Pension Players Go Back To The Lincoln Bedroom Days

May 7, 2009 1:06 p.m.

Finally, a fresh face to connect some dots in the evermore mind-numbingly convoluted state pension fund scandals!

Meet Lori Schiaffino. She is a former secretary of Revlon CEO Ron Perelman who gets invited to exclusive Oscar parties and lives some of the time in the Hamptons. According to records released by state investment authorities in New Mexico, Schiaffino also works as what is called a “placement agent,” who helped secure a hedge fund called Optima a $50 million investment from the New Mexico teachers’ retirement fund.

Placement agents, who are paid finders fees by hedge funds and other private money managers for securing investments from public pension funds, are at the heart of the expanding pension fund scandal. In March Hank Morris, the top adviser to former New York state comptroller Alan Hevesi, was indicted for running an elaborate scheme to collect $35 million in phony placement agent fees while he acted as an effective gatekeeper of the state pension fund in conjunction with Dan Loglisci, the fund’s chief investment officer. A parallel — and intertwined — scandal is brewing in New Mexico, where a longtime associate of Gov. Bill Richardson named Marc Correra appears to have collected $13.5 million in finders’ fees over the past few years — including a whopping $2 million we told you about yesterday for directing a $90 million in the teachers’ pension money to a “toxic waste” tranche of a mortgage-backed collateralized debt obligation that lost nearly all of its value within the space of a year.Correra and Schiaffino have something in common: they have both worked as agents for a placement agency called Diamond Edge Capital, which is run by Marvin Rosen, a former finance director for the Democratic National Committee and Clinton campaign co-finance chair in Florida in 1992.

Correra worked for a few different placement agencies — Chicago’s Cabrera Capital Markets, a Los Angeles firm called Wetherly Capital Group that was named in the Morris indictment and counts supermarket-supermodel magnate and former Bill Clinton business partner Ron Burkle as a client, and a firm called SDN Advisors, through which he collected his fee for the Vanderbilt transaction. Diamond Edge was not involved in the Vanderbilt deal, nor has it been accused of any wrongdoing — and certainly the Optima investment worked out better for pensioners than the toxic CDO. But its emergence as one of six firms that collected finders’ fees for securing public pension fund investments in both New York and New Mexico — along with them Wetherly, Morris’ firm Searle, and a firm called Gold Bridge run by a Sacramento lobbyist — is the latest indication that the alleged pay-to-play scams that have roiled the nation’s retirement funds involved a vast and deeply-enmeshed web of super-connected players. It’s unlikely that the most prominent boldfaced names thus far dragged into the scheme — like money manager turned car czar Steve Rattner, had any clue about the more brazen practices of the scheme’s masterminds. But the investigation stands to shed considerable light on those players perceives as “normal” in the unregulated world of middlemen who control access to the pursestrings of public finance.

Some folks’ “normal,” after all, might raise the eyebrows of the average citizen. If Rosen sounds familiar, it’s because he was one of the key figures involved in promoting sleepovers in the Lincoln bedroom for top campaign contributors in the nineties. In 2005 Rosen joined Diamond Edge, where he now holds the title of chairman, and helped secure a handful of investments for hedge fund clients from the New Mexico and New York state pension funds. Records show the firm booked at least $3.25 million on four New York pension fund investments in 2005 and 2006 and an unclear amount on another four in New Mexico.

Diamond Capital wasn’t cheap, according to the document released yesterday by the New York Comptroller; in two transactions it charged a 2% commission, in another it charged 2.5% and in another, with a fund called Ramius, Diamond Capital commanded a whopping 20% of the hedge fund’s management and incentive fees.

But Rosen is known to drive a hard bargain, according to a 1997 Washington Post story on the Senate investigation into the Clintons’ creative fundraising tactics:

“Marvin Rosen had the final say over who would stay in the Lincoln Bedroom,” one longtime fund-raiser said. “The decision was usually based on how much money people had given or were willing to give later on.”
One example was that of Roy Furman of the Wall Street investment firm of Furman Selz Inc.
“We would like to have Roy Furman invited to sleep over on March 27th after our White House dinner,” Mr. Rosen wrote to Karen Hancox, a White House aide, on March 12, 1996.

Rosen was also one of Hillary Clinton’s “Hillraisers,” individuals who pledged to raise at least $100,000 for her presidential campaign. And one of Diamond Edge’s clients, Avenue Capital Management — for whom it nabbed $100 million in New York state pension fund investments — hired former first daughter Chelsea Clinton as an analyst in 2006 (after the fund had secured its investments from the pension.)

But Rosen’s firm is one of the few connected to the current pension scandals that seems to have connections on both sides of the aisle: last year it named the ex-Pittsburgh Steeler Lynn Swann a managing director. Swann was Pennsylvania’s Republican candidate for governor in 2006; he lost to incumbent Ed Rendell.

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