(October 11 – 16:20 ET) – The Securities and Exchange Commission has filed a civil fraud action in a massive state pension fraud scandal.

The SEC is bringing charges against Paul Silvester, the former Treasurer of the State of Connecticut, two private equity firms, three of the officers of those firms, and five others. Silvester served as Treasurer from July 1997 until January 1999.

The SEC alleges that the parties are involved in a fraudulent scheme in which Silvester awarded investments of hundreds of millions of dollars of state pension fund money in exchange for lucrative fees paid by the private equity firms to his friends and political associates.

According to the complaint, Silvester, solicited two private equity firms, Landmark Partners Inc. of Connecticut and Boston’s Triumph Capital Group Inc., to pay substantial consulting or finder’s fees to his friends. In order to secure the pension assets, Landmark and Triumph agreed to pay the fees. Silvester then demanded kickbacks of the fees from his friends.

The commission alleges that Silvester, Triumph, Landmark, and certain officers violated their fiduciary duties by failing to disclose the quid pro quo. In return for investing US$150 million of state pension funds with Landmark in 1998, Landmark agreed to pay US$1.5 million in finder’s fees to Silvester’s friend, Ben Andrews Jr., some of which was kicked back. The complaint also alleges that, in return for investing US$200 million with Triumph shortly after losing the November 1998 election, Triumph awarded US$1 million consulting contracts to Silvester’s friends.

The commission seeks to enjoin each of the defendants from violating these laws. It also seeks disgorgement of monies fraudulently received by Silvester and his friends, and civil monetary penalties. Silvester and several others have agreed to settle the charges, without admitting or denying the allegations.

Juan Marcel Marcelino, District Administrator of the SEC’s Boston office, said, “Public pension funds result from the hard earned contributions of public employees. It is imperative that such funds be managed with complete honesty and integrity and for the sole benefit of the funds’ beneficiaries. The SEC will vigorously pursue public officials and investment managers who violate the federal securities laws with respect to investment of public pension fund assets.”
-IE Staff