It’s déjà vu, all over again. Ten years ago, the State of Connecticut was rocked by allegations that Treasurer Paul Silvester was part of a kickback scheme in which private equity and other investment firms made under-the-table payments in exchange for receiving fund commitments from the state pension system. The result was jailtime for Silvester, a total reworking of the state’s private equity portfolio and fines for several of the involved private equity firms.
Now we have a very similar situation going on just a few miles south, with New York Attorney General Andrew Cuomo indicting two top advisors to former NY state comptroller Alan Hevesi, on charges that include fraud, bribery, money laundering and larceny. The two men – David Loglisci and Henry “Hank” Morris – are accused of taking kickbacks from private equity firms, in exchange for fund commitments from New York Common Retirement Fund, the nation’s third-largest public pension fund with around $122 billion in assets under management. Loglisci was originally Common’s alternative investment officer, before being promoted to CIO. Morris worked at a “placement firm,” which allegedly acted as a dishonest gatekeeper.
The 128-page complaint does not allege any wrongdoing by the private equity firms that paid Morris, and several of the firms say that they’ve been told they are not subjects of the investigation. Among the firms named (either directly or via affiliates) are: The Carlyle Group, Aldus Equity, Ares Management, Falconhead Capital,Levine Leichtman Capital Partners, Lion Capital, GKM Newport, Ivy Asset Management, Odyssey Investment Group, Quadrangle Group,Pacific Corporate Group, Paladin Capital Group and Pequot Private Equity.
We’ve posted the full complaint here, plus a related SEC civil suit. A few quick notes:
• This is a story that is going to have major legs (both in this space and elsewhere). Cuomo has already said that more individuals or institutions are likely to be implicated. A particularly bad time to be involved in a scandal that involves the abuse of public trust.
• Cuomo’s press release on the indictments named seven private equity firms or PE firm affiliates. Notably absent was Quadrangle Group. Was this simply a random oversight, or was the AG trying to play nice with both the White House and Gracie Mansion (or wherever Bloomberg lives)?
• Many of the firms named were using large placement agents for their funds. Don’t such agents typically require exclusivity? Were exceptions made? If so, why?
• What else did the Connecticut and NY systems have in common? Single fiduciaries. Just a recipe for corruption.
• Email from a smallish NY buyout pro: “When I was fundraising, this Loglisci guy spoke to me like some kind of condescending pimp. Now I’m kinda surmising small funds didn’t move his personal needle.”
*** Yes, we crashed: As hundreds of you emailed to let me know, the peHUB website crashed yesterday morning – just moments after I sent out the Wire. Seems a few too many readers wanted to see the Walking Dead list at the exact same time. We’re back up, have reconfigured our servers and will closely monitor any traffic spikes. If there were links from yesterday that you wanted to view, here is a static copy of yesterday’s Wire.
*** Best of a Bad Situation: The Connecticut School of Broadcasting has agreed to complete unfinished classes at all of its campuses, just weeks after shutting down after lender PNC Financial seized its assets. This is extremely welcome news.
We’ve learned that DLJ Growth Capital Partners will foot the bill. A bit unclear if they’re doing this out of the goodness or their hearts or at the tip of the Connecticut AG’s boot, but it doesn’t much matter. The endgame is that students will get what they paid for (at least the education, if not the ongoing services). Worth noting that this agreement is not a reflection of PNC extending its loan (it didn’t).
*** Answer Key: Last week, I asked you to name the West Coast venture firm that had quietly raised a new fund that included a 30% carried interest structure. The answer is August Capital (read more about the fund here). In the words of one LP: “They deserved the higher carry since they were one of the only firms to have actually earned carry in their last funds.”
*** Game Time: We have 736 readers participating in our March Madness Extravaganza, but only one of you correctly picked each of yesterday’s 16 games. That would be Scott Woodard, a senior analyst with Mercer whose team name is Return the Favor (he’s in Group IV). Dozens of you got 15 correct, which was way too many to list here. I’ll post an updated leaderboard to peHUB tomorrow morning.
Top Three
Cisco Systems Inc. has agreed to buy Pure Digital Technologies, a San Francisco–based maker of “flip” digital camcorders. The deal is valued at $590 million in stock, plus up to $15 million in retention-based incentives for Pure Digital employees. Pure Digital had raised around $95 million in VC funding from Benchmark Capital, Crescendo Ventures, Sequoia Capital, Steamboat Ventures, AllianceBernstein, Morgan Stanley Private Equity, Focus Ventures, Samsung and VantagePoint Venture Partners.
Stiefel Laboratories Inc., a Coral Gables, Fla.-based skincare pharmaceutical company, has asked The Blackstone Group to seek offers for the company. Such a deal could be valued at upwards of $3 billion. Blackstone is an existing shareholder in Stiefel, having invested $500 million two years ago for a minority ownership position.
Apollo Management reportedly is planning to take majority equity ownership of Charter Communications Inc., via the cable operator’s reorganization in bankruptcy court.
VC Deals
AOptix Technologies Inc., a Campbell, Calif.-based developer of iris recognition sys! tems and ultra-high bandwidth laser communication solutions, has raised $12.9 million in Series D funding. Northgate Capital led the round, and was joined by return backers Kleiner Perkins Caufield & Byers, Clearstone Venture Partners, DAG Ventures, W Capital Partners and Lehman Brothers. The company has now raised over $60 million in total VC funding.
GenoLogics, a Victoria, British Columbia-based biomedical informatics company, has raised C$5 million in new VC funding. OVP Venture Partners led the round, and was joined by return backers GrowthWorks and Yaletown Venture Partners.
Commex Technologies Ltd., an Israel-based provider of solutions for x86 multicore systems, has raised $3.5 million from Vertex Venture Capital and Yehuda Zisapel.
Buyout Deals
EQT Infrastructure and FortiStar have agreed to acquire MCV, a Midland, Mich.-based gas-fired cogeneration plant, from GSO Capital Partners, Rockland Capital Energy and The Dow Chemical Company. No pricing terms for the leveraged acquisition were disclosed.
The Federal Deposit Insurance Corp. has completed its sale of failed mortgage lender Indymac to an investor consortium that includes Dune Capital Management, J.C. Flowers & Co., MSD Capital, Paulson & Co., Stone Point Capital, Soros Fund Management and Silar Advisors. The deal was being valued at $13.9 billion, including $1.3 billion in cash.
Fiat SpA denied reports that it would assume any current or future debt from Chrysler LLC, with which it plans to form a partnership. Chrysler is a portfolio company of Cerberus Capital Management.
GTCR has dropped out of the auction for AIG’s advisor unit, peHUB has learned. This leaves just two private equity bidders: Clayton Dubilier & Rice and Warburg Pincus.
Harrah’s Entertainment Inc. said that investors had tendered $5 billion in bonds, which represents 57% of the issues that Harrah’s was seeking. The bond exchange was designed to push back the maturity dates of the company’s near term debt. Apollo Management and TPG Capital bought Harrah’s for around $30 billion in January 2008.
JLL Partners has completed its tender offer for all outstanding common shares of PharmaNet Development Group Inc. (Nasdaq: PDGI), a provider of clinical development services. The deal was valued at approximately $98 million.
KKR and Permira reportedly are considering ways to cut debt from commercial broadcaster ProSiebenSat1, which faces possible financing bottlenecks next year. Options include injecting fresh capital into the company, or repurchasing part of its debt.
Mustang Group has sponsored a buyout of Country Club Enterprises, a Wareham, Mass.-based distributor of golf carts to New England golf courses. The deal was worth south of $100 million, with GThe Gladstone Cos. and TD Banknorth providing leverage.
Shackleton Advisors has acquired the CyberGlove business of Immersion Corp. (Nasdaq: IMMR). No financial terms were disclosed. CyberGlobe makes products used to capture hand and finger motion and manipulate objects in virtual reality. PE-Backed M&A
The Nielsen Company, a New York-based media analytics, communications and publishing company, has acquired The Cambridge Group, a Chicago-based growth strategy consulting firm to Fortune 500 clients. No financial terms were disclosed. Nielsen shareholders include The Blackstone Group and KKR.
Paratek Microwave Inc., a Columbia, Md.-based provider of adaptive RF front-end component solutions for mobile wireless applications, has acquired the barium strontium titanate (BST) technology group of Gennum Corp. (TSX: GND). No financial terms were disclosed. Paratek has raised over $118 million in VC funding since 1999, from firms like Polaris Venture Partners, Novak B! iddle Venture Partners, Morgenthaler, Investor AB, STMicroelectronics and ABS Ventures.
PE Exits
H. Lundbeck AS has completed its acquisition of Ovation Pharmaceuticals Inc. for up to $900 million in cash. The deal included a $600 million up-front payment, with the remaining $300 million contingent on Ovation reaching certain regulatory milestones within one year of closing. Ovation Pharmaceuticals is a Deerfield, Ill.-based company formed in 2000, to develop specialty compounds for the US market and for niche indications with high unmet medical needs. GTCR-Golder Rauner acquired a ma jority stake in Ovation in 2002 for approximately $150 million.
Firms & Funds
Corsair Capital is targeting more than $1 billion for its next financial services-focused fund, with marketing to begin next quarter.
Human Resources
Citi announced two senior management changes: Gary Crittenden, formerly CFO, will become chairman of Citi Holdings; Ned Kelly, former head of global banking, will become CFO.
Rick Landgarten has joined Moelis & Co. as a New York-based managing director in charge of the firm’s healthcare sector coverage. He previously was with Citi, as co-head of global healthcare I-banking.
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