Public plans nationwide are doing everything from banning placement agents to beefing up disclosure policies that now will include third-party marketers used by investment managers and consultants.

A number of plans are going further, investigating relationships between consultants and alternative investment managers named but not charged in the New York criminal indictments.

So far, three people have been charged by New York state Attorney General Andrew Cuomo: Henry Morris, a political consultant and fundraiser for Alan Hevesi, the former state comptroller; David Loglisci, former chief investment officer of the $122 billion New York State Common Retirement Fund; and Saul M. Meyer, founding principal and managing partner of private equity consultant and funds-of-funds manager Aldus Equity Partners.

Separately, the Securities and Exchange Commission last month filed an amended complaint naming Aldus Equity Partners.

In essence, both the SEC complaint and the New York indictments allege that Morris, Loglisci and Meyers, through investment firms controlled by Morris and Meyers, extracted kickbacks from alternative investment managers in exchange for investment commitments by the New York state fund.

Consultants and managers mentioned, but not charged, in the SEC complaint and New York indictments comprise a “who’s who” of alternative investment firms frequently used by the largest public pension funds, including private equity firm Pacific Corporate Group and Carlyle Group.

The New York state charges against Morris and Loglisci allege that a PCG managing director helped create a co-investment vehicle with hedge fund manager Clinton Group Inc.—at the suggestion of Morris and Loglisci—solely for the giant New York state pension fund, allegedly giving Morris and Barrett W. Wissman, a Dallas-based hedge fund manager, a free 10 percent ownership in the new fund. (Wissman has pleaded guilty.)

Although the PCG executive was not identified in the indictments, Stephen Moseley left his post at PCG Capital Partners, PCG’s investment management arm, in September 2006.

A month later the New York State fund committed $750 million to the new co-investment vehicle, and in December 2006 Moseley went to work as the managing director for Estes Management, a private equity subsidiary of Clinton Group to run the fund’s day-to-day operations. Last year, Moseley joined three other former PCG colleagues at StepStone Group.

Moseley declined to comment. StepStone CEO Monte Brem declined to talk about the SEC complaint and New York indictments.

David Fann, president and CEO of PCG Asset Management, PCG’s consulting arm, said that “to the extent PCG is mentioned in connection with either matter, PCG was a victim of the alleged bad action by others identified in the indictment and complaint, and the actions taken by the individuals ... were completely unknown to PCG.”

Carlyle spokesman Christopher Ullman would say only that firm officials are cooperating with the investigations and are no longer using placement agents.

Ripples nationwide
The turmoil in New York is causing ripples across the country. The FBI is questioning officials at two pension funds in New Mexico—the $11.8 billion New Mexico Investment Council and the $6.5 billion New Mexico Educational Retirement Board—about Aldus Equity.

Also, the SEC is investigating two Los Angeles Fire & Police Pension System board members—Sean Harrigan, a former chair of the California Public Employees’ Retirement System, and Elliott Broidy, co-founder and chairman of private equity manager Markstone Capital Management—regarding possible connections with and payment from placement agents, sources said.

The SEC also has requested documents from consultant Pension Consulting Alliance Inc., sources said. Michael Moy, managing director at PCA, declined to comment.

Filed by Arleen Jacobius of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.