NEW YORK (Legal Newsline) - Two leading investment firms have agreed to adopt New York Attorney General Andrew Cuomo's Public Pension Fund Reform Code of Conduct, which eliminates placement agents and campaign contributions from the public pension fund system nationwide.

The addition of Ares Management LLC and Freeman Spogli & Co. brings the total number of firms to have adopted the code to 11.

"As more and more firms sign the Code of Conduct it is fast becoming the new industry standard. All firms doing business with the pension fund should abide by the Code so we can ensure that billions in taxpayer funds are protected from waste, fraud, and abuse," Cuomo said. "By adopting the Code, Ares and Freeman Spogli have shown their commitment to transparency, integrity, and reform in our nation's public pension fund system."

The announcement of the two firm's agreement to join the code stems from Cuomo's two-year, ongoing investigation involving the $126 billion New York State Common Retirement Fund. Cuomo's investigation centers on the use of placement agents and other intermediaries who are paid for marketing investments to public pension funds.

Cuomo's investigation has revealed that the pension system is unnecessarily exposed to risks of improper influence through the use of intermediaries. As a result of this finding, Cuomo introduced the Code of Conduct.

The code, in addition to banning placement agents, bars investment firms from doing business with a public pension fund for two years after a campaign contribution is made by the firm to an elected or appointed official who can influence the fund's investment decisions. Investment firms are also required to disclose any conflicts of interest to public pension fund officials or law enforcement authorities as a means of increasing transparency and avoiding abuse of the fund for personal gain.

Ares and Freeman Spogli have both obtained investments from the CRF under then-Comptroller Alan Hevesi. Each firm retained Wetherly Capital Group LLC separately as a placement agent with Wetherly agreeing to splits its fees with Henry "Hank" Morris. Morris was then Hevesi's paid political adviser. Neither Ares or Freeman Spogli were informed of Wetherly's arrangement with Morris.

Ares had agreed to pay a placement fee to Wetherly in the form of a percentage of any investment made with Ares by the CRF. Morris was paid 40 percent of Wetherly's fees on the CRF investment Ares. The CRF committed $50 million to Ares in December 2003. Ares then paid $637,500 in placement fees to Wetherly, which paid Morris $225,000.

Freeman Spogli also agreed to pay Wetherly a placement fee in the form of a percentage of any investment made with Freeman Spogli by the CRF. Wetherly then agreed to pay 40 percent of any CRF investment fees with Freeman Spogli to Morris. The CRF committed $50 million to Freeman Spogli in January 2004, paying Wetherly $500,000 in placement fees. Morris was then paid $200,000 by Wetherly.