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Lawmakers Will Probe Payments To Agents

By Mike Gallagher
Journal Staff Writer
       Connections between the New York State Pension Fund scandal and New Mexico continue to rock Santa Fe, and state officials here are scrambling for answers.
    "There is definitely a lot of concern as we look at what's been going on," State Treasurer James Lewis said Wednesday after meeting with legislative staffers.
    Lewis said the fact that some of the same people connected to the New York scandal also were doing business with the State Investment Council and the Educational Retirement Board in New Mexico is a matter for scrutiny.
    Meanwhile, state lawmakers plan hearings and state investment officials are reviewing their policies regarding so-called third-party placement agents, who are paid by companies they help obtain millions of dollars in state investments.
    Those payments and how they might have affected investment decisions are the crux of an indictment and Securities and Exchange Commission complaint in New York.
    Last week, both the State Investment Council and the Educational Retirement Board suspended their Dallas-based equity adviser, which has been swept up in the New York scandal.
    Aldus Equity also was an adviser to the New York pension fund. The company has not been charged with any wrongdoing, but one of the placement agents it paid third-party fees to has been indicted in New York.
    That agent, Henry "Hank" Morris, also was listed as a placement agent on two New Mexico investments placed at the same time Aldus was advising the SIC.
    The State Investment Council and the ERB paid Aldus a combined $1.5 million last year for advice. Aldus says it has done nothing wrong in either New York or New Mexico, and that it has performed well for the state.
    In other developments:
    n Records released by the State Investment Council show Dan Hevesi, the son of former New York State Controller Alan Hevesi, was paid a $250,000 fee on a $25 million New Mexico investment. Alan Hevesi's two top aides have been indicted in New York for shaking down firms seeking state investments.
    n The New York State Pension Fund on Wednesday barred the use of third-party placement agents on its investments. The New York attorney general has described some of the fees paid to them as thinly veiled kickbacks.
    n The New Mexico Legislative Finance Committee has scheduled a May 12 hearing on state investment policies and the role third-party placement agents play in directing or landing state investments.
    "The size of the investments committed by the (state) funds makes New Mexico agencies like ERB, SIC and the Public Employees Retirement Association an attractive environment for individuals to try to gain financial advantages at the expense of performance," Senate Finance Committee chairman John Arthur Smith, D-Deming, said in a letter to legislative leaders.
    Never disclosed
    Lewis said one issue that has come up repeatedly was the lack of disclosure of who the third party placement agents were and how much they were getting paid.
    That information is only now being gathered and made public. The first batch was released by the State Investment Council last week in response to a Journal records request. The ERB has not yet finished assembling the information.
    Rep. Miguel Garcia, D-Albuquerque, said the state investment funds need more oversight and that was one reason he sponsored legislation this year that requires the disclosure of third-part placement agents and the fees they receive.
    "I didn't like the explanations we as legislators were receiving in briefings we received from the pension and permanent funds," Garcia said.
    "The Legislative Finance Committee staff helped put my concerns into a bill that managed to fly under the radar and get passed."
    Gov. Bill Richardson signed the measure, which takes effect in June.
    "We've had $11 billion in losses in these four funds," Garcia said. "We definitely need more oversight and more transparency."
    Richardson vetoed legislation that would have reduced the governor's influence over the makeup of the State Investment Council.
    Garcia said the revelations about how much a few of the placement agents earned raises concerns about "pay-to-play" for state investments.
    A spreadsheet released by the SIC shows the son of one of Gov. Bill Richardson's close friends was a placement agent on numerous deals in which finders fees of more than $11 million were paid.
    N.M. ban not likely
    New Mexico investment officials say they are dubious of enacting a ban like the one New York's pension fund announced on third party placement agents.
    Investment council spokesman Charles Wollmann said there are some issues that would have to be addressed in such a ban, such as how to define "placement agent."
    "What happens if they just start calling themselves something else?" Wollmann said.
    The State Investment Council staff is looking at requiring the disclosure of anyone who gets paid out of an SIC investment decision — attorneys, consultants, accountants and others who may have some involvement in the investment solicitation.
    Jan Goodwin, executive director of the Educational Retirement Board, said the board is looking at all its options .
    "As attractive as a ban is as a knee-jerk reaction, it really isn't a question of what you allow or disallow. It isn't as important as transparency on who gets paid and how much.
    "We're looking at all those policies."



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