The story that broke out this weekend at the New York Post is spreading quickly in the Israeli press. According to a New York Times article, investigators are looking into allegations that Israeli VC fund Giza Venture Capital paid a hefty finder’s fee to Hank Morris, a political advisor and close friend of former New York State Comptroller Alan Hevesi.
Globes has a good summary of the saga:
The scandal erupted in October 2006, when Hevesi, who was responsible for management of the New York State Local Retirement System, was charged with ethical violations, including using a state employee to drive his wife to various functions. He was forced to repay the state treasury $83,000. Although he resigned under public pressure, he nevertheless ran for, and was reelected as, state comptroller, but was again forced to resign.
A few months after Hevesi’s resignation, New York State Attorney General investigators launched an investigation to find out if financial companies that managed assets of the New York State Common Retirement Fund, were selected on purely professional criteria, or whether they paid kickbacks in the form of intermediary fees or as contracts with aides of Hevesi and his political allies, according to “The New York Times” in an investigative report in July 2007.
According to “The New York Times”, investment management funds often pay “placement fees” to agents who succeed in getting them business from state pension funds. The fees, as long as they are not bribes to officials, are technically legal.
“The New York Post” cites sources as saying that Giza Venture Capital paid DAV-Wetherly Financial, of Los Angeles, a substantial finder’s fee after it got authority to manage $20 million in state pension funds in 2005. DAV-Wetherly, in turn, secretly gave part of the fee to Connecticut-based Searle & Co. New York Attorney General Andrew Cuomo charges that Morris used Searle to illegally collect $15 million in pension-fee kickbacks.
“The New York Post” adds that Giza was given the contract as part of Hevesi’s efforts to pursue “investment opportunities” with Israeli-based companies. But the deal was finalized only after Giza agreed to hire DAV-Wetherly, which was named last month in Cuomo’s 123-count indictment of Morris.
New York State Attorney General Andrew Cuomo has been investigating possible ties between Hevesi and several large financial companies, including Markstone Capital Partners Group LLC, which manages $200 million for the New York State Local Retirement System.
Hevesi believed in the potential of Israeli investments and was responsible for investing in several venture capital funds. According to IVC Online, these include a $200 million investment in Markstone, Israel’s largest private equity fund; $20 million invested in Giza; and investments in Evergreen Venture Partners fourth fund, raised in 2000, and in a fund of Tamir Fishman Venture Capital(TASE: TFVC) raised that same year.
Hevesi’s problems and resignation led to the sweeping investigation into the business transactions of the New York State Local Retirement System during his tenure, and into its decision-making procedures. The investigation has already led to indictments against Morris and David Loglisci, former Deputy Comptroller and Chief Investment Officer of the New York State Common Retirement Fund.
New York State law allows financial companies, including their investment managers, to contribute to political campaigns in state elections.
Giza Venture Capital has $600 million under management.