May 18 (Bloomberg) -- After raising more than $1 billion for Democratic candidates, Eileen Kotecki transformed herself into a marketer for hedge funds and private-equity firms, eventually racking up more than $6.5 billion in sales.

Within weeks of wrapping up the 2000 campaign, Kotecki’s own attorneys said later in a lawsuit, she had begun “seeking to exploit” an “impressive network of contacts” gained in part from “extensive experience as a political fundraiser” to sell investment services to public pension funds and endowments.

Taking advantage of political work for private gain isn’t illegal. Yet Kotecki’s career shift from former Vice President Al Gore’s chief fundraiser into the placement-agent business illustrates how it has become the province of the well- connected, including campaign operatives, out-of-office politicians, former public pension officials and even a Pro Football Hall of Fame wide receiver.

“When you look at some of who the placement agents are, you say these are people who are really not in the financial business,” said Orin Kramer, who oversees pensions as head of New Jersey’s Investment Council. “These are politically connected intermediaries, and that’s not a way it ought to operate.”

Kickbacks for Access

New York Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission say they’re investigating agents and money managers who used ties to public officials and kickbacks to buy and sell access to pension funds.

Kotecki’s name hasn’t surfaced in the inquiry. She declined to comment for this story through a spokesman, Whit Clay.

Placement agents call on institutions and wealthy individuals to sell investments on behalf of hedge, private- equity and venture-capital funds. Their targets go beyond public pensions, which held $2.23 trillion at the end of 2008, the U.S. Census Bureau said. They include corporate retirement plans, foundations, insurers and endowments. Such institutions held $27.1 trillion in assets at the end of 2006, according to the New York-based Conference Board’s latest annual tally.

‘Highly Experienced’

The Third Party Marketers Association says its member firms typically employ “highly experienced investment management marketing executives.” The business also includes middlemen with political ties, including Marc Correra, son of a supporter of New Mexico Governor Bill Richardson; Marvin Rosen, a former Democratic National Committee finance chairman; and one-time New York State Comptroller H. Carl McCall. The Princeton Junction, New Jersey, trade group says those three aren’t members.

Indictments and civil complaints filed by regulators so far depict public officials allowing such connections and financial self-interest to trump merit when deciding who will be entrusted to invest taxpayer money. The inquiry has sparked debate over placement agents, with New York State and City and New Mexico moving to ban them as Florida and Massachusetts officials defend them.

“Just because you have bank fraud doesn’t mean all banks are crooked; it’s the same with placement agents,” said Ash Williams, who oversees $113 billion in pension funds and other investments as executive director of Florida’s State Board of Administration.

Belated Discoveries

Regulators announced their first legal actions in March, and some pension officials only now are discovering their hired money managers paid fees to middlemen with connections.

Managers of the Los Angeles Department of Fire and Police Pensions expressed bafflement over $150,000 in fees paid to Henry “Hank” Morris -- a New York political adviser turned placement agent now under indictment -- by Quadrangle Group LLC for helping secure a $10 million investment from their fund.

“We were shocked when we heard about it,” said Allan Emkin, a Los Angles managing director at Pension Consulting Alliance Inc., the pension fund’s private-equity adviser. Emkin said his firm had no contact with Morris.

Firms that employed Correra earned more than $15 million on investments from New Mexico’s endowment and teacher-pension fund, data compiled by officials in the aftermath of Cuomo’s probe show. Correra’s father, Anthony, gave Governor Richardson’s campaign about $27,000 and served on one of his political committees.

“In most cases, we were unaware that he was getting paid,” said Greg Kulka, who oversees private-equity investments at the New Mexico State Investment Council. Marc Correra’s lawyer, Ronald L. Rubin, declined to comment.

Carlyle Group

After New Mexico agreed to invest $20 million in Carlyle Group, the Washington private-equity firm paid $150,000 to Morris’s employer, Searle & Co.

“We have no idea who the hell Hank Morris is,” Kulka said. “You have to start wondering what is going on. We recognize there’s a problem here.”

Cuomo has said he uncovered “a national network” that “victimized states and taxpayers all across the country” and shows “the inherent risks” that placement agents pose.

He said May 14 that Carlyle will pay $20 million, cease using placement agents and restrict campaign donations to resolve its alleged role in the scandal. Cuomo said New York invested about $730 million in Carlyle-related funds after the firm retained Morris, who shared in $13 million in finder fees from the deals.

Unspecified Losses

Cuomo previously had announced guilty pleas from one fund manager and one agent and charges against four others: Morris, 55, who allegedly orchestrated a kickback scheme by exploiting political work he did for former New York State Comptroller Alan Hevesi, 68; one-time state Liberal Party chief Raymond Harding, 74; Hevesi’s ex-deputy, David Loglisci, 39; and Saul Meyer, 38, a Dallas money manager for Aldus Equity Partners, which New York has also sued for unspecified losses.

All the defendants deny wrongdoing and face SEC civil actions, too. “There was no fraud,” William Schwartz, Morris’s lawyer, said in March. Schwartz didn’t return three phone calls for this story.

The fallout has spread to other states, including some of the 36 Cuomo asked to join his probe. He announced sending more than 100 subpoenas to investment firms and agents. Two members of the Los Angeles fund’s oversight commission, Sean Harrigan and Elliott Broidy, quit May 7 after the SEC queried them about ties to firms under scrutiny in New York; both denied wrongdoing. Aldus was fired or suspended by officials in Los Angeles, New Mexico, Connecticut and Louisiana.

Obama, Rattner

Even President Barack Obama was drawn in. Steven Rattner, head of his auto industry rescue effort since February, ran New York-based Quadrangle when the private-equity firm paid Morris about $1.1 million for a $100 million investment from New York’s pension fund. Adam Miller, a spokesman for Rattner and Quadrangle, declined to comment. Neither has been charged.

Kotecki’s career in the industry began in February 2001, after two years as Gore’s national finance director, Financial Industry Regulatory Authority records show. “She designed, implemented and managed the campaign’s financial plan, raising over $1.2 billion in total,” says the Web site for High Water Women, a nonprofit group that lists Kotecki on its board.

‘Unproven Novice’

She founded Hawthorne Group LLC in Washington with Dale Lenzner, who had “significant experience” raising capital and investing, according to a 2002 suit filed in New York State Supreme Court by the firm. The suit called her company a “fledgling” and “unproven novice” in the “often converging worlds of venture capital and politics.”

Its first client was RRE Ventures, which former American Express Co. Chief Executive Officer James D. Robinson III co- founded, the suit said. The two women helped secure $45 million from Seattle University, the Teachers’ Retirement System of the City of New York and the New York City Employees’ Retirement System, Hawthorne’s lawyers wrote.

Seattle University referred questions to its former consultant, Victor Lee at Wurts & Associates, who didn’t return a call. Laura Rivera, a New York City comptroller’s office spokeswoman, said “we’re not familiar with this.”

The suit accused RRE Ventures of refusing to pay Hawthorne $900,000 in finder fees. It was resolved without trial in 2005, court documents that don’t detail settlement terms show.

Gore declined to comment, said Kalee Kreider, a spokeswoman. Robinson’s assistant, Karen Marshon, said he was unavailable.

Nine Employees

Kotecki now heads a New York firm she founded, Juniper Capital Group, where she began working in December 2001, Finra records show. A firm brochure says it employs nine people in the U.S. and Europe and has raised more than $6.5 billion.

Juniper in 2005 teamed with Guy Riordan, a former Wachovia Corp. employee who has raised money for Richardson and other Democrats, to secure $100 million from the New Mexico State Investment Council for Crestline Investors Inc. The state later put $100 million more into the Fort Worth, Texas, hedge fund of funds, Charles Wollman, a council spokesman, said in an e-mail.

The council said Juniper, which receives a percentage of Crestline fees on the first $100 million, was paid about $915,000, while Wachovia made $17,325.

Kotecki participated in Crestline’s pitch, but the council’s staff didn’t learn of Riordan’s role until money managers in March were asked for information on third-party fees, Wollman said.

Riordan said by telephone his relationship with Juniper was disclosed in a 2004 letter to the council.

Extortion Plea

An SEC administrative law judge in July barred Riordan from the industry after finding that he paid kickbacks from 1996 to 2002 to New Mexico’s then-Treasurer Michael Montoya for brokering $1.4 billion in investments. Montoya pleaded guilty to extortion in Albuquerque federal court and was sentenced to 40 months in prison.

“The only evidence that kickbacks did not occur is Riordan’s denial, and Riordan is not credible,” wrote Brenda Murray, the administrative judge. Riordan is appealing her decision to the SEC, said John Heine, an agency spokesman.

Riordan, who wasn’t criminally charged, reiterated his denial in an interview. “What we did with Montoya were legitimate campaign functions; we raised money for him at golf tournaments,” he said, adding that he still has his securities license.

A Wachovia spokeswoman, Ferris Morrison, didn’t respond to a request for comment.

John Edwards

Kotecki has stayed active in politics. She was national finance co-chair for Democrat John Edwards’s 2004 presidential campaign and a senior adviser for his 2008 run, High Water Women’s Web site says. Individual donations to Edwards for those races topped $50 million, according to the Center for Responsive Politics, a Washington research group. High Water Women says Kotecki, a securities broker registered in 16 states and Washington, has done political fundraising in 18 states.

Joyce Fitzpatrick, an Edwards spokeswoman, said the former North Carolina senator wasn’t available.

Connecticut records show Juniper was a placement agent in 2004 for an investment the state pension made in Parish Capital Advisors, a firm founded by James Mason, Wendell McCain and Charles Merritt, former Morehead Scholars at the University of North Carolina at Chapel Hill. Parish didn’t return a call.

Kotecki’s Finra records show she was registered to work with another placement agent, Diamond Edge Capital Partners LLC, for 11 months in 2006-2007. Ken Sunshine, Diamond Edge’s spokesman, said it discussed working with her, but never did.

Lynn Swann

Diamond employs Rosen, the former DNC fundraiser, and Lynn Swann, who won four Super Bowls with the National Football League’s Pittsburgh Steelers, Finra records show.

The firm has earned at least $6.85 million in New York state pension-related fees. It also brokered three investments with New Mexico, listing Rosen as one of its agents; Marc Correra also was an agent on one of them. Diamond worked as a placement agent in Connecticut and Massachusetts, too.

Swann didn’t reply to an e-mail sent to his Web site or a call to H.J. Heinz Co. in Pittsburgh, where he’s on the board.

Political connections in New York go beyond Diamond Edge and Morris. Arapaho Partners, which employed former New York City Council President Andrew Stein, was paid $1.5 million by Carlyle for one investment, state records show.

Not ‘Using Influence’

Former New York State Comptroller McCall also has done placement agent work with the pension system he used to oversee. In 2005, three years after McCall left office, Manhattan-based Steinberg Asset Management LLC paid him $48,000 for helping arrange a $25 million investment from the fund, said the ex-comptroller, who has been subpoenaed by Cuomo, in an interview. McCall said he wasn’t “somebody just using influence” because he has “very intimate knowledge of the investment business, having managed the fund for nine years.”

Kramer, the New Jersey investment council chairman, predicted more fallout from the scandal.

“I don’t think the revelations are over,” he said on Bloomberg Television. While some agents “add value,” he said, “we’ve got to find some sort of balance where at least you take the people who are clearly just political finders and knock them out of the business.”

To contact the reporters on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net. Gillian Wee in New York at gwee3@bloomberg.net

Last Updated: May 18, 2009 12:24 EDT