peHUB Wire: Friday, May 15, 2009

New York AG Andrew Cuomo yesterday announced that The Carlyle Group has resolved its role in the New York kickback scandal, by paying $20 million and adopting a “code of conduct” that regulates such things as placement agent usage and political contributions to state officials. A bunch of thoughts:

* Cuomo seems to believe that a plethora of private equity firms will rush to adopt his “code of conduct,” just because Carlyle has done so. He’s kidding himself, for at least four reasons:

1. Other firms can see that that Carlyle only adopted the code under duress.

2. Other firms also can see that Carlyle has not agreed to apply the code’s principles outside of the U.S. (i.e., outside of Cuomo’s jurisdiction).

3. Most firms do not have the in-house resources of a Carlyle, which negates the possibility of following its lead vis-a-vis not using placement agents.

4. Carlyle might be one of the largest PE firms, but that hardly means that everyone else will play follow the leader. This isn’t a high school sports team, where freshman follow the senior captain’s example.

* This entire code of conduct is related to GP behavior, but there is nothing about pension fund behavior. For example, how about changing the single fiduciary at NYSCRF? Or requiring more transparency about how decisions are made (including by third-party advisors)? Remember, this problem was initially caused by corruption inside the pension system.

* The $20 million is a slap on the wrist. Here’s some context: Carlyle co-founder David Rubenstein paid more than $20 million for a copy of the Magna Carta (which he’s since loaned to The National Archives).

* The $20 million isn’t even a real slap, because everyone is calling it a “payment” instead of a “fine.” If Carlyle is repaying ill-gotten gains (even if the ill was caused by someone else), why repay so little of them? Imagine I steal a diamond bracelet and give it to my wife, without telling her of its origins. When the police come knocking, she can’t keep some of the diamonds for herself, even though she wasn’t the bad actor.

* Carlyle accurately stresses that it has not been accused of, or admitted to, any wrongdoing. However, when Cuomo was asked about the various responsibilities of Carlyle and Riverstone, he said that “most of the objectionable activities were by Riverstone.” So, who were “less of the objectionable activities” done by? And what might have happened to Carlyle had it not reached this agreement (which happens to shield it from criminal prosecution in NY)?

* Where were the internal controls at Carlyle Group? If the firm was having trouble getting a commitment from NYSCRF, but then had those problems alleviated by Morris — did no one notice the red flags that such a “fixer” should have thrown up?

* Carlyle has been weaning itself off the Riverstone relationship for a while, but now should be prepping for a quickie divorce. Maybe it’s just waiting for formal charges to be filed against Riverstone and/or David Leuschen.

* What will happen if Fund A uses a placement agent to call Hamilton Lane (NYSCRF’s gatekeeper), because Hamilton Lane represents a non-NY pension fund. Hamilton Lane takes t! he meeting, and thinks: “Hey, this might also be a good investment for NYSCRF.” Is it allowed to present the opportunity? Not a rhetorical question – I really want to know.

* The political contribution ban is welcome, and should be immediately copied by other states. And firms that allowed – or promoted – such contributions in the first place should be ashamed of themselves (kudos to the ones that had a ban on them).

* This is not over, and it’s not limited to New York.

* After his call with reporters, Cuomo walked out of his office to take some questions in person. Erin was there, and has a bunch of additional ramblings.

*** Publishing Note: I will be on vacation for the next two weeks, as I head to Peru to foolishly attempt the Inca Trail trek. Erin will be putting together the peHUB Wire in my absence, so please send her any news items or other tidbits at

Erin will be writing some of these columns. Per usual, however, we’ve also lined up some guest writers for your reading enjoyment. They will include: Felix Salmon (, Joe Weisenthal (, Jeff Bussgang (Flybridge Capital Partners) and Chris Douvous (TIFF).

Be back when the calendar strikes June…

Top Three

Stericycle Inc. (Nasdaq: SRCL) has agreed to acquire MedServe Inc. for $185 million in cash. MedServe is a Bellaire, Texas-based provider of medical and hazardous waste disposal and collection. It had been acquired in 2006 by Avista Capital Partners, Chrysalis Ventures and Murphree Venture Partners.

GreenFuel Technologies, a Cambridge, Mass.-based developer of algae farms for recycling carbon dioxide, has ceased operations. The company had raised over $31 million in VC funding since 2005, from firms like Draper Fisher Jurvetson, Polaris Venture Partners and Access Venture Partners. Greentech Media first reported the news.

Neuberger Berman has begun raising a new private equity fund-of-funds (Crossroads XIX), with a $1.25 billion target. This comes just one week after the firm completed its employee-led buyout of Lehman Brothers’ old private equity group.

VC Deals

Anaphore Inc., a developer of protein therapeutics to address cancer and immune-mediated diseases, has raised $13 million in additional Series A funding, bringing the round total to $38 million. SR One and Merck Serono Ventures were joined by return backers 5AM Ventures, Apposite Capital and Versant Ventures.

Slacker Inc., a San Diego-based maker of portable music devices, has secured $9.6 million of a $10.2 million third round of venture funding, according to a regulatory filing. It had previously raised $54.5 million from Centennial Ventures, Rho Ventures, Austin Ventures, Mission Ventures and Sevin Rosen Funds.

iRhythm Technologies Inc., a San Francisco-based developer of a cardiac monitoring device, has raised $6.53 million in new VC funding, according to a regulatory filing. Return backers include Mohr Davidow Ventures, Synergy Life Science Partners, Stanford University and the UNC Kenan-Flagler Private Equity Fund. It had previously r! aised $12.5 million, plus a $10,000 business plan competition.

Minyanville Media Inc., a New York-based operator of a financial news and information website, has raised over $2 million in venture funding, according to a regulatory filing. No investor information was disclosed. The company also said that it may raise as much as $13 million, “depending on a investment by a specific potential strategic partner.”

BrightScale, a Sunnyvale, Calif.-based developer of digital video processing technology, has ceased operations, according to VentureWire. The company had raised less than $10 million in VC funding from firms like Adams Capital Management and ATA Ventures.

Buyout Deals

Advent International is considering a buyout bid for UK care-home operator Four Seasons Health Care. Four Seasons’ property portfolio was valued at around $1.4 billion late last year, but property values have fallen since then.

Pamplona Capital Management has entered talks with UK insurer Chaucer Holdings (LSE: CHU), about a takeover or minority stake sale.

PE Exits

Texas Instruments has acquired Luminary Micro Inc., an Austin, Texas-based maker of microcontrollers. No financial terms were disclosed. Luminary Micro had raised around $39 million in VC funding from Adams Street Partners, New Enterprise Associates, EXA Ventures and ATA Ventures.

Firms & Funds

Barclays is in talks to sell its asset management arm, Barclays Global Investors, for around $10 billion, according to the FT.

KPE, the Amsterdam-listed fund affiliate of KKR, reported a 0.3% increase in net asset value between Q4 2008 and Q1 2009.

Human Resources

Mark Friedman has joined Evercore Partners as a senior managing director. He will serve as co-lead of Evercore’s transportation advisory practice, and ! help launch a new shipping practice. Friedman had previously was with Bank of America Merrill Lynch.