Securities Law Prof Blog

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

Wednesday, February 17, 2010

Two Investment Firms Sign on to New York's Public Pension Fund Reform Code of Conduct

Two more investment firms have agreed to adopt New York Attorney General Cuomo’s Public Pension Fund Reform Code of Conduct, which eliminates placement agents and campaign contributions from the public pension fund system nationwide. Ares Management LLC (“Ares”) and Freeman Spogli & Co. (“Freeman Spogli”) bring to eleven the number of firms that have adopted the Code.

Today’s announcement arises out of Cuomo’s two-year ongoing investigation involving the New York State Common Retirement Fund (the “CRF”), last valued at $126 billion. The investigation focuses in part on the use of placement agents and other intermediaries who are paid for marketing investments to public pension funds. The investigation found that the use of intermediaries in the public pension funds unnecessarily exposes the pension system to risks of improper influence. Last year, the Attorney General introduced his Code of Conduct, which, among other things, eliminates placement agents and intermediaries from the public pension fund system.

In addition to the placement agent ban, the Code bars investment firms from doing business with a public pension fund for two years after the firm makes a campaign contribution to an elected or appointed official who can influence the fund's investment decisions. Investment firms must also disclose any conflicts of interest to public pension fund officials or law enforcement authorities, to increase transparency and avoid abuse of the fund for personal gain.

Both Ares and Freeman Spogli obtained investments from the CRF under then-Comptroller Alan Hevesi. Each firm separately retained Wetherly Capital Group LLC (“Wetherly”) as a placement agent. Subsequently, Wetherly agreed to split its fees with Henry “Hank” Morris who was then Hevesi’s paid political adviser. Ares and Freeman Spogli were not informed of Wetherly’s arrangement with Morris.


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