This spring, Connecticut State Treasurer Denise Nappier fired Aldus Equity. The Connecticut Retirement Plans and Trust Funds became one of many public funds to show the $5 billion Dallas, Texas–based private equity firm the door. “I acted to protect Connecticut’s interest,” she says. Her decision followed the news that New York Attorney General Andrew Cuomo and the Securities and Exchange Commission had charged one of Aldus’s founders, Saul Meyer, with paying kickbacks to Hank Morris, a political pal of former New York State comptroller Alan Hevesi.
There was sadness, as well as anger, in her decision. Aldus managed a fund of funds of small and emerging money managers that were fighting a turf war with established private equity firms like Carlyle Group for the lucrative public pension market. Nappier was on the side of the little guys.
Aldus was founded in 2003. It had no clients then, just a promise: to “forgo business opportunities rather than compromise.” Meyer told a reporter at the time that “we have an added degree of integrity that others can’t match.”
But Aldus, sources say, was young, small and hungry, and people in power knew how to take advantage of it. In 2003, according to the SEC, Morris instructed his friend Julio Ramirez Jr. to reach out to Meyer and tell him that the New York State Common Retirement Fund, which was looking for a firm to build an emerging-manager private equity fund, would give Aldus the investment mandate if it agreed to pay a placement fee to an entity that Morris controlled.
Meyer allegedly agreed, even though Aldus was already well known to New York Common. His firm paid a $300,000 fee, which was divided between Morris and Ramirez, in return for an initial $175 million commitment from the fund.
“Aldus was chosen by the pension plan because of Aldus’s willingness to illegally line the pockets of others,” says James Clarkson, head of the SEC’s New York office.
According to court documents, Meyer may have gone even further in his quest for new business. In 2006, just days after winning an additional $200 million commitment from New York Common, Meyer helped Hevesi’s son, Daniel, who was a placement agent, when he recommended that a New Mexico public fund that Aldus advised invest with one of the younger Hevesi’s clients.
But Meyer tried to escape his Faustian pact. He asked an associate, Barrett Wissman, to talk to Morris about ending their agreement, according to the SEC complaint. Morris’s answer, according to Cuomo, was short and derisive: “Tell that little peanut of a man that I can take the business away as easily as I provided it.”
In the end it wasn’t Morris who took it away. On April 30, Cuomo filed criminal charges against Meyer for securities fraud. Most state fund officials quickly terminated Aldus, including a reluctant Nappier. Big firms like Carlyle that are also part of the pay-to-play probe simply pay a fine and go on doing business, she says, but for small firms such an event can prove devastating.
As for Meyer, his immediate future is a string of court dates. On August 6 he sat in the cavernous chamber of the New York City Criminal Court in lower Manhattan. Dressed in gray pants and blue dress shirt, the short and slender Meyer, who had conquered state pension boards with a promise and a pretense, looked very scared and very young. His next court date was set for October, and in five minutes he was on the street. As his lawyer hailed a cab, it started to rain.
See related story, “Pension Pay To Play Casts Shadow Nationwide”.
