New York Attorney General Places Spotlight on Finders, Placement Agents, and “Pay-to-Play” Practices

June 23, 2009
Recently, the press has carried a number of reports relating to a high-profile investigation by the Attorney General of the State of New York concerning investments by the New York State Common Retirement Fund. The allegations contained in the Attorney General’s criminal indictments claim that the Deputy Comptroller of the State of New York, who acted as the Retirement Fund’s Chief Investment Officer, may have required money managers to pay as much as $30 million in “sham” or unjustified “finders” or “placement” fees to certain individuals or conduits in order to obtain or retain management assignments from the Fund.

The Attorney General also has proposed sweeping reforms that include a comprehensive code of conduct for public pension funds that prohibits the use of “placement agents,” requires disclosure of conflicts of interest, and limits political contributions that advisers may make to elected officials of the funds. Similar provisions already have been adopted or are currently being considered in other states, and the Chairman of the SEC has indicated that the agency may soon propose rulemaking that would limit the ability of advisers and their employees who manage the assets of public funds to make political contributions. This update reviews the recent actions of the Attorney General and examines the reform efforts underway and the impact they may have on advisers.