New York AG Andrew Cuomo added a new name to the growing list of indictments in the New York Pension Fund scandal: Saul Meyer, the (youthful-looking) 38-year-old founder of the private equity fund Aldus Equity. Meyer won’t be the last, Cuomo assured reporters at a press conference announcing the charges today:
“I believe we are disclosing a national network of actors who often acted in concert and did this all across the country,” Mr. Cuomo said. “They collaborated, they often partnered and victimized states and taxpayers across the country. It’s also an ongoing scam.”We said as much yesterday, when we showed you how a key figure in the pension scandals in New Mexico and New York was a direct descendant-in-law of a key figure in a California pension scam of the nineties. And we told you about Aldus, a key name linking the New York fraud to a suspected scheme to scam the teachers’ retirement fund in New Mexico and possibly other public pension funds, last week.
Aldus’s usual business was advising state pension funds on private equity investments. But it went a step further in New York, using its access to the pension’s billions to arrange a $375 million investment to create its own private equity fund. The idea was hatched by Hank Morris, the top adviser to former state comptroller Alan Hevesi who is charged with defrauding the pension fund in a scheme to collect phony “finder’s fees.” According to the indictment, Aldus paid Morris about $320,000 to secure itself a $375 million investment from the pension fund. Not bad for a private equity firm that, according to this Dallas Business Journal puff profile that ran (all of) two months ago: “started in 2003 with no clients.”
More than a dozen hedge funds and private equity firms allegedly paid $35 million in phony fees to Morris and his conspirators, according to the indictments. Most prominent thus far has been Quadrangle, the private equity firm founded by auto czar Steve Rattner. But Aldus was different because the retirement was paying for its advice — meaning its fiduciary responsibility was to the pension. Aldus had similar consulting relationships with numerous other public pension funds, including the retirement funds of firefighters in Los Angeles and the teachers in New Mexico, both of which are also under investigation for pay-to-play practices.
New Mexico Gov. Bill Richardson officially fired Aldus yesterday after relying on the firm’s advice for private equity investment decisions since 2004. No one has been charged in New Mexico, but the former chief investment officer of the teachers retirement fund filed a massive whistleblower lawsuit last year alleging that the fund’s board steered money to politically-connected investment vehicles — in one case forcing teachers to eat a 95% loss on a “toxic” CDO.
Another firm mentioned (but not charged) in today’s indictment that would have been the legal fiduciary of the fund when it got caught up in Morris’ alleged scam is Pacific Corporate Group. PCG “already managed certain Retirement fund investments,” according to the indictment, when the pension fund’s now-indicted chief investment officer David Loglisci suggested that his PCG contact form a joint venture with a friend of his into which the retirement fund agreed to invest $750 million in exchange for passing back an alleged $1.26 million in fees back to Morris, Loglisci and Dallas hedge fund manager Barrett Wissman, who earlier this month pleaded guilty to fraud charges in the scheme and agreed to repay $13 million in fees.
The Pacific Corporate Group executive, who is not named in the indictment, no longer works for PCG. But as we explained yesterday, the La Jolla, California-based advisory firm is no stranger to public pension money — or conflict-of-interest accusations: in 1994 PCG founder Chris Bower advised California’s biggest public pension fund to invest $100 million in the Dallas private equity firm Hicks, Muse, Tate & Furst. A few months later, firm co-founder Tom Hicks bought Bower’s two-year-old yacht for $45,000 more than Bower had paid. That firm, now known as HM Capital, was also named in the New York indictment for paying fees to Morris in exchange for investments. Two years ago, Aldus Equity advised the New Mexico Educational Retirement Board to invest $20 million in an HM Capital Fund.