By Dale Kasler
dkasler@sacbee.com The Sacramento Bee
Published: Monday, Feb. 8, 2010 – 9:58 am
Last Modified: Monday, Feb. 8, 2010 – 1:45 pm

Two investment firms that have won pension business in California agreed to pay millions of dollars today to settle a placement-agent corruption probe at New York state’s public pension fund.

The civil settlements with Markstone Capital Group and Wetherly Capital Group, both of Los Angeles, were announced by New York Attorney General Andrew Cuomo and shed additional light on the placement-agent scandals that have erupted in New York and California.

Markstone and Wetherly are among the firms being investigated in a “special review” launched in October by CalPERS.

Markstone, a private equity firm that obtained a $50 million investment deal from CalPERS in 2004, will return $18 million to New York’s public employee pension fund, Cuomo announced. The settlement came two months after Markstone’s former chairman, Elliott Broidy, pleaded guilty to felony charges that he gave top New York pension officials $1 million in illegal gifts to secure investments in that state.

Separately, the U.S. Securities and Exchange Commission has been investigating possible ties between Broidy and a former CalPERS chief executive and board member.

In the other settlement, Wetherly Capital, a placement-agent firm headed by prominent Democratic fundraiser Daniel Weinstein, agreed to return $1 million to the New York pension fund. Wetherly was hired by three investment firms to secure deals with the New York fund. Cuomo said Wetherly secretly gave money to Hank Morris, a top New York politico who was indicted last March in a massive kickback-bribery scheme involving the state’s pension fund.

Last spring, former Wetherly employee Julio Ramirez pleaded guilty to securities fraud in New York in connection with payments to Morris.

Markstone and Wetherly also agreed to a code of conduct instituted last year by Cuomo. Neither firm was charged criminally.

“Our firm supports Mr. Cuomo’s propopsals because we think they are good for the industry,” said Weinstein in a press release. “We are very pleased to have resolved all issues.”

The firm added, “Wetherly no longer serves as a third party placement agent to public pension funds and will wind down its placement business over the course of the next eighteen months.”

Wetherly acted as a placement agent on a number of deals with the California Public Employees’ Retirement System and California State Teachers’ Retirement System. Wetherly earned $5.9 million in fees from its CalPERS deals, according to documents released by the pension fund. It isn’t known how much Wetherly earned from its placement agent work at CalSTRS.

It isn’t known if Markstone used a placement agent to win its CalPERS deal. At CalPERS’ request, 90 percent of CalPERS’ investment partners voluntarily disclosed whether they hired agents, but Markstone wasn’t among them.

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