Ex-PCG pro accuses founder of fraud

Former managing director and co-president of PCG Capital Partners Stephen Moseley is suing the La Jolla, California-based alternatives advisory firm for engaging in “fraudulent business practices”.

The lawsuit, filed in the Superior Court of California, claims that PCG founder and chief executive officer Christopher Bowers “urged Moseley and other PCG staff to alter or influence the reported valuations of portfolio investments to advance Bower’s own interests”. According to the suit, Bowers and others at the firm also concealed investment information from investors and potential investors that, once discovered, contributed to the subsequent resignation of Moseley and other PCG partners.

A spokesperson for PCG declined to comment on lawsuit.

Moseley resigned from PCG in September 2006 “for reasons related to disagreements regarding the proper way to govern a service organization, select investments, manage conflicts of interest and support client interests”.

The lawsuit against PCG also accuses Bowers of “falsely and fraudulently accusing departed [PCG] members of wrongful conduct, in an effort to avoid required payments to departed members of PCG” – including Moseley, Monte Brem, Scott Vollmer and Walter Fitzsimmons – and that Bowers fraudulently concealed relationships and interactions with CalPERS board members including Alfred Villalobos. This May, California Attorney General Jerry Brown filed a civil suit filed against Villalobos for alleged fraud in his dealings with the pension. Villalobos denied wrong-doing and said in bankruptcy court he planned to sue CalPERS for $10 million for making false statements about his dealings with the pension.

In May 2009, Moseley resigned from private equity advisory firm StepStone Group, citing “unfair and unnecessary distraction” from media reports connecting him to a kick-back investigation that involved PCG, the New York State Common Retirement Fund, and politically connected, unregistered placement agents.

A complaint filed by the US Securities and Exchange Commission detailed a scheme by Henry Morris, a former political operative in New York, and David Logisci, former chief investment officer of the $122 billion New York pension, to demand sham finder’s fees be paid by investment firms looking for commitments from the pension.

The complaint named a managing director with PCG and an executive with the Clinton Group who agreed to set up the fund and pay fees to Morris and another individual. The complaint did not identify Moseley as the executive from PCG, but Pension & Investments and Dow Jones reported that Moseley was the PCG executive.

A cross-complaint filed by PCG against Moseley claims that Moseley conspired with the Morris Group to give Morris a hidden interest in a prospective PCG joint venture, and that Moseley concealed his knowledge of and participation in the illegal kickback scheme and Morris' secret interest from PCG.

The cross-complaint also claims the New York Attorney General found no wrongdoing by anyone at PCG except Moseley, and that Bower had no knowledge of Morris' participation in the illegal kick-back scandal. Furthermore, the cross-complaint alleges that Moseley and the other members of the firm demanded huge pay increases, and only resigned from PCG because those demands were not met.

In a July 2009 settlement, PCG agreed to turn over $2 million to New York Attorney General Andrew Cuomo as “restitution” to the pension and “for the benefit of the pension holders”.

The current lawsuit filed against PCG is one of a many challenges for the advisory firm, which counts CalPERS among its major longstanding clients. It is unclear if the pension will continue to use PCG’s services, which it has for the past 20 years. Earlier this month, the Sacremento Bee reported that, while PCG still manages about $1 billion of CalPERS’ money, the relationship is “being examined” and the pension is “rethinking” its ties to PCG, as well as the rest of CalPERS’ investment partners.