By now, everyone knows that underfunded pensions are a global problem (just read Pension Pulse for a bit). But there are other, potentially criminal, problems as well. New York AG has looked into various problems, including the use of kickbacks to convince pension managers to breach their fiduciary responsibilities. Today, Bloomberg reports New York Bans Agents, Lobbyists in State Pension Investments:
New York banned the use of placement agents, lobbyists or other paid intermediaries in investments by the state’s $121.9 billion pension fund, State Comptroller Thomas DiNapoli said.
DiNapoli, the sole trustee of the New York State Common Retirement Fund, announced the action after state and federal authorities accused Hank Morris, an adviser to former Comptroller Alan Hevesi, of taking kickbacks to arrange for private-investment firms to manage fund assets. Former Deputy Comptroller David Loglisci was also charged.
“The Hevesi administration violated the public trust,” DiNapoli said in a statement. DiNapoli, who started in 2007 to publicly identify placement agents and impose internal reviews of firms they represent, said “banning placement agents and lobbyists from involvement in investments is the next step.”
New York Attorney General Andrew Cuomo and the Securities and Exchange Commission are also investigating hedge funds and other investment managers to determine if they illegally paid agents to manage $1.3 billion of pension money. The Carlyle Group, the world’s second-largest private equity firm, is among the companies that paid fees to Morris.
To break it down, Adam is in charge of managing a big pension fund. Betty runs a hedge fund. Charles acts as an agent, hired by Betty. Charles gives Adam a hundred thousand dollars to invest a billion dollars of the pension fund’s money with Betty. Betty doesn’t know the precise technique that Charles used. Betty pays Charles two hundred thousand dollars and has clean hands. Everybody (except, possibly, the pensioners) wins!
There are stories that this practice is widespread. It is illegal everywhere in the US. Let’s see if other states start cracking down.
