New York State’s public pensions are, collectively, an enormous entity. They encompassed more than $164 billion in investments last year, on which the retirement plans of more than a million people—from transit workers to social workers — depend.

But even as pension funds collapse nationwide, the state’s oversight of how its own pension money is invested remains surprisingly lax–most dangerously the nearly 20 percent of it that has been placed in what are euphemistically called “alternative investments.”

These investments include private equity, hedge funds, and real estate; they carry much higher risk — and much lower oversight—than other kinds of investments. The state does not provide the information that would allow the public to verify how well individual managers of these investments perform and what kind of assets they actually hold.

In 2010, those risks came into sharp relief in a high-visibility corruption scandal involving the New York State pension plan and former state assemblyman and comptroller Alan Hevesi.

But as new reporting by City Limits shows, the very protections put in place to safeguard alternative investments after that melee are often ignored.

Benjamin Lawsky, the state of New York’s first ever Superintendent of Financial Services, seemed to be turning his attention to problematic pension investments when he announced, in July 2013, a review of public pension funds in New York. But Lawsky may also want to look at the attorney general’s office, where former AG Andrew Cuomo took the lead in crafting the enforcement response to the scandal that brought down former Comptroller Hevesi in 2010. Under current Attorney General Eric Schneiderman, the basic disclosure requirements put into place after the Hevesi scandal have not been fully enforced.

Cuomo’s 2009-2010 investigation implicated more than $5 billion in compromised investments made on behalf of the Common Retirement Fund, or CRF. The CRF is the pension fund that serves all non-teaching public employees in New York State outside of New York City and is among the largest pension funds in the United States. Among the firms caught up in the net were prominent alternative-investment managers, including the Carlyle Group, known for its many connections to the Bush family, and the Quadrangle Group, known for its connections to the Obama administration. The investments were compromised because Hevesi and his aides had gotten kickbacks in exchange for Hevesi’s arranging the investments with the firms.

As a result of their involvement, 25 entities — investment management firms, individuals, lobbying firms, and PR firms — were placed under the supervision of a Public Pension Fund Reform Code of Conduct, intended to prevent further criminal activity; 21 of those 25 still exist.

The Code required the parties to make their disclosure both publicly on their web sites and in writing to the attorney general’s office. But an investigation by City Limits has revealed that at least nine of the 21 appear to have failed to submit the documentation mandated by the Code in one or more instances, and only seven of the 21 have consistently made the disclosures and certifications required. (The attorney general’s office has assured City Limits that it has provided all documents related to these disclosures, and these tallies are based on that assurance.)

The Public Pension Reform Code of Conduct has several major components:


  • it mandates twice-yearly disclosure of each investment management company’s top officials;
  • it mandates disclosure of campaign contributions by any signatory or “Related Part[ies]” for two years prior to investment of public funds;
  • it mandates that all compensation made to third parties, in conjunction with the investment of pension money, must be disclosed. (This requirement is triggered when a signatory investment management firm compensates third parties for work with new public pension investments; the requirement has likely been triggered for seven of the signatories to the Code.);
  • it bans politically connected middlemen, called placement agents, who were at the core of the Hevesi scandal: agents close to Hevesi sold alternative investments to the Common Retirement Fund and then kicked back some of their profits to Hevesi and his top aides.
  • and finally, the Code requires annual certificates of compliance, certifying that each signatory is in compliance with all elements of the Code, and mandates that all of the disclosure requirements of the code be posted on the company’s website.
  • While there is no evidence of any corruption or wrongdoing involving any of the signatories or the pension funds, there is also a striking absence of evidence of adherence to the reforms put in place after the Hevesi scandal.


City Limits filed a Freedom of Information Law request with the attorney general’s office for all documents received by the AG relating to enforcement of the Code of Conduct. Our investigation found that only seven of the 21 firms and individuals compelled under the code have consistently made the disclosures and certifications required under the Code. The rest either apparently failed to make one or more disclosures, were released from their obligations by the OAG, or claim not to be bound by the Code at all despite their status as signatories.

Among this group of 14 firms, there have been consistent departures from disclosure requirements that were intended to help prevent the implicated parties from abusing their access to public money.

One Global Strategy Group, submitted to City Limits a side letter to the code of conduct from the attorney general’s office indicating that they are not required to comply with the certifications of the code. The AG’s office declined to comment on why such a letter had been submitted.

The lobbying firm Platinum Advisors and one individual, William White, a consultant that the attorney general’s office contended had been a placement agent—have failed to submit any of the documentation required by the Code. They did not return repeated requests for comment. Other individuals have claimed to the AG’s office that they were not covered by the Code because they don’t currently lobby on behalf of investment firms and also because they are not investment banks. However, the Code defines “Investment Firm” such that they might still be bound by its terms.

Some signatories were in partial compliance. Quadrangle, a private equity firm, made some filings but failed to disclose campaign contributions it made by a top officials as they are required by the Code. Among other contributions, a principal of Quadrangle made a $1,000 donation to Ohio State Treasurer Josh Mandel, who has significant influence over pension investments in that state. No contributions appear to have been made in New York State.

Of the seven firms who have likely triggered the mandate to disclose third-party compensation, only two of them appear to have complied with the mandate to disclose that information publicly. Pension fund investments in alternative investments require the setting up of a limited partnership, which usually requires outside legal work. For firms not to have engaged in at least some compensation of third parties would be wildly variant from established precedent. The mandate to disclose these payments is important to help distinguish between the legitimate third-party recipients and those forbidden as placement agents under the code.

“If an investment firm failed to compensate at least some third-parties when raising investments from a public pension fund, that would be highly unconventional,” says Edward Siedle, an expert in pension forensics and a former attorney with the Securities and Exchange Commission.

Levine Leichtman Capital Partners, Ares Management, Freeman Spogli, Odyssey Investment Partners, and Access Capital Partners have not disclosed some or any compensation made to third parties as they are mandated to do by the Public Pension Fund Reform Code of Conduct if, as seems likely, they employed outside help in setting up alternative investments.

No firms appear to have violated the ban on placement agents. But this may be a technicality because the attorney general’s office (OAG) agreed to weaken the ban on placement agents for certain firms.

Cuomo directed the Department of Insurance to permanently ban these agents at the Common Retirement Fund soon after getting into the governor’s office in 2011; “The pension fund should be kept pure,” he said, “and money belonging to taxpayers should not be the plaything of elected officials.”

Others agree. “Placement agents are a conduit to create a pay-to-play atmosphere a public pension funds,” says Chris Tobe, a financial consultant and former pension fund trustee. “The most effective way to prevent abuses is to ban them outright.”

Yet the OAG agreed to allow the usage of placement agents outside of New York State, as long as an “third-party monitor” was brought in to ensure that the firms were not attempting to unduly influence a public pension fund.

The catch? These ostensibly independent monitors are to be paid exclusively by the firms they are supposed to be monitoring, leaving open many questions about conflicts of interest in the investment of public pensions in the future.

The attorney general’s office was asked about compliance with the Code of Conduct since it was put in place five years ago, including all of the specific cases here. “We cannot comment on pending investigations,” said Melissa Grace of the attorney general’s office. It was unclear what, if any, investigations are ongoing.

As for Lawsky’s investigation, it remains to be seen whether it will turn to the reforms set up to prevent corruption at public pension funds in New York State.

This article was reported in partnership with The Investigative Fund at The Nation Institute, now known as Type Investigations.