Securities Law Prof Blog

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

Thursday, April 30, 2009

SEC Charges Aldus Equity Partners in New York Pension Plan Fraud

The SEC announced charges against Dallas-based Aldus Equity Partners, L.P. and one of its founding principals, Saul Meyer, in connection with a multi-million dollar kickback scheme involving New York's largest pension fund.  According to the SEC, Meyer and Aldus participated in a fraudulent kickback scheme in order to win investment business from the New York State Common Retirement Fund. The SEC previously charged Henry "Hank" Morris and David Loglisci for orchestrating a fraudulent scheme to enrich Morris and other political allies and associates including Raymond Harding and Barrett Wissman, who have also been charged in the case.

The SEC alleges that Meyer caused Aldus to pay a shell company owned by Morris approximately $320,000 in sham finder fees, in exchange for which Loglisci caused the pension fund to invest a total of $375 million with Aldus from 2004 to 2006.

The SEC's amended complaint further alleges that Loglisci ensured that Aldus and certain other investment managers who were willing to make the requisite payments to Morris and others were rewarded with lucrative investment management contracts, while investment managers who declined to make such payments were denied Common Fund business. The scheme corrupted the integrity of the Common Fund's investment processes and resulted in the retirement fund's assets being invested with the undisclosed purpose of enriching Morris and certain others.

The SEC alleges that Loglisci chose Aldus as the Common Fund's emerging fund portfolio manager on the sole basis of Meyer's willingness to pay Morris. Prior to selecting Aldus, the Comptroller's office had been in discussions with another investment manager about creating and managing an emerging fund portfolio for the Common Fund. When that investment manager refused to pay kickbacks to Morris, Loglisci rejected that firm and recruited Aldus to manage the Common Fund's emerging fund portfolio.

According to the SEC's amended complaint, Aldus was serving as the Common Fund's outside consultant at the time, making Aldus a fiduciary of the Common Fund. In the midst of Aldus's negotiations to manage the Common Fund's emerging fund portfolio, a close associate of Morris approached Meyer and assured Meyer that Aldus would win the contract if Aldus agreed to pay Morris a portion of the management fees that Aldus received from the Common Fund. After Morris's friend made clear to Meyer that Aldus would not be hired if Aldus did not retain Morris, Meyer arranged for Aldus to kickback 35 percent of its management fees to a shell entity run by Morris. As a result of the quid pro quo arrangement, Aldus secured the Common Fund's emerging fund portfolio business.

The SEC's amended complaint alleges that Meyer and Aldus violated and/or aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions against future violations of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

In a parallel criminal action, the Office of the Attorney General of the State of New York today announced the filing of a criminal complaint against Meyer. The SEC acknowledges the assistance of the Office of the Attorney General of the State of New York.

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