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[May 17, 2007]
DiBella A Stingy Witness: Testimony Adds Little In SEC Suit
(Hartford Courant, The (CT) (KRT) Via Thomson Dialog NewsEdge) May 17--NEW HAVEN -- Former Senate Majority Leader William A. DiBella waited a decade to explain his role in a suspect $75 million pension deal, but when presented with the opportunity Wednesday, he added little to the body of knowledge about what he did to earn an accompanying $374,500 commission.
Under questioning by his defense lawyer in a suit by the U.S. Securities and Exchange Commission, DiBella confirmed much of what previous witnesses had described as his limited role. But he provided a new wrinkle when he said that, at one point, he considered hiring his own lobbyist when it became likely that the deal -- and his fee -- could be threatened by the scandal that engulfed convicted former state Treasurer Paul Silvester in the late 1990s.
Current state Treasurer Denise Nappier, who also testified Wednesday, said the threat ultimately proved real. She said she arranged to reduce the $75 million investment after taking office and determining it was part of a pattern of irregular or illegal deals made by her predecessor, Silvester.
DiBella said it was Silvester who agreed to write him into a mostly completed pension investment with Thayer Capital Partners in mid-November 1998 and that he persuaded Silvester to increase the amount of the private equity investment to $75 million.
After Silvester committed the state at $75 million, DiBella said he signed a contract to act as a consultant to Thayer. One of DiBella's limited duties under the contract was to help the firm secure capital -- even though Thayer already had agreed to pay Merrill Lynch $2 million to solicit institution investors, including the Connecticut pension plan. DiBella testified Wednesday that, in his opinion, securing capital meant making sure the state didn't withdraw any of its $75 million commitment.
DiBella said his consulting agreement with Thayer provided him with a fee based on 0.7 percent of the state's Thayer investment. When Silvester increased the amount of the investment -- initially planned at $25 million to $50 million -- DiBella's fee increased correspondingly.
After Silvester closed the deal, DiBella said he began working to meet the terms of another provision in his contract, one that obligated him to assist Thayer owner Frederic V. Malek, an influential Republican fundraiser, with "ongoing investor relations."
By that time, Silvester had lost the 1998 election for state treasurer to Nappier, a Democrat. Silvester retained sole authority over investments from the then $18.5 billion public employee pension trust fund until he left office in early January 1999.
"Mr. Malek made it very clear to me that he didn't need me for Silvester," DiBella testified. "I remember his words were, 'I need you for the new treasurer.'"
DiBella, an influential state Democrat who became a lobbyist after leaving the state Senate, said he was qualified to help Malek, who wanted to be able to solicit future pension fund investments from Nappier. DiBella testified that Malek needed someone to send him reports on the political environment in Democratic Connecticut.
There was a problem, however, and DiBella explained publicly how he decided to address it for the first time Wednesday. Because DiBella was being paid a contingency fee by Malek -- a success fee based on the size of the state's investment -- DiBella said state ethics rules prohibited him from lobbying Nappier directly.
DiBella said he discussed hiring a lobbyist of his own to approach Nappier. His choice was Mary Phil Guinan, an influential Hartford Democrat who, weeks earlier, had been advising Nappier in her campaign against Silvester.
By that time, DiBella, Nappier and others were starting to have what DiBella called "concerns" about the life expectancy of a half dozen or so pension fund investments -- including Thayer -- that Silvester had made in November 1998 as a lame duck.
Silvester later was convicted of racketeering in connection with the lame duck investments and served three years in prison. The SEC claims in its civil suit against DiBella that the investments -- including Thayer -- were fraudulent and arranged to generate sham commissions for Silvester friends and political allies. DiBella is accused in the suit of aiding Silvester in the commission of securities law violations by failing to disclose a conflict of interest -- his fee.
Nappier, who testified as a SEC witness at the civil jury trial Wednesday, said that she had become aware, after the 1998 election but before she assumed office, that Silvester was making highly irregular investments. She was so concerned, she said, that she decided to warn him to stop.
"There had been some talk about a lot of movement in the treasurer's office and I had called him to urge him not to do anything foolish," said Nappier, who testified against DiBella as an SEC witness. "I said he was developing a reputation, that he was ruining what could be a very bright career."
DiBella said he, too, suspected Silvester's politically motivated, lame duck investments could create problems. He said he thought Guinan could help if Nappier had to be approached in an effort to salvage the deal.
"She would be the most viable person to hire if we were going to have any kind of negotiation with the new administration," DiBella testified. "She said she would be receptive to that process."
Guinan was on DiBella's prospective list of witnesses, but DiBella lawyer James Wade said she will not be called to testify. DiBella was not asked Wednesday whether she was hired or ever lobbied Nappier, but from other testimony Wednesday it became clear that the need for her services became moot.
Nappier testified that when she took office she decided to try to roll back Silvester's politically motivated, November investments. She said Silvester had moved so much money into high-risk, long term, non-liquid private equity funds that the pension plan's investment allocation had become unbalanced.
She said Malek agreed to reduce the state's commitment to his private equity fund by about 30 percent, a decision that dropped DiBella's fee from an anticipated $525,000 to the $374,500 he ultimately received.
Contact Edmund H. Mahony at firstname.lastname@example.org.
Copyright (c) 2007, The Hartford Courant, Conn.
Distributed by McClatchy-Tribune Information Services.
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