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Albany Bans Placement Agents for Pension Fund

The New York Times
Amid a widening investigation into possible kickbacks involving New York’s pension fund, Thomas P. DiNapoli, the state’s comptroller, announced Wednesday that he was banning placement agents from being involved in the fund’s investments.
Mr. DiNapoli also said his office was reviewing the fund’s investments with firms under investigation by the New York State attorney general’s office and the Securities and Exchange Commission.
Two associates of the former state comptroller, Alan G. Hevesi, have been indicted as part of Attorney General Andrew M. Cuomo’s investigation, which is looking into deals involving such prominent private equity firms as Quadrangle and the Carlyle Group.
State and federal authorities are looking into fees that these and other investment firms paid to associates of Mr. Hevesi as they sought to do business with the $122 billion retirement fund he oversaw.
Such payments are generally legal, unless they are used to bribe public officials. Neither Quadrangle nor Carlyle has been charged with any wrongdoing, and both firms have said they are cooperating with the investigation.
Mr. Hevesi resigned as comptroller in late 2006, and was succeeded by Mr. DiNapoli, who has been sharply critical of his predecessor.
“The Hevesi administration violated the public trust,” Mr. DiNapoli said in a statement on Wednesday. “Since I took office, we’ve worked to implement reforms that will help restore integrity and trust in this office. Banning placement agents and lobbyists from involvement in investments is the next step, and it’s a big step.”
The pay-to-play controversy is hardly confined to New York. Many other state pension funds have faced questions about whether side payments or other favors influenced the investment selection process.
Mr. DiNapoli said Wednesday that placement agents, paid intermediaries and registered lobbyists would be banned from involvement in the New York fund’s investments. He said he was also working on legislation that would codify the pension fund reforms he has put in place since 2007.
The New York City comptroller, William C. Thompson Jr., endorsed the ban on placement agents. “The wisest course of action would be to immediately prohibit the use of such paid intermediaries in connection with our investments,” he said in a statement.
Mr. Cuomo, the New York attorney general, praised the move by Mr. DiNapoli as “a positive and important step in moving away from a system that is flawed and has been abused for over a generation.”
“Importantly, the Carlyle Group has also agreed with our office to ban the use of placement agents in connection with public pension funds,” Mr. Cuomo said in a statement. “As one of the nation’s largest private equity firms, Carlyle’s decision to implement this reform sets an example that we hope others in the industry will follow.”
He said that the attorney general’s office was setting up a “comprehensive code of conduct” for public pension systems, and that one element of the code would effectively eliminate the use of placement agents.

APRIL 22, 2009, 10:51 AM