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SEC sues consulting firm for Los Angeles pension agency

The lawsuit and the arrest of a partner in the firm are part of a widening kickback scandal.

May 01, 2009|Walter Hamilton and , David Zahniser and Marc Lifsher

NEW YORK, LOS ANGELES AND SACRAMENTO — A multimillion-dollar pension-kickback scandal widened further Thursday as a consulting firm for a Los Angeles city retirement fund was sued by federal regulators and one of its partners was arrested on criminal charges.

Aldus Equity was charged by the Securities and Exchange Commission with civil securities fraud for allegedly making improper payments to win business managing money for a New York state pension fund.

Dallas-based Aldus is one of two firms that recommend private equity funds to the Los Angeles Fire and Police Pension agency, which manages a $10.7-billion portfolio for retired firefighters and police officers.

Aldus has a three-year contract and receives $1 million a year to advise the Los Angeles fund, said Tom Lopez, the pension agency's chief investment officer.

Saul Meyer, a founding partner of Aldus, was arrested and charged by New York Atty. Gen. Andrew Cuomo with one count of criminal fraud.

Lawyers for Aldus and Meyer denied the charges against their clients.

Cuomo's investigation of alleged pension abuses is turning up signs of potential problems in California and other states, the attorney general told reporters.

"I don't think this is unique to New York," he said. "I believe other states have similar problems."

Cuomo said his office would coordinate more with other states regarding pensions, "and we're going to be doing that literally in the next couple of days."

Scott Gerber, a spokesman for California Atty. Gen. Jerry Brown, declined to elaborate on Cuomo's statement.

"We work with New York on lots of issues, but we're not going to confirm nor deny an investigation on this," Gerber said.

The allegations against Aldus raise new questions about the Los Angeles Fire and Police Pension agency.

The Times reported last week that the SEC's Los Angeles office asked two pension board members, Sean Harrigan and Elliott Broidy, for detailed information about their personal financial dealings and about any communications they had with Aldus and other firms whose names have been linked to the pension scandal.

A lawyer for Broidy, Randy Mastro, said Thursday that his client was fully cooperating with "any regulatory inquiries." Harrigan hasn't responded to requests for comment.

On Wednesday, a New Mexico agency fired Aldus as its private-equity advisor, saying the firm didn't tell the state of fees paid to middlemen, including an indicted political consultant.

George Aliano, one of nine members of the Los Angeles agency's board, said he wanted the board to fire Aldus at a meeting set for next week.

"I personally think they should be gone," said Aliano, who was elected to the board by retired police officers. "If we smell something fishy, and I get information that they shouldn't be near our money, then I don't want them near our money."

The pension fund hired Aldus in 2007. Michael Perez, the agency's general manager, said Thursday that he also was concerned about Aldus and would put the issue before the board.

The SEC alleges that Aldus paid a shell company about $320,000 in sham "finder fees" in return for being hired to manage $375 million for the New York pension fund.

The shell company was owned by Henry "Hank" Morris, a onetime advisor to former New York comptroller Alan Hevesi.

Morris was indicted last month on charges that he was at the center of the New York kickback scheme. Hevesi resigned in 2006 after admitting that he assigned a state worker to be his wife's driver.

Aldus won the assignment after another firm refused to make the payments, according to Cuomo's felony complaint.

At one point, Meyer sought to end Aldus' financial payments to Morris, which prompted a threat from Morris, according to the complaint.

"Tell that little peanut of a man that I can take the business away as easily as I provided it," Morris allegedly said.

An April 2006 marketing presentation by Aldus prominently lists the giant California Public Employees Retirement System as a "key client" along with government funds in New York, New Mexico, Louisiana and Texas.

But CalPERS spokeswoman Pat Macht said Aldus had only been part of a "pool" of potential investment advisors since July 2006.

"We've never given them any work," she said.

An April 20 CalPERS staff memo lists Aldus as one of four finalists to be the sole private equity investment advisor for the $176-billion fund. Aldus was eliminated when the list was whittled to two firms, Macht said.

On its website, Aldus says the firm seeks to provide "unbiased, conflict-free advice, choosing to forgo business opportunities rather than compromise its level of consulting advice."

Matthew Orwig, an attorney for Aldus, issued a statement deriding the SEC's case as "appalling and careless."

"Maybe they want a 'trial by news release' but that's not the way the judicial system works," the lawyer said.

Meyer's attorney, Paul Shechtman, said "time and the evidence will show that Saul Meyer did nothing wrong."

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walter.hamilton@latimes.com

david.zahniser@latimes.com

marc.lifsher@latimes.com

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