Four years ago this month, the private equity firm Riverstone Holdings agreed to pay $30 million to resolve its role in a “pay-to-play†pension fund investigation by the New York attorney general, Andrew M. Cuomo. Several months later, Riverstone’s founder, David Leuschen, paid an additional $20 million to settle his individual role in the case.
“It is important that both firms and individuals be held accountable for conduct that jeopardized the integrity of the New York State Common Retirement Fund,†Mr. Cuomo said at the time.
Mr. Cuomo’s stern words, and the $50 million in payments, were a reputational blow to Riverstone. It seems, though, that the embarrassing episode, and the penalties assessed against Riverstone and Mr. Leuschen, has not affected their ability to raise money.
Riverstone announced Wednesday that it had raised its largest fund ever, a $7.7 billion vehicle that exceeds its $6 billion target. The domestic oil-and-gas boom has created a sharp demand for enery investments, and Riverstone, one of the country’s leading private equity firms focused on energy and power, has posted some of the sector’s strongest returns.
The fund is Riverstone’s first that it has raised indepedently from the Carlyle Group, the private-equity giant that it teamed up with on its first six funds, which were co-branded Carlyle/Riverstone or Riverstone/Carlyle. In 2000, Carlyle backed two former Goldman Sachs bankers, Mr. Leuschen and Pierre Lapeyre, when they started Riverstone.
The relationship between the two firms cooled over time and was exacerbated by the “pay-to-play†pension fund scandal. Mr. Cuomo conducted an investigation into the millions of dollars and other favors that friends and aides of Alan G. Hevesi, the state comptroller and sole trustee of New York’s pension fund, received from several private equity firms in helping secure large investments from the pension fund.
As for Riverstone, the fund was accused of making several question! able payments, including $10 million in fees to an influential middleman, or placement agent, Hank Morris, who helped arrange the New York pension fund’s investment in the Riverstone/Carlyle fund. Mr. Leuschen made a personal investment of $100,000 in “Chooch,†a low-budget film that was produced by the brother of David Loglisci, the former chief investment officer of the New York pension fund.
Mr. Hevesi, Mr. Morris and Mr. Loglisci were all indicted on corruption-related fraud charges, and Mr. Hevesi and Mr. Morris served prison time.
Riverstone and Mr. Leuschen neither admitted nor denied wrongdoing as part of the settlement with Mr. Cuomo’s office and agreed to broad changes that barred them from using placement agents to win public pension fund business. Carlyle also paid a $20 million settlement to resolve its role in the case. The Securities and Exchange Commission also investigated Riverstone and Mr. Leuschen but did not take any action.
The scuffle with Mr. Cuomo has not sowed Riverstone down. Last year, it led a $7.15 billion acquisition of the exploration and production unit of the El Paso Corporation and also paid $825 million for UTEX Industries, a maker of sealing products for oil-and-gas drilling. Those prominent deals and other profitable investments helped attract public pensions and other deep-pocketed clients to Riverstone’s latest fund.
“Investors are the lifeblood of our business,†said Elizabeth K. Weymouth, the Riverstone partner responsible for fund-raising, in announcing its record-sized fund. “By providing global and diversified exposure to the energy industry while maximizing risk-adjusted returns, Riverstone strives to help our limited partners meet their investment objectives.â€
