It appears that Chauncey Mayfield pleading guilty to charges related to a bribery scheme has brought the sad saga of his Detroit-based real estate investment firm, MayfieldGentry Realty Advisors, to an end. Not that the writing already hasn’t been on the wall for some time.
Indeed, MayfieldGentry’s website has been disabled since May, its phone line has been disconnected and its existing funds were taken over by another manager. However, now that the firm’s owner and chief executive officer has admitted in court to paying bribes in exchange for new business from two Detroit pension plans, it appears to be the final nail in the firm’s coffin.
During a hearing in US District Court in Detroit in early February, Mayfield confessed that, between 2006 and 2008, he paid former Detroit treasurer Jeffrey Beasley and others bribes to influence Beasley’s decisions as a trustee of Detroit’s Police and Fire Retirement System and General Retirement System (GRS). MayfieldGentry formerly served as investment advisor and fiduciary to the two Detroit pension plans, overseeing a real estate investment portfolio worth more than $200 million.
In court, Mayfield admitted that Beasley agreed to maintain business with MayfieldGentry and to give Mayfield new pension business in exchange for cash and lavish gifts. For example, Mayfield paid for Beasley and others to take trips, sometimes via private jets, to Las Vegas, Florida and Bermuda. Mayfield even hired Beasley’s mistress to work at MayfieldGentry.
Because of the pension business directed to MayfieldGentry by Beasley, Mayfield earned significant investment advisory fees from the two Detroit pension plans. Upon Mayfield’s guilty plea, Robert Foley, the special agent in charge of the case at the Federal Bureau of Investigation, said in a statement: “Those individuals who engage in pay-to-play schemes rob citizens of their right to honest government.”
Mayfield, who mentioned in a 2011 interview with The New York Times that his father, ironically, was a criminal lawyer, is facing a maximum of five years in prison and a fine of up to $250,000. Mayfield could not be reached for comment.
As a result of this case, Mayfield and his firm are not only facing criminal charges, but civil ones as well. Documents from the Police and Fire Retirement System and GRS reveal that, in May 2012, the boards of both pension systems terminated their relationship with MayfieldGentry. The Police and Fire Retirement System also filed suit against MayfieldGentry after the real estate firm used pension capital to buy properties in California.
In addition, the US Securities and Exchange Commission (SEC) filed suit against Mayfield and his firm last year. In its complaint, the SEC alleged that Beasley and disgraced former Detroit mayor Kwame Kilpatrick solicited and received $125,000 worth of private jet travel and other perks paid for by MayfieldGentry.
“It is a disappointing day when pension trustees such as ex-mayor Kilpatrick and others corrupt the investment process by selling out hardworking police officers, firefighters and other municipal employees for the price of a few vacations and paltry extras like concert tickets and rounds of golf,” said Robert Khuzami, director of the SEC’s division of enforcement.
Indeed, the SEC’s lawsuit against MayfieldGentry isn’t surprising, considering how concerned it is about how public pensions invest their funds. After all, these types of bribery cases strike at the integrity of the investment process.
“The SEC has concerns about how public pensions invest, especially when they invest in private funds,” Robert Kaplan, a litigation partner at Debevoise & Plimpton, told PERE. “More and more pensions are investing a higher percentage of their assets in alternative assets, so the SEC wants to make sure they’re doing so for the right reasons.”
This is far from the first time such a pay-to-play scheme has rocked the private equity industry. In 2009, a similar — but much larger — scandal broke in New York involving the New York Common Retirement Fund and some of the world’s largest GPs. The New Mexico State Investment Council also wound up embroiled in a wide-ranging pay-to-play scandal, and the California Public Employees’ Retirement System (CalPERS) faced scrutiny for its alleged connection with placement agent Alfred Villalobos, who currently is being sued by the State of California for an alleged kickback scheme.
With Mayfield now awaiting sentencing, his firm no longer has anyone at the helm. It also no longer has control of any private vehicles, as American Realty Advisors last year took over management of MayfieldGentry’s funds, including the MGRA Genesis Value Fund, which raised $102 million in August 2009. MayfieldGentry had been in the market with MGRA Genesis Value Fund II, but it is unknown how much capital, if any, was raised on behalf of that vehicle.
Although many of the firms involved in the aforementioned bribery schemes wound up living to fight another day, it doesn’t appear as though MayfieldGentry will be so lucky. So even though MayfieldGentry has yet to be declared officially dead, that may just be because there’s no one left to claim the corpse.
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