, HMTF stresses that Louisiana already had agreed to invest in HMTF funds before any gifts were provided, although the system did subsequently invest in additional funds.
“The items in question were all of nominal value and were provided by HMTF to clients, vendors and others with whom it has business relationships as token and customary goodwill gestures,” the firm said in an official statement. “They were provided in the context of informational review meetings that HMTF was required to hold with those individuals under the terms of its contract with the Teachers Retirement System of Louisiana. For example, HMFT holds an annual meeting for all limited partners, including Louisiana, and has usually provided golf as a social activity ancillary to those meetings. To take another example, the bottles of champagne in question were produced by a champagne company owned by HMTF at the time these items were provided.”
The total value of the items provided to Louisiana officials-over several years-was $4,733. That figure does not include hotel bills incurred during annual meetings, of which the HMTF general partnership pays half and the fund itself pays half (as dictated in LP agreements). It is unclear if such an arrangement violates Louisiana rules, but at least one public pension has asked HMTF to be billed separately for such stays.
HMFT and involved Louisiana officials claim to have been ignorant of the rules, and don’t expect the situation to repeat itself. For example, Louisiana pension managers would, from now on, be required to pay for their own greens fees during future HMTF annual meetings.
Most states require public employees to report the receipt of gifts from parties doing business with the state, although the line between permitted and prohibited differs from state to state. One common exemption is when the gifts such as greens fees or hotel rooms are supporting an event related to state business, or support the participation of a public official in an event that furthers state business (i.e. junkets).
A private equity attorney, who requested that his name not be used, said that the best rule of thumb is for GPs to both examine state-specific ethics rules themselves, and to ask LPs to do the same. “It can hard for a large firm to keep track of all the different rules, so it is also incumbent on them to ask LPs to speak up if a particular statute is being violated,” he added.