On September 23, 2009, New York State Comptroller Thomas P. DiNapoli announced a ban on pay-to-play practices related to the $116.5 billion dollar New York State Common Retirement Fund (the “CRF”). The Comptroller issued an Executive Order and Interim Policy that prohibits the CRF from doing business with any outside Investment Adviser within two years after the Investment Adviser, or any senior officers or executives of the Investment Adviser, has made a contribution to the State Comptroller, or to a candidate for State Comptroller. An “Investment Adviser” is any Investment Adviser required to be registered with the SEC, and those Investment Advisers exempt from registration under section 203 of the Federal Advisers Act.
The Interim Policy does not apply to contributions made by senior officers and executives (specifically defined in the Policy as “Covered Associates”) to the Comptroller or a candidate for Comptroller, provided that the individual was entitled to vote at the time of the contribution, and the aggregate amount of the contribution does not exceed $250 to any one candidate per election.
The Interim Policy goes into effect on November 7, 2009, and will remain in effect until the SEC adopts a final rule pertaining to political contributions.
The New York State Comptroller is a statewide elected official, and is the sole trustee of the CRF, which is the third largest pension plan in the United States. Two different retirement systems receive benefits from the CRF: the Police and Fire Retirement System and the Employees Retirement System, which include both State and local employees. Together, these systems have over one million members, retirees and beneficiaries.
Ban on Placement Agents
The ban on political contributions from Investment Advisers follows the Comptroller’s recent prohibition of the use of “placement agents”.
On April 22, 2009, Comptroller DiNapoli announced a ban on the use of third-party placement agents and other paid intermediaries and lobbyists (herein, “placement agents”) with respect to investments with the CRF. The ban precludes placement agents from accepting any type of fee for providing access to the CRF and its investments.
The ban on placement agents followed an investigation by New York State Attorney General Andrew Cuomo, which in March of 2009 resulted in a 123-count indictment against two aides of former State Comptroller Alan Hevesi, on charges that they brokered deals between the CRF and politically-connected outside investment funds, earning millions of dollars in fees in the process. That case is awaiting trial. Comptroller Hevesi resigned in 2006, and subsequently plead guilty to charges of defrauding the government, which arose out of his use of state employees for personal purposes.
Attorney General Cuomo’s ongoing investigation of public pension fund corruption has involved several private equity and investment firms. Many firms have settled with the Attorney General’s Office in recent months, and while generally not admitting wrong doing, have agreed to: (i) make a significant settlement payment, which will be submitted to the CRF, and (ii) sign a “Public Pension Fund Reform Code of Conduct”, which prohibits the use of placement agents with respect to public pension funds, and bans campaign contributions to officials at public pension funds.
Ban on Placement Agents – New York City
In April and May of 2009, the trustees of the City of New York’s five municipal pension funds each voted to suspend the use of placement agents.
The five pension funds are the City Employees Retirement System (“NYCERS”), which is the largest municipal public employee retirement system in the U.S.; the City Fire Department Pension Fund; the City Police Pension Fund; the New York City Teachers Retirement System and the City Board of Education Retirement System. The funds have combined assets of approximately 80 billion dollars.
Contributed by Kelly Lamendola, Esq.
Albany, NY
McKenna Long & Aldridge LLP
