Markstone founder pleads guilty in pension scandal

Elliott Broidy, founder and chairman of Markstone Capital Group, has pleaded guilty to criminal charges in New York in connection with the wide-ranging pay-to-play scandal being investigated by New York Attorney General Andrew Cuomo.

Broidy, who pleaded guilty to a felony charge of “rewarding official misconduct”, is accused of gifting nearly $1 million to pension officials and people associated with the officials in exchange for a $250 million commitment from the New York State Common Retirement Fund to Markstone. The pension has paid about $18 million in management fees to the firm, Cuomo said.

“Broidy paid nearly a million dollars in bribes to get a quarter billion dollar investment,” Cuomo said in a statement. “For Broidy, this was a small price to pay. For New York taxpayers, the harm is incalculable. Corruption corrodes the integrity of the pension system and the public’s trust in government.”

Broidy resigned from Markstone on 1 December. The firm has offices in Los Angeles and Israel. He faces a maximum of four years in prison.

Part of the alleged gifts include a $300,000 investment in a low-budget movie called “Chooch” produced by a relative of David Loglisci, former chief investment officer with New York Common who is accused of playing a central role in a kick-back scandal involving the pension. Broidy made the payment through a friend to hide the payments, Cuomo said.

Other private equity executives are alleged to have invested in Chooch, including an unnamed executive from Riverstone Holdings, who allegedly handed over $100,000 for the movie. Riverstone paid $30 million in restitution for its involvement in the pay-to-play scandal, but co-founder David Leuschen is still under investigation. Also, GoodTimes Entertainment, a company owned by Quadrangle Group, distributed the movie on DVD in 2005. Quadrangle received a $150 million commitment from New York Common several months before the movie went out on DVD.

Quadrangle has not been accused of any wrongdoing, but is being investigated by the New York City pension system.

Broidy also paid more than $90,000 to the girlfriend of a high-ranking New York Common official from April 2004 to October 2005 to cover the woman’s living expenses. Broidy also agreed to pay $5,500 a month to a relative of the woman, which eventually totaled $44,000.

Also, Broidy traveled with a pension official to Israel on several occasions in connection with the pension’s investment in Markstone. On some of the trips, relatives of the official were present, Cuomo said. “Broidy subsidised these trips, paying for accommodations and services for the …official, the relatives and Loglisci,” Cuomo said.

Broidy has been under investigation for several months and was accused by the US Securities and Exchange Commission of not being cooperative in supplying documents and failing to appear to give testimony, despite receiving subpoenas compelling him to appear.

Broidy, who served as a trustee for the Los Angeles Fire and Police Pensions, stepped down from the organisation after seven years of service in May after receiving inquires from the SEC. Another trustee at the pension, Sean Harrigan, also left the pension board in May after receiving SEC inquiries.

Markstone raised $800 million for its initial fund in 2005 with New York Common as its largest investor, with a commitment of $250 million. The firm, which focused on investments in Israel, was founded by Broidy, Ron Lubash and Amir Kess. Lubash came from Lehman Brothers, where he ran the former investment bank's Israeli operations.

The firm's boasts several high-level senior advisors, including Harvey Krueger, former chief executive officer of Kuhn, Loeb & Company, and Ken Langone, co-founder of Home Depot.

Several other people have been indicted in Cuomo’s investigation, including Saul Meyer, founder of Aldus Equity and Barrett Wissman, a hedge fund manager.