Tough day to be Markstone Capital Partners. First comes word of alleged fraud at Israeli investment house Psagot, of which Markstone holds a 24% stake (see below). Now, Israeli newspaper H’Aaretz reports that the private equity firm is near a settlement with New York AG Andrew Cuomo, over its role in the state’s pay-for-play scandal.
I’ve put in a call to Cuomo’s office for confirmation, but have not yet heard back.
The report says that Markstone has agreed to pay a fine, although no specific numbers are mentioned. Also not mentioned is anything about Markstone signing Cuomo’s “code of conduct,” but I’d be stunned if such a thing wasn’t included.
From one point of view, Markstone’s settlement might actually be viewed as a positive. The firm had been under intense scrutnity ever since its co-founder and former chairman Elliott Broidy pled guilty in December to a felony count of rewarding official misconduct ($1m of gifts to pension officials in exchange for a $250m investment). Perhaps the settlement helps Markstone further wash its hands of Broidy, and move on with its business.
On the other hand, these settlements leave a permanent stench on the firms that sign them. It’s all well and good to say that the signees admit to no misconduct, but common sense says different. I’m not saying these firms would lose in a court of law — Cuomo has practices some extortion coersion in some of these cases — but there’s certainly enough dirt to make them nervous.
As of last check, Markstone’s limited partners were still deciding whether or not to cancel the firm’s remaining investment period, based on Broidy’s plea. As we originally reported, Markstone’s PPM includes the following passage about early termination:
In the event that a Principal, the General Partner or the Fund Manager engages in any act or omission involving the Partnership that results in a final, non-appealable criminal conviction of such person or a final, non-appealable judicial determination that such act or omission constitutes fraud, willful misconduct or gross negligence, two-thirds in interest of all of the Limited Partners may vote in writing to terminate the Fund and liquidate the Fund’s investments.
Markstone’s current fund had already called down $562 million of its $800 million in commitments through the end of Q3, with $218 million returned to LPs and a gross IRR of 11 percent.