Escape from New York (Part II)

Andrew Cuomo vexes me. For the third time since the New York pension fund scandal began, he has allowed a private equity player to buy its way out of trouble. I know the state has a fiscal crisis, but is this really the best way to move from red to black?

The latest insult to legal accountability came yesterday, when Cuomo announced that PE consultant Pacific Corporate Group had agreed to: (a) Pay $2 million, and (b) Sign Cuomo’s much-ballyhooed Code of Conduct. In exchange, PCG was promised that Cuomo would not pursue criminal or civil prosecution related to PCG’s past activities in New York or anywhere else (like, say, California – although sources say that Jerry Brown is beginning to look into that state’s placement agent skeletons).

What had PCG done wrong? Well, officially nothing – since PCG was required to neither confirm nor deny any of the AG’s findings. Kind of like how The Carlyle Group didn’t do anything wrong, even though it cut a $20 million check. That Cuomo must be awfully persuasive. Maybe he actually could resolve the budget mess, by squeezing cash out of every other PE firm doing business in New York, given that no actual wrongdoing is needed as a prerequisite…

Unofficially, PCG was accused of helping enrich indicted “placement agent” Hank Morris. Specifically, Morris was given an undisclosed 5% ownership stake in a $750 million co-investment vehicle funded by New York State Common Retirement Fund, and formed/managed by PCG and hedge fund The Clinton Group. Basically a kickback, in that Morris’ involvement was required in order to secure the $750 million commitment.

This is where it gets a bit tricky. PCG and Cuomo say that former PCG executive Steve Moseley was aware of Morris’ involvement, and concealed it from both PCG and New York pension fund overseers (neither uses Moseley’s name, but we’re all friends here). Moseley declined to comment yesterday, but said last month that he had “been assured by the Attorney General of New York that I am not a target of the ongoing industry investigation.”

Moreover, a separate source tells me that he does not believe Moseley knew about Morris’ involvement. How could that be? The argument is that Morris’ stake was actually coming from Barrett Wissman, a Texas hedge fund manager who held a 10% position in the co-investment vehicle (and sat on its investment committee). As such, Moseley could have been aware of Wissman without being aware of Morris (I’m a bit agnostic toward the whole situation right now).

The irony here is that Wissman was supposedly brought into the co-investment fund as a sort of overseer, because of staffing instability at PCG. As the fund was being formed, Moseley and three other senior PCG execs all bailed (part of a long line) – although only Moseley was allowed out of his non-compete agreement (he went to Clinton Group, in order to keep working on the co-investment fund).

Wissman has since plead guilty to securities fraud, and is almost certainly the source of Cuomo’s belief that Moseley was aware of the situation. But, again, we have Moseley saying he’s not the target of an investigation. If Cuomo believes his own argument, then why no indictment against Moseley or PCG as a whole? Ditto for Steve Rattner and Quadrangle? Or David Leuschen and Riverstone? Or pick a name at Carlyle?

Could it be that Cuomo is being a bit too loose with some of his punches, because he needn’t prove them in a court of law? Or does he just want to use these “code of conduct” signees in his next political campaign?

Make no mistake: I’m thrilled that Cuomo is bringing a lot of dirty secrets out into the open. What I don’t understand is what he’s doing post-exposition. Again, vexing.