SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16759 October 10, 2000
SEC v. PAUL J. SILVESTER, ET AL., Civil Action No. 3:00-CV-19411 DJS (D. Conn.) (U.S. District Court for the District of Connecticut - Filed October 10, 2000)
SEC Charges Former Connecticut Treasurer and Ten Others Involved in Fraudulent Scheme in Connection With Investment of State Pension Fund Money;
Three Defendants Agree To Settle Charges
The Securities and Exchange Commission announced today that it filed a civil fraud action against Paul J. Silvester, the former Treasurer of the State of Connecticut, two private equity firms, three of their officers, and five others involved in a fraudulent scheme in connection with the investment of state pension fund money. The Commission alleged that the defendants participated in a scheme where 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 Silvester's friends and political associates. According to the complaint, Silvester, who served as Treasurer from July 1997 until January 1999, solicited two private equity firms, Landmark Partners, Inc. and Triumph Capital Group, Inc., to pay substantial consulting or finder's fees to Silvester's friends. In order to secure the investment of pension fund money, Landmark and Triumph agreed to pay the requested fees. Silvester then demanded and received kickbacks of the fees from his friends. The Commission alleged that Silvester, Triumph, Landmark, and certain of the firms' officers violated their fiduciary duties by failing to disclose the quid pro quo. Landmark is headquartered in Simsbury, Connecticut. Triumph is headquartered in Boston, Massachusetts, and also maintains offices in Hartford, Connecticut, Palm Beach, Florida, and San Francisco and Los Angeles, California.
The complaint alleges that, in return for investing $150 million of state pension funds with Landmark in 1998, Silvester solicited and Landmark agreed to pay $1.5 million in finder's fees to Silvester's friend, Ben F. Andrews, Jr. Andrews agreed to kick back part of the finder's fee to Silvester using another friend of Silvester, Christopher A. Stack, as an intermediary. Andrews arranged for Landmark to split the finder's fee between him and Stack (who was paid through his consulting firm, KCATS, LLC), and Stack then funneled part of his Landmark fee to Silvester through an intermediary. Jerome L. Wilson, another Landmark consultant, acted as an intermediary in arranging for Landmark to hire and pay Andrews and Stack. Stanley F. Alfeld, chairman of Landmark, agreed to hire Andrews. Wilson later notified Alfeld that Andrews would split his fee with KCATS, Stack's consulting firm. At Alfeld's request, Wilson also arranged for his employer to act as a conduit for payment from Landmark to Andrews and Stack.
The complaint also alleges that, in return for investing $200 million with Triumph shortly after losing the November 1998 election, Silvester solicited and Frederick W. McCarthy and Charles B. Spadoni, Triumph's president and general counsel, respectively, agreed to provide $1 million consulting contracts to Silvester's friends, Stack and Lisa Thiesfield. Stack then funneled part of his Triumph feeto Silvester through another intermediary. Silvester also requested and expected to receive part of Thiesfield's Triumph fee.
According to the complaint, Silvester, Landmark, Alfeld, Wilson, Andrews, Stack, KCATS, Triumph, McCarthy, Spadoni, and Thiesfield, variously, violated and aided and abetted violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and/or Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission seeks to enjoin each of the Defendants from continuing to violate or aid and abet violations of these laws. The Commission also seeks disgorgement of monies fraudulently received by Defendants Silvester, Andrews, Stack, KCATS, and Thiesfield, plus prejudgment interest. The Commission further seeks civil monetary penalties from each of the Defendants.
Defendants Silvester, Stack and KCATS have agreed to settle the Commission's charges, without admitting or denying the allegations contained in the Commission's complaint, by entering consent agreements that enjoin them from future violations of the antifraud provisions of the Securities Act, the Exchange Act, and the Advisers Act. Silvester has agreed to pay $10,500, representing the proceeds he received from the conduct alleged in the complaint. Stack and KCATS have agreed, jointly and severally, to pay $300,667, representing the proceeds they received and retained from the conduct alleged in the complaint. Proposed final judgments by consent against Silvester, Stack and KCATS were filed with the complaint.