The Insider

Elliott Brody’s guilty plea tightens the noose of NY State’s pay to play investigation.

Imogen Rose-Smith / Julie Segal

Imogen Rose-Smith / Julie Segal

Private equity manager Elliott Broidy’s guilty plea in New York Attorney General Andrew Cuomo’s investigation into allegations of corruption at the New York State Common Retirement Fund when it was under the watch of former State Comptroller Alan Hevesi is no small matter.

Broidy, whose links to Hevesi and involvement with public pension funds was chronicled in Institutional Investor ’s October cover story, “Shadow Lands,” pleaded guilty on December 3 to making payments for the benefit of high-ranking officers at the Office of the New York State Comptroller. Broidy, principally of the Los Angeles-based private equity firm Markstone Capital Group, is cooperating with the investigation. He has agreed to pay back $18 million in fees that Markstone made from money New York Common invested in the fund; he also faces up to four years in jail.

The well-known Republican fundraiser’s plea is very bad news for Alan Hevesi.

To be clear: Hevesi has not been charged or named in any part of Cuomo’s investigation. People who know him say it’s possible he was not aware of the bribery and kickbacks alleged to be going on at the $126 billion New York state pension fund, for which he is the sole fiduciary.

It’s possible, though that scenario is looking less likely now.

Hevesi certainly was aware of Broidy. In “Shadow Lands,” we reported on how the close personal and political relationship between the two men (Broidy, through his wife, was a key political donor of Hevesi’s) may have led Hevesi to help his friend raise money from other public pension funds, including the California Public Employees’ Retirement System.


After the article ran, Broidy’s spokesman Jim McCarthy complained that we did not make sufficiently clear that there is nothing illegal about one public official arranging a meeting for, say, a fund manager with another public official. “Readers deserve to know, don’t they, that Mr. Broidy has been charged, sued, implicated or accused of precisely nothing — and also that he has declared full and good-faith cooperation with official inquiries,” McCarthy wrote me in an October 16 email.

Giving bribes for public pension fund money is illegal — which is exactly what Broidy pleaded guilty to just six weeks later in connection with New York Common. In his formal statement admitting to making illicit payments, Broidy says the following: “On at least five occasions, between in or about April 2003 and in or about June 2006, I traveled to Israel, and on one occasion to Italy, with high-ranking officials of the Office of the New York State Comptroller. In connection with these trips, I paid at least $75,000 in travel expenses incurred by Office of the New York State Comptroller officials, as well as the expenses of one official’s adult children. To conceal these payments, I financed some of the expenses through charitable organizations, and thereby caused false invoices to be submitted to Office of the New York State Comptroller.”

Cuomo isn’t naming names, but sources close to the situation believe the public official in question to be Hevesi. The two men traveled to Israel together more than once, according to sources. The Markstone fund in which New York Common invested made investments in Israel.

Here’s another interesting wrinkle. According to a source, Broidy was believed by people who worked with New York Common to be at least partially responsible for getting David Loglisci his job as head of alternatives at the fund, where Loglisci was hired in January 2003 and where he was later appointed CIO. Loglisci and Henry “Hank” Morris, a political operative and placement agent, have been accused of taking kickbacks and were served with a 123-count indictment by Cuomo in March. They are awaiting trial.

There is a prior Loglisci–Broidy connection. During the dot-com boom, placement agent and money manager Barrett Wissman was raising capital for an Internet venture, e.Volve Technologies Group. Wissman had appointed his friend Stephen Loglisci to run the firm. Among eVolve’s eventual investors, according to Securities and Exchange Commission filings, were David Loglisci and Broidy. Wissman also co-founded the Dallas, Texas–based finance firm HFV Asset Management with money from New York Common and some other public funds, specifically the New Mexico State Investment Council. Wissman was the first person to plead guilty to giving kickbacks for funds from New York Common; he is also cooperating with the Cuomo investigation.

Broidy also illegally contributed $300,000 to help finance the movie Chooch, on which Stephen Loglisci was a producer. In his statement, Broidy said he gave the money “in order to curry favor with David Loglisci.” The film was partially filmed in New Mexico and received New Mexico tax credits, according to ongoing litigation in that state. Co-founder of the private equity firm Quadrangle Group Steven Rattner, who reached a settlement agreement with Cuomo’s office over his part in this whole Common Fund stew, also invested in Chooch, as did a partner at the private equity firm Riverstone Holdings.

New York, New Mexico, California — the same states keep turning up in the pay-to-play investigation. It is becoming increasingly clear that the whole drama around placement agents is a side show. At the center of the scandal are the people at public pension funds, or with control over public pension funds, looking to exploit the system for their own gain, and the managers who want that business.

The Alpha / Beta blog is devoted to news and insights about the alternative investment (Alpha) and the traditional asset management (Beta) industries. Institutional Investor staff writer Imogen Rose-Smith covers hedge funds, private equity and their investors. Julie Segal is an Institutional Investor staff writer covering money managers and pension funds, foundations and endowments.