New Mexico fund settles with firm over pay-to-play scheme

New Mexico’s State Investment Council on Aug. 28 approved an $800,000 settlement with defunct private equity firm HM Capital Partners over the firm’s use of a finder to secure a $30 million commitment from the state fund, a scheme known as pension pay-to-play.

In exchange for the payment, the sovereign fund will drop all claims against the firm and related individuals arising from the pay-to-play situation, SIC said in settlement documents. 

SIC said its $30 million commitment to HM Capital cost the sovereign fund more than $2.6 million in losses, according to New Mexico SIC’s original lawsuit, filed in March 2017 in Santa Fe District Court.

HM Capital no longer exists as an active PE firm. It was the rebranding of Hicks Muse Tate & Furst, which was launched in 1989 by Tom Hicks and John Muse.

In 2013 HM Capital split into two separate firms: an energy-focused group called Tailwater Capital and a food-focused team called Kainos Capital.

The HM entity represented in the lawsuit and settlement denied wrongdoing, according to the settlement document. No one from the firm could be reached for comment.

The alleged scheme dates to late 2005 or early 2006, when HM Capital was raising its Sector Performance Fund, which eventually closed on $785 million.

During fundraising, HM agreed to pay a commission to Marc Correa, the son of Anthony Correa, an associate of then-New Mexico Gov. Bill Richardson, in exchange for capital from the sovereign fund. HM Capital never disclosed to New Mexico officials it was paying Correa, the lawsuit said.  

The firm agreed to pay Correa even though it was already talking to New Mexico officials about the commitment, and the system’s private equity adviser, Aldus Equity, recommended the commitment, the lawsuit said.

Saul Meyer, head of Aldus Equity, recommended that HM Capital hire Correa to win capital from New Mexico SIC, the lawsuit said. Meyer eventually pleaded guilty to a similar pension pay-to-play scheme in New York. 

“[HM Capital] did not need an introduction to New Mexico State Investment Council, as it is a public agency,” the lawsuit said.

“Furthermore, defendants had already had discussions with [the system’s] private equity advisor and been included in the Aldus allocation reports before ever talking with Marc Correa. …”

“Defendants understood that they had to ‘pay to play,’ because they knew or should have known that there was no legitimate reason to pay Marc Correa. They knew or should have known they were participating in a fraudulent scheme, even if they did not know all the details of the scheme or the identities of everyone involved,” the lawsuit said.

New Mexico SIC has been working to recover what it says are losses stemming from pay-to-play schemes and has to date collected about $43 million.

Pension pay-to-play schemes burst into the open in 2009 in the wake of the global financial crisis and led to state and federal restrictions on political contributions from investment managers to officials controlling state pension funds.

Update: This story was updated to include information that New Mexico SIC approved the settlement Tuesday.

Action Item: Read New Mexico documents here: https://bit.ly/1NfE4ID