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Wetherly Capital Group tangled in probe of pension fund kickback scheme

INVESTING

The Los Angeles investment firm has come under scrutiny for a $313,750 payment it made to a firm run by a New York political advisor who was arrested last month.

April 24, 2009|Sharona Coutts and Walter Hamilton

NEW YORK — A Los Angeles investment firm run by a well-known Southern California political operative has become ensnared in a widening probe into the fees paid to advisors who help place investments in public pension funds.

Wetherly Capital Group has come under scrutiny for a $313,750 payment it made to a firm run by a New York political advisor who was arrested last month on charges of running a kickback scheme involving New York state's pension fund.

Wetherly was founded by Dan Weinstein, a high-profile advisor to local politicians and longtime Democratic fundraiser. The firm made two payments to an entity controlled by Henry Morris, a New York political consultant at the center of the burgeoning scandal, according to an indictment last month in a case filed by New York Atty. Gen. Andrew Cuomo. The payments "represented the proceeds of criminal conduct," said the indictment, which did not elaborate.

Wetherly has not been accused of wrongdoing and is not under investigation by Cuomo's office, a person with knowledge of the probe said. Investigators are trying to determine the circumstances surrounding Wetherly's payment to Morris' firm, the person said.

Wetherly spokesman Brian Maddox said the $313,750 payment covered consulting work performed for the firm by Morris' company.

"Wetherly and its personnel have been fully cooperating with the attorney general's investigation," Maddox said. "There has been no suggestion that Wetherly or its staff engaged in any criminal wrongdoing or had any knowledge of improper conduct by Morris."

Weinstein served as a fundraiser for former California Gov. Gray Davis and raised money in 2001 for former Los Angeles Mayor James K. Hahn's winning campaign. Last fall he was the co-host of a fundraiser for the gubernatorial campaign of Atty. Gen. Jerry Brown at Davis' home.

Wetherly and the firm for which Morris worked, Searle & Co., also have shared fees for helping a private equity firm seal three multimillion-dollar deals at three major pension funds: the California Public Employees' Retirement System, the California State Teachers' Retirement System and Los Angeles Fire and Police Pensions.

The indictment came out of lengthy investigations by Cuomo and the Securities and Exchange Commission into whether Morris and others required investment firms to pay kickbacks for the right to manage money for the New York pension fund. Last month, the SEC and Cuomo accused Morris and another former official in the state comptroller's office, David Loglisci, of taking millions of dollars in kickbacks from firms looking to manage assets from New York's $122-billion public pension fund.

An SEC complaint said Loglisci arranged a meeting with an unnamed executive with private equity firm Quadrangle Group to discuss a DVD distribution deal for a film. In January 2005 a Quadrangle affiliate, GT Brands, agreed to acquire the DVD distribution rights for $88,841.

Three weeks later, Loglisci informed the Quadrangle executive that the New York retirement fund would make a $100-million investment in a fund managed by another Quadrangle affiliate, the complaint said.

Quadrangle also secured a $100-million investment from CalPERS in 2005. The same year, Los Angeles Fire and Police Pensions invested $10 million in Quadrangle.

Tom Lopez, chief investment officer for Los Angeles Fire and Police Pensions, said his fund initially believed there were only two companies representing Quadrangle in the transaction. But in recent weeks Quadrangle representatives told his fund that they had also paid a placement agent fee to Searle & Co., the firm with which Morris was affiliated.

Some of the biggest private equity firms on Wall Street have been caught up in the probe, as has Steven Rattner, a former Quadrangle executive who is heading up President Obama's task force on the auto industry.

The probes have shone a spotlight on the behind-the-scenes practices of so-called placement agents such as Wetherly, which are hired by investment firms to help them get hired by pension funds. Wetherly was the placement agent on 10 CalPERS deals from January 2004 to February 2009, CalPERS spokeswoman Pat Macht said.

Macht said CalPERS had not been contacted by New York investigators. "We have no reason to believe we are a target of a probe," she said.

Wetherly has represented clients at two Los Angeles pension funds -- one that represents most city workers and another that serves retired police and firefighters.

Mayor Antonio Villaraigosa's top appointee at Los Angeles Fire and Police Pensions, board President Sean Harrigan, retained Wetherly in 2006, documents filed with the city's Ethics Commission say.

Harrigan recused himself in 2007 from voting on a proposal to invest in a fund created by the real estate firm CIM Group, which had hired Wetherly as a placement agent. With Harrigan recused, the board voted unanimously to invest up to $30 million in the fund.

Harrigan did not return a call seeking comment.

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walter.hamilton@latimes.com

david.zahniser@latimes.com

marc.lifsher@latimes.com

Coutts is a reporter for Pro Publica, an independent, nonprofit investigative news organization in New York. Times staff writers David Zahniser in Los Angeles and Marc Lifsher in Sacramento contributed to this report.

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