Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, December 3, 2009

NY AG Announces Another Guilty Plea in Pay-to-Play Kickback Scheme

New York Attorney General Cuomo today announced a felony guilty plea by Elliott Broidy, a founder and Chairman of Markstone Capital Group LLC, for his involvement in a pay-to-play kickback scheme at the Office of the New York State Comptroller (“OSC”).  Broidy acknowledged paying nearly one million dollars in gifts for the benefit of OSC officials to obtain a $250 million investment from the New York State Common Retirement Fund (“CRF”) in Markstone Capital Partners, L.P. (the “Markstone Fund”). Broidy pleaded guilty to a felony charge of rewarding official misconduct and will cooperate in the Attorney General’s ongoing investigation. Broidy will also forfeit $18 million in connection with his plea.

Today's announcement arises from a two-year, ongoing investigation into corruption involving the OSC and the CRF. The charges to date allege a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi.

Markstone is a private equity firm headquartered in Los Angeles, California with an office in Israel. The Markstone Fund focuses on corporate buyout investments in privately held companies in Israel. Broidy resigned from his management role in Markstone on December 1, 2009. Broidy was also a trustee of the Los Angeles Fire and Police Pension fund from 2002 until he resigned in May 2009.

In his allocution to the Court, Broidy acknowledged making a series of payments to help induce and then increase the CRF’s investment in the Markstone Fund. The CRF ultimately committed $250 million to the Markstone Fund and paid over $18 million in management fees to Markstone. Broidy acknowledged that he had an agreement or understanding with certain high-ranking OSC officials: in exchange for certain benefits from Broidy, the OSC officials would exercise their judgment or discretion to benefit Markstone.

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