The Wolf at Thompson's Door

Thursday, April 23, 2009

The Wolf at the Door of Thompson

By Gary Tilzer

Attorney General Andrew Cuomo has expanded his investigation of the pension fund scandal into New York City Comptroller William Thompson’s office, and there seem to be plenty of reasons why Thompson should be nervous.

It was reported yesterday in the Times that it was under former top Thompson aide Josh Wolf-Powers’ advisement that Steven Rattner’s private investment firm Quadrangle Group hired the now-indicted Hank Morris as its placement agent. Rattner badly wanted to gain access to investment from the State’s pension fund and according to the Times, “Wolf-Powers told Mr. Rattner that he could not think of any investment firm that had persuaded the city’s pension fund to invest without using a placement agent.”

What hasn’t been reported until now is that Wolf-Powers knew so much about how the City invests its pension money with private firms, because Wolf-Powers and his close associates reinvented the New York City Employees Retirement System (NYCERS) when they were working under Thompson. True News has discovered that in 2005, the same year that Wolf-Powers turned Rattner onto Morris, Wolf-Powers left his key position with the City Comptroller to co-found the company Blue Wolf Capital Management with another top Thompson aide, Adam Blumenthal, who served as First Deputy Comptroller and Chief Financial Officer from 2002-2005.

Wolf-Powers makes no secret of his role in reshaping NYCERS. In his bio on his company’s website, Wolf-Powers boasts, “Prior to founding Blue Wolf, Mr. Wolf-Powers served as Managing Director - Private Markets for New York City Comptroller William C. Thompson, Jr., from 2003-2005. In this position, Mr. Wolf-Powers oversaw the process by which the New York City Retirement Systems invested in private equity, economically targeted investments and other securities for which there is not a public market. During his tenure, the New York City Retirement Systems more than doubled their allocation to the private equity asset class, and their commitments to private equity funds, committing over $2 billion to nineteen private equity funds.”

Blumenthal and Wolf-Powers’ Blue Wolf Capital Management, like Hank Morris’ firm Searle, specializes in drumming up pension fund business for private investors. Under a section entitled “Government in the Value Chain”, Blue Wolf’s company website states, “Many middle-market private equity firms shy away from companies for which the federal government, federal agencies, or state or local governments or government entities, are major factors in the value chain. Government contractors and companies in industries driven by government procurement, policies or subsidies have a set of common issues which we specialize in addressing.” According to its website Blue Wolf is particularly well-suited for government procurement work, because “each member of our investment committee has served as a public official.”

Among Blue Wolf’s other top players are its operating partner Joshua Gotbaum, whose mother New York City Public Advocate Betsy Gotbaum is a trustee of New York City’s Pension Funds, and Mike Musaraca, who before joining Blue Wolf as its managing director, was previously assistant director of the Department of Research and Negotiations with District Council 37 of the American Federation of State, County and Municipal Employees (AFSCME).

In Blue Wolf’s January 2009 press release announcing the hiring of Musaraca, Blumenthal expressed high praise for the former top union official’s work with the City’s pension fund. “At the City, Mike was an invaluable partner in the changes to the investment and management of NYCERS`s assets we helped make, which benefited the assets of all of the New York City Retirement Systems.”
Blumenthal’s recognition of Musaraca’s role in reshaping NYCERS is reminiscent of Comptroller Thompson’s own 2005 press release announcing Blumenthal’s departure from his office. “Under Blumenthal's stewardship of BAM [Comptroller’s Bureau of Asset Management], the office structured innovative investment vehicles such as the City Investment Fund, which has resulted in pension investment in real estate in the City, doubled the private equity program's size and pace with commitments of more than $2 billion, established a new emerging managers program, and put in place an organizational structure including a new master custodian for the city's pension assets, a risk management unit and substantial professional staffing to support the pension systems investment initiatives.”
As Attorney General Cuomo probes Comptroller Thompson’s office, he is bound to find this intimate connection between those who created the system by which the City invests its pension funds and those who may have benefited financially from its exploitation deeply troubling. But will Thompson himself be drawn into Cuomo’s quickly expanding investigation into the pension fund scandal, or will he skirt direct implication as Alan Hevesi has so far?

What would Thompson stand to gain from any improprieties orchestrated under his watch? Well, according to a February 2009 article in the Times, after the City Council outlawed campaign contributions from limited liability corporations and partnerships went into effect, Thompson and his fellow Mayoral candidate Anthony Weiner quickly collected as much money from LLCs and LPs as they could before the ban went into effect, aggravated good government groups that argued that Thompson and Weiner had undermined the spirit of campaign finance reform. Of the $50,174 Thompson raised, the Times noted one particular contribution to Thompson’s mayoral campaign. “On July 9, 2007, six days after the ban was passed, [Thompson] accepted a $4,950 donation from the investment firm Blue Wolf Capital Management L.L.C. and a $4,050 contribution from its co-founder and managing partner, Adam Blumenthal.”

It seems that the CFB isn’t having any more success regulating the special interests that control New York City politics, than the FCC had regulating the Wall Street investors who destroyed the nation’s economy.

Daily News Editorial: Out of control: The New York Times reported that former top Thompson aide Josh Wolf-Powers leaned on Rattner to hire a placement agent, telling Rattner, according to The Times, that he could not recall an investment firm that had won a city pension fund investment without using a placement agent. Rattner then hired Morris, who had been so effective with Hevesi in Albany, to work his magic in the Municipal Building. And apparently, he did. Thompson said yesterday that he wasn't aware of Morris' role and asked Cuomo to investigate whether Rattner's company had misled the city pension fund in that one deal *** Bill Thompson’s spokesman said it's

“absolutely, unequivocally not true” that his boss and the former comptroller, Alan Hevesi, made any deals.

ANDY PENSION PROBE TO EYE CITY State Attorney General Andrew Cuomo's sweeping investigation into pay-to-play corruption within the state pension funds has broadened to include a probe of New York City's estimated $82 *** THE RATTNER DISTRACTION Rattner and the private equity firm he established, the Quadrangle Group, seem to be eyeballs-deep in the scandal. Three friends of disgraced former state Comptroller Alan Hevesi -- former Liberal Party head Ray Harding, Democratic consultant Hank Morris and state pension fund manager David Loglisci -- have already been arrested and accused of taking kickbacks in return for securing pension-fund investments for private firms, NYP Ed *** NY pension fund bans controversial middlemen *** New York City Comptroller Draws Scrutiny *** Albany Bars Placement Agents for Pension Fund *** Pension Fund Scandal Expands: Rattner's Ties To Bill Richardson *** Assembly Speaker Sheldon Silver arranged pension sitdowns, including one with Mike Richter *** Editorial: Out of control A n epic scandal has embarrassed state Controller Tom DiNapoli and city Controller Bill Thompson into taking action to prevent corruption in the handling of public pension funds. Far too belatedly, the two custodians of, cumulatively, almost a quarter-trillion dollars in pension money yesterday banned so-called placement agents from their offices . . . DiNapoli had also once met personally with the head of a private equity concern who was accompanied by former Bronx Democratic boss Roberto Ramirez. In that case, the pension fund upped its $50 million investment stake by $15 million. *** Cuomo turns pension-probe spotlight on city finances The 2006 deal took place nearly four years after Alan Hevesi left the city controller's office for the state's. Catterton also paid Daniel Hevesi - a registered financial broker who owned Praetorian Securities up until last year - a fee for a New Mexico pension deal *** N.Y. Takes Aim at Pension Agents *** Alan Hevesi's son, Dan, a former state senator, is now in AG Andrew Cuomo's crosshairs *** Dan Janison parses the pension fund mess thusly: "New York's public scandal of the day boils down to whether and when "paid intermediary" means "bagman."*** Boards, Trustees and Actuaries *** Rattner's Friend In High Places