While U.S. Attorney Patrick Fitzgerald is busy investigating who revealed the identity of Central Intelligence Agency operative Valerie Plame, it hasn’t stopped him from pursuing alleged corruption in the private equity world. Last week Fitzgerald 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 totaling hundreds of thousands of dollars from private equity firms seeking investment from the $31 billion pension system.
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. The two attorneys, Joseph Cari and Steven Loren, expect to plead guilty to the charges of attempted extortion and impeding the Internal Revenue Service, respectively. Both are cooperating with the investigation.
The indictment alleges that Levine attempted to extort $850,000 last year from an unnamed Virginia-based real estate and asset management firm that sought $85 million from the TRS. The funds were to be transferred to Levine’s associates using a bogus consulting service. Cari allegedly served as Levine’s liaison to the firm and allegedly told two of its attorneys that “this is how things are done in Illinois.” The firm ultimately balked at the scheme and Levine tried to pull the firm’s proposal from consideration, but the investment was approved anyway.
Loren served as an outside counsel to Illinois TRS when he served as a partner with the law firm of Gardner Carton & Douglas. Prosecutors say he drafted phony legal agreements designed to mask kickbacks involving Levine and the placement agent.
Levine also allegedly concealed information from 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 finder’s fees to be given to the placement agent in exchange for those funds being shared with associates of Levine and for Levine’s help in securing funding for the placement agents’ clients. The two secured $50 million from TRS for one of the firms in 2003, and the placement agent sent $250,000 of his $375,000 finder’s fee to an Illinois businessman, according to the U.S. Attorney’s office.
Levine was appointed to the Illinois TRS board in 1996 and resigned last year.
Levine, a Republican Party fund raiser appointed to the TRS board and the Illinois Health Facilities Planning Board by former Illinois Governor George Ryan, who received campaign contributions from Levine. Levine was indicted in May for a scam involving a bogus consulting contract for the Chicago Medical School. Another former Illinois TRS trustee and Ryan advisor, John Glennon, and another man were indicted for playing a role in that scheme. The three men pleaded not guilty to those charges.
Levine’s attorney did not return calls for comment.
Cari is a partner in the Chicago law firm of Ungaretti & Harris. He has been a longtime political insider and is a member of the Democratic National Committee. Cari served as a managing director with New York-based private equity firm HealthPoint Capital, which received $35 million from TRS for its $200 million inaugural fund during the time that the indictment covers. The U.S. Attorney’s office does not allege any wrongdoing surrounding that investment. Illinois TRS remains an LP of HealthPoint. The firm said through a spokeswoman that it was cooperating with the investigation. A person close to HealthPoint who spoke with Buyouts 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 fundraiser.
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 both Illinois TRS and HealthPoint, but that most of the industry should not suffer any harm. “It’s very rare to have something like this happen,” Matlin says.