The Los Angeles City Employees’ Retirement System (LACERS) has revealed a connection to the growing scandal involving the $122 billion New York State Common Retirement Fund through Los Angeles-based placement agent Wetherly Capital.
Wetherly, which has not been accused of wrongdoing, was mentioned in a complaint filed by New York State Attorney General Andrew Cuomo as paying more than $300,000 in fees to a former New York political operative in the kick-back scheme.
Cuomo indicted Henry Morris, a former political official under former New York State Comptroller Alan Hevesi, along with David Loglisci, the New York Common’s former chief investment officer, in a scheme to collect sham finder’s fee from investment firms for commitments from the pension. Two other people have been indicted in the scandal.
The complaint shows Wetherly – co-founded by AVP managing principal Vicky Schiff and principal Peter Borges – paid $313,750 in fees to Morris in connection with investments in various investment firms, including funds managed by Ares Capital and Freeman Spogli.
“The $314,000 refers to payments made to Morris’ company for work that Morris performed as consultant,” a spokesman from Wetherly said. “Wetherly and its personnel have been fully co-operating with the Attorney General’s investigation.”
One of Wetherly's clients, Palladium Equity Partners, received a $10 million investment from the pension in 2005, according to LACERS. Palladium is a New York-based firm that targets Hispanic-owned businesses. The firm was founded in 1997 and closed its third fund, Palladium Fund III, with $520 million of capital in 2006.
According to fund documents from Illinois Municipal Retirement Fund, Schiff and Borges co-founded Wetherly Capital in 2001 and remain actively involved with the firm. Both managing principals currently divide their time between AVP (American Value Partners) Advisors and Wetherly.
Schiff, a former LACERS board member, was also a board member with Wetherly at the time the Palladium Equity investment was being considered. Schiff was not present for the board vote to approve the commitment to Palladium, according to LACERS staff and minutes from the 2005 meeting. Schiff served a three-year term and is no longer on the LACERS board.
Wetherly did not represent Palladium for the LACERS investment, and Schiff “recused herself from the deliberations. When [Schiff] took her seat on the board of LACERS, she sent a letter to clients informing them that Wetherly could not represent them before LACERS and she preferred they not approach LACERS at all”, said a source close to the company.
LACERS is a $9 billion pension that has a target allocation of 7 percent of the fund to alternative investments, with an actual allocation, as of 30 June, 2008, of 8.6 percent.
The New York Common scandal also has ties to New Mexico, where the state investment council, which governs the state’s $11.5 billion oil and gas endowment, suspended its private equity consultant Aldus Equity for its role in the kick-back scandal. Aldus, which has not been accused of any wrongdoing, also allegedly paid fees to Morris for various investments.