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Carlyle Group Pensions Cuomo New York State Attorney General Pay to Play Banks Trusts Investment Fiduciary Trust Regulatory News Earnings Expenses Carlyle Group Settles "Pay to Play" Pension Dispute for $20 Million

(May 15, 2009--Chicago, IL) -- The Carlyle Group, a Washington, DC-based private equity firm, has agreed to pay $20 million and adopt a New York State's code of conduct, ending the state's corruption investigation..

Under the agreement, reached yesterday, the Carlyle Group agrees to ban the use of intermediaries in securing investment contracts from public pension funds, to limit campaign contributions, and to disclose conflicts of interest to state authorities.

Carlyle is the first company to adopt the New York Attorney General's Code of Conduct. Andrew Cuomo, the state’s attorney general, says he believes the settlement will serve as a model to set new standards for how investment firms do business with public pension funds.

The settlement adds pressure for the U.S. Securities and Exchange Commission to adopt a proposed ban on investment firms and their executives from making campaign contributions to officials who oversee public pensions.

Cuomo's investigation revealed that in 2003, Carlyle, at the suggestion of a partner, retained Henry ("Hank") Morris, the chief political aide to then Comptroller Alan Hevesi, as a placement agent to help obtain investments from the New York State Common Retirement Fund (CRF). Prior to retaining Morris, Carlyle had experienced limited success in obtaining investments from CRF. However, after retaining Morris, Carlyle obtained approximately $730,000,000 in total investment commitments from CRF in Carlyle funds and Carlyle/Riverstone funds. In exchange, Carlyle paid Searle & Company, the broker-dealer associated with Morris, nearly $13,000,000. Searle then paid the lion's share of placement fees received from Carlyle to PB Placement, LLC, a shell company controlled by Morris.

Cuomo's Public Pension Fund Code of Conduct bans investment firms from hiring, utilizing, or compensating placement agents, lobbyists, or other third-party intermediaries to communicate or interact with public pension funds to obtain investments. To avoid pay-to-play schemes, the Code prohibits investment firms (and their principals, agents, employees and family members) from doing business with a public pension fund for two years after the firm makes a campaign contribution to an elected or appointed official who can influence the fund's investment decisions. This provision would also bar all firms currently doing business with the pension fund from making such campaign contributions. Investment firms must also disclose any conflicts of interest to public pension fund officials or law enforcement authorities, to increase transparency and avoid abuse of the fund for personal gain.

According to Cuomo, Carlyle's "embrace" of the Code of Conduct will "lead the industry toward critical change of the public pension investment system." The NY AG's investigation into other "pay to play" schemes is ongoing.

No statement in this issue is offered as or should
construed as legal opinion or advice

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