Businesses that hire placement agents to secure investments from public pension funds will have to disclose how much they’re paying for the service under a new law signed by Gov. Arnold Schwarzenegger.
But the new rules won’t apply to law firms. They can continue retaining well-placed middlemen to press for lucrative securities class action work with the retirement funds, and they usually won’t have to report it.
An aide to the new law’s author, Assemblyman Ed Hernandez, D-West Covina, said the issue of law firms using placement agents never came up during the legislation’s development.
Well, that's convenient. Where the practice has been noticed, after the jump.
But the practice has certainly come under scrutiny over the last year as alleged pay-to-play schemes involving investment firms, state officials and pension funds made headlines in New York and elsewhere.
Rhode Island Treasurer Frank Caprio announced in September that he would return more than $54,000 in campaign contributions from lawyers and law firms after The Providence Journal raised questions about the selection of firms hired for work involving the state’s $6.4 billion pension fund.
In California, the firm of Grant & Eisenhofer was booted from a pool of firms eligible for work with the Los Angeles Fire and Police Pensions board after the city attorney’s office learned that G&E had retained then-board member Sean Harrigan as a consultant. Harrigan has since resigned from the board, though he and the firm’s leaders — who have since parted ways — insist they did nothing wrong.
Utah Sen. Robert Bennett asked the Securities and Exchange Commission this summer to investigate law firms’ efforts to land lead counsel status in pension fund litigation.
“Attorney pay-to play raises profound concerns about the integrity of pension funds and the securities class-action system at a time when pension funds are reeling from the decline in financial markets,” Bennett wrote.
But the commission declined to investigate, saying that its focus would remain on fund managers.
— Cheryl Miller
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