SEC/NYAG Focus on NYS Pension Fund

The SEC is now also joining the fury of investigative firepower being leveled at the New York State Common Retirement Fund during the tenure of former Comptroller Alan Hevasi. This on the heels of security law investigations originating back in January by both the NYS Attorney General Andrew Cuomo and Albany County district attorney P. David Soares. NYSAG has announced that it is invoking the the Martin Act of 1921. All three investigations are honing in on a possible “pay-to-play” conflict involving close Hevasi political adviser, Hank Morris, whose financial service firms may have been the receipient of millions of dollars in referral fees from investment firms connected to the pension fund.

The latest news indicates that the investigation is now focused on an American division of The Bank of Ireland — Guggenheim Advisers. It appears that two executives of the division made political contributions to then Comptroller Alan G. Hevesi last year. In early 2005, Guggenheim obtained a $447 million dollar investment from the fund.

Complicating the investigation is the disapperance of a number of files detailing fees paid to placement agents shortly after the fund’s chief investment officer, David Loglisci, resigned earlier this year.</span></font>

While it is too early to tell the extent to which bribes and kickbacks played into the selection of of managers for the NYS pension fund, there is a noticible trend of conflict of interest in many aspects of pension fund management. Just last month, the SEC issued cease and desist letter addressed to Callan Associates for failure to disclose its relationship with BNY in referring brokerage to an affiliated broker dealer.
There is a growing concern that both the Callan case and the NYS retirement fund case are not isolated instances and that there is undoubtly more to come. As pension funds continue to reach out to new and managers, inclusive of hedge funds, they will need to pay close attention to these sorts of conflicts and implement policies and procedures to address them and conduct appropriate due diligence on all service providers.