Governor Cuomo Signs Legislation to Ban Placement Agents in the NYS Common Retirement Fund

Ensures Continued Confidence in the Integrity of the Fund

Governor Andrew M. Cuomo today signed legislation to prohibit the use of placement agents or intermediaries by the New York State Common Retirement Fund (Fund). This bill (A.3137/S.4761) codifies into law reforms following an investigation from then-Attorney General Cuomo into pay-to-play practices at the Fund under former State Comptroller Alan Hevesi. 

"Placement agents raise the risk of pay-to-play practices which erode trust in the pension system and place the hard-earned dollars of its members at risk," Governor Cuomo said. "As Attorney General, I investigated and uncovered these abuses in the system under former Comptroller Hevesi in a wide-ranging investigation and instituted nation-leading reforms to ban placement agents and campaign contributions that were largely adopted by the SEC. As Governor, I am proud to codify the placement agent ban into law through this commonsense legislation that guards against pay-to-play schemes and protects the investments of hardworking New Yorkers." 

This legislation is a program bill introduced by State Comptroller Thomas P. DiNapoli in 2011. In April 2009, DiNapoli banned placement agents from working with the Fund.

"When I became State Comptroller, I undertook a comprehensive review of the state pension fund's operations to restore its reputation after the previous administration's wrongdoing. It was clear to me that placement agents were corrosive and unnecessary," New York State Comptroller Thomas P. DiNapoli said. "In April 2009, I banned placement agents, paid intermediaries and registered lobbyists from involvement with investment decisions. New York was one of the first states in the nation to completely ban them. For years, I have pushed to have this prohibition against pay-to-play codified into law. I want to thank Governor Cuomo for his support and leadership and for permanently taking placement agents out of the equation."

Senator Martin J. Golden said, "This new law will protect the integrity of our retirement fund. Ensuring that this fund remains strong and growing for the retirees of today and tomorrow. The bill precludes potential conflicts of interest, and assists the State Comptroller in fulfilling his duties as a fiduciary to the Fund. By codifying existing policy, that prohibits the use of placement agents by managers doing business with the common retirement fund will ensure that the Fund will always be protected."

Assemblymember Peter J. Abbate Jr. said, "In the spirit of protecting the state pension fund's independence and integrity, this bill will ensure that the existing policy of banning the use of placement agents or investment managers that has been in practice for many years will continue. I am proud to have sponsored this legislation and grateful to have worked with Governor Cuomo and State Comptroller DiNapoli to make sure it was passed and signed into law."

Financial Services Superintendent Maria T. Vullo said, "DFS applauds Governor Cuomo for signing this important legislation, advanced by State Comptroller DiNapoli, which codifies a crucial provision in a DFS regulation that provides necessary standards for the management of the Common Retirement Fund. Banning the use of placement agents and intermediaries ensures the integrity of pension investment decisions and protects both taxpayers and members."

Specifically, this law:

  • prohibits the Fund from engaging, hiring, investing with or committing to an investment manager that is using the services of a placement agent or intermediary to assist such investment manager in obtaining investments by the CRF
  • prohibits the Fund from engaging, hiring, investing with or committing to an investment manager without obtaining from such investment manager a certification in the form and manner prescribed by the CRF stating that such investment manager has not used the services of a placement agent or other intermediary to assist such investment manager in obtaining investments by the CRF

In 2007, then-Attorney General Cuomo launched a sweeping investigation into abuses at the state pension system that resulted in convictions of Hevesi and seven other prominent figures in an elaborate scheme that traded influence and investment in the state pension system for campaign contributions and payments to intermediaries. After becoming State Comptroller in 2007, DiNapoli did a top-to-bottom review of the operations of the Fund and instituted changes that were lauded by independent auditors as industry-leading efforts that transformed how the Fund did business.

The use of placement agents figured prominently in Hevesi's scheme. More than $170 million in taxpayer money was recovered as a result of the probe.

As part of the investigation, then-Attorney General Cuomo created a nationwide Code of Conduct in settlements with investment managers and others, containing a placement agent ban. The other component of Cuomo's Code of Conduct, which banned obtaining a pension fund investment within two years of a campaign contribution, was incorporated into law nationwide by the Securities and Exchange Commission (SEC) in 2010, protecting trillions in pension fund investments across the country.

The Department of Financial Services and its predecessor agency banned the use of placement agents via a regulation since 2009. The SEC also banned unregistered brokers from public pension fund investments. The Code of Conduct and today's bill go farther by permanently banning all third party brokers, registered or unregistered.

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