Riverstone founder to pay $20m to resolve scandal probe

David Leuschen, the founder of New York-based private equity firm Riverstone Holdings, has agreed to pay $20 million in restitution to settle his role in the wide-ranging pension pay-to-play scandal in New York.

“It is important that both firms and individuals be held accountable for conduct that jeopardised the integrity of the New York State Common Retirement Fund,” Andrew Cuomo, New York’s attorney general, said in a statement.

Leuschen’s role in the pay-to-play scandal appears to hinge on his personal investment of $100,000 in a movie called “Chooch” produced by the brother of New York Common’s former chief investment officer, David Loglisci.

Leuschen made the investment after New York Common committed $150 million to Carlyle/Riverstone Global Energy & Power Fund II in 2003. The commitment led to the payment of $3 million to Searle, a placement agent associated with Henry Morris, identified by Cuomo as one of the ringleaders of a group of people who strong-armed private investment firms for phony finder’s fees in exchange for investments from New York Common.

The $3 million fee was split between PB Placement, another Morris company, and Barrett Wissman, the former head of a hedge fund in Texas, according to Cuomo.

Carlyle and the pension were unaware of Leuschen’s investment in Chooch, Cuomo said.

Carlyle and Riverstone have both already settled with Cuomo in the investigation, paying $20 million and $30 million, respectively. Leuschen was “carved out” of the Riverstone settlement, which was struck in June, a source told PEO at the time.

Carlyle and Riverstone have a tangled history with Morris in their dealing with New York Common, according to Cuomo. Starting in 2003, Riverstone was a joint venture partner with Carlyle on three investment deals with the pension totaling about $530 million, all placed by Morris-affiliated companies. The firms paid a total of about $10.6 million to Searle, which paid the “lion’s share” of placement fees received from Carlyle to PB Placement, Cuomo said.

Carlyle, Cuomo said, was unaware of Morris’ fee-splitting arrangement with Wissman.

“Prior to retaining Searle, the companies had experienced limited success in obtaining investments from the [pension],” Cuomo said. “However, after retaining Searle, they obtained approximately $530 million in total investment commitments from the [pension] in Carlyle/Riverstone funds.”

Leuschen is the first individual to settle with Cuomo. Other firms that have paid money to settle their cases with Cuomo include Pacific Corporate Group, HM Capital, Falconhead Capital, Levine Leichtman Capital Partners and Access Capital Partners. Cuomo has collected almost $100 million so far in the investigation, which is being paid back to the pension.

Cuomo has charged six people so far, including Loglisci, Morris and Wissman, former New York Liberal Party chief Ray Harding, founder of investment advisor Aldus Equity Saul Meyer and Julio Ramirez, a former employee of the Park Hill Group.

Elliott Broidy, co-founder and chairman of Markstone Capital Group, pleaded guilty to criminal charges for gifting about $1 million to New York Common officials in exchange for a $250 million commitment to Markstone. Broidy resigned from Markstone and is cooperating in the investigation.