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WNYC – An investigation into corruption at the New York State pension fund has raised questions about the fund’s dealings with Wall Street. Federal and state regulators are examining how the pension fund chooses its private money managers. Last month we reported on the tangled relationships between the pension fund and Wall Street. Today we follow the money. WNYC’s Lisa Chow reports.
REPORTER: It was a Friday morning in May when Tom DiNapoli delivered the bad news.
DINAPOLI: As we are all aware, 2008 was one of the most difficult years in Wall Street history.
Bloomberg – Highland Capital Management LP, the Dallas-based investment firm that’s liquidating its main hedge fund, was sued by attorneys Schulte Roth and Zabel LLP for allegedly not paying $2.83 million in legal fees.
The New York-based law firm initiated a lawsuit in New York state court yesterday, listing what it said were unpaid invoices from June 2008 to this month.
“We believe Schulte Roth overbilled the firm and its funds for legal services,” Highland said in an e-mailed statement. “Highland has paid Schulte Roth nearly $1 million in good faith, and has made every effort to resolve this issue with them.”
Greenwich Time – Fairfield Sentry Ltd., seeking to recover more than $919 million in fees related to investments involving Bernard Madoff, sued the Fairfield Greenwich Group hedge fund that lost $7 billion in Madoff’s fraud.
Fairfield Sentry, based in the British Virgin Islands, said in a complaint filed May 29 in New York State Supreme Court in Manhattan that it is the largest victim of the fraud perpetrated by Bernard Madoff.
The fund seeks to recover more than $919 million in investment management and performance fees that it paid to Fairfield Greenwich based on inflated net asset value reports of its investments with Bernard L. Madoff Investment Securities LLC.
Fairfield Greenwich, led by Greenwich resident Walter Noel, claimed it had $16 billion of assets under management, $7.3 billion of which was purportedly in Fairfield Sentry Ltd., according to the complaint.
Reuters – New York state’s pension fund has cut its so-called fund of funds investments to about $500 million from $5 billion since January 2008, after deciding direct investments were preferable, a spokesman said Tuesday.
Fund of funds invest money in hedge funds on behalf of their investors, and they helped the state gain access to "blue chip" funds when former Comptroller Alan Hevesi began using them in 2005, said Robert Whalen, a spokesman for the current Comptroller Thomas DiNapoli.
Pensions & Investments – While every move of the New York State Common Retirement Fund is in the spotlight these days, what the bright lights don’t reveal are the dramatic improvements in the fund during the past two years.
An alleged massive pay-to-play scheme centered on the fund’s alternatives investments while Alan G. Hevesi held the New York state comptroller’s position from 2002 through 2006 has dominated the news about the pension fund for more than a month.
Mr. Hevesi’s successor, Thomas P. DiNapoli, immediately began reforming the investment department of the Albany-based fund once he took the helm in February 2007.
Bloomberg – Former Democratic political adviser Hank Morris and New York State Deputy Comptroller David Loglisci may hold the keys as authorities examine whether private equity firms and hedge funds knowingly paid kickbacks to manage state pension money.
The pair, accused of orchestrating the alleged pay-to-play scheme, is in the best position to explain what firms including Carlyle Group and Quadrangle Group LLC were told while allegedly being led to dole out sham finders fees between 2003 and 2007, attorneys who represent investment advisers said. Both men have said they will fight the state and federal claims.
New York Times Blogs – The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.
But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves, The New York Times’s Danny Hakim and Mary Williams Walsh reported.
Napa Valley Register – The 2009 Festival del Sole will proceed in July as planned despite its founder’s guilty plea to securities fraud.
Hedge fund executive Barrett Wissman has pleaded guilty to felony securities fraud and is cooperating with New York State Attorney General Andrew M. Cuomo’s investigation of corruption at the New York State pension fund, according to numerous news reports.
A Dallas business associate of the Hunt family — the wealthy Texas oil family that owns the Kansas City Chiefs football team
Bloomberg – Barrett Wissman, a Dallas hedge fund manager, pleaded guilty to securities fraud as part of an investigation of corruption at New York’s $122 billion pension fund, state officials said.
Wissman, 46, an executive of HFV Asset Management LP, also agreed to a $12 million settlement as part of the probe of illegal kickbacks to arrange pension-fund investments for hedge funds and private-equity firms, according to New York Attorney General Andrew Cuomo. Today, Cuomo announced charges against former New York State Liberal Party Chairman Ray Harding as part of the two-year-old investigation.
New York Times – A hedge fund executive has pleaded guilty to securities fraud and is cooperating with New York State Attorney General Andrew M. Cuomo’s investigation of corruption at the state pension fund, according to court records unsealed in Manhattan on Tuesday.
Barrett Wissman, a Dallas business associate of the Hunt family, is the first investment executive to be implicated in the inquiry and will pay $12 million over several years as part of a settlement under his felony plea, people with knowledge of the investigation said.
WSWS – New York State Attorney General Andrew Cuomo on Monday charged J. Ezra Merkin, a multi-millionaire hedge fund manager and former chairman of GMAC Financial Services, the financial arm of General Motors, with bilking investors out of $2.4 billion by funneling their money, without their knowledge, to convicted Ponzi scheme operator Bernard Madoff.
According to the civil complaint filed by Cuomo with the New York Supreme Court, Merkin collected $470 million in management and incentive fees over a fifteen-year period by claiming to be carefully managing the money his clients invested in his three hedge funds, while funneling the bulk of the funds to Madoff’s operation.
West Palm Beach (HedgeCo.net) – Carried interest legislation is being considered at the federal, state and local level, raising significant local and international tax issues.
Carried interests, which form an essential element of business in almost every section of the U.S. economy (real estate, private equity, hedge funds and health care), have been subject to significant legislative proposals over the last two years.
Most investment funds (hedge and equity) have a general partner (LLC or LP) which receives a management fee (2%) and a carried interest equal to a percentage (e.g., 20%) of economic income including realized capital gains.
Proposals to reform the taxation of carried interest started in January of 2007 with legislation introduced by Senator Levin (D-MI) that would recharacterize "carried interest" income as ordinary income.
During 2008 New York State proposed and New York City introduced legislation that would change the way carried interest is taxed.
President Obama’s Budget Blueprint released on February 26, 2009 includes a line item related to taxing carried interest as ordinary income.
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