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NY Kickback Scandal Spreading Like A Virus: CalPERS, CalSTRS Involved

The New York’s pension fund kickback scandal has reached all the way to California. Pro Publica is reporting that Hank Morris’s firm, Searle & Co., shared fees with California investment firm Wetherly Capital Group on commitments from CalPERS, CalSTRS and LA Fire & Police.

Writes ProPublica:

Wetherly received up to $3 million in fees for one pension deal in New York, investigators say. … Wetherly and the firm with which Morris was affiliated, Searle & Co., also have shared fees for helping a private equity firm seal three multimillion dollar deals with California funds, ProPublica has learned.

Overall, Wetherly has helped ten firms score a collective $300 million in commitments from CalPERS. Meanwhile, CalPERS apparently didn’t know there was a relationship between Wetherly and Morris, the publication notes.

No charges have been made against Wetherly. But what does this mean for CalPERS, CalSTRS and LA Fire & Police? Not much if California’s Attorney General doesn’t launch an investigation. If it gets the attention of the SEC, it’ll be a different story. For starters, the funds themselves could pull a New York and decide to pre-emptively ban the use of placement agents going forward. Add this to the news that New Mexico had also used Searle as a middleman for commitments, and the Journal’s report that Searle & Co. had placed or tried to place funds in New Jersey, Connecticut, California and New York. Something tells me we’re going to see sweeping changes in fee disclosures sooner rather than later.