A week and a half after the revelation that Markstone had achieved $800 million in funding pledges thanks to bribery rather than competence, business baron Nochi Dankner has in effect pulled a plug on the private equity fund.
Dankner was involved in Markstone through Clal Insurance, which belongs to his business group IDB. Yesterday Roy Yakir, CEO of Clal Kanaf - the investment arm of Clal Insurance - wrote a biting letter to Markstone managers Amir Kess and Ron Lubash, demanding they halt all new investments. Read: Freeze the fund where it is.
Elliott Broidy, the chief driver behind Markstone's establishment, admitted to securing a quarter-billion investment from the pension fund of New York City workers, by bribing city officials. "As must be clear to you, the state of the fund and the accusations that have been leveled make us uncomfortable, to put it mildly," Yakir wrote to Kess and Lubash. "We believe that the state of the fund requires appropriate decisions by investors... Our main concern is to assure that the money invested in target companies preserves its value, and that the companies themselves receive the utmost managerial attention from the partners leading the fund.
"Under the circumstances we think it inappropriate to conduct any negotiations ahead of any new investments by the fund or anybody on its behalf, until the picture clears up, allowing us and other investors in [Markstone] to consider our moves," Yakir wrote.
Clal Insurance had invested $18 million in Markstone, becoming the biggest investors among Israel's institutionals.
According to Markstone's prospectus, a majority of two-thirds of the fund's investors can vote for its liquidation if the manager of the fund, or hired managers, are found to have committed fraud or otherwise behaved inappropriately. Paying the New York city officials a million dollars in exchange for routing pension monies to Markstone would fall into that category.
Following the revelations that Broidy had bribed New York officials to obtain city workers' pension savings for Markstone, the authorities are investigating whether he obtained investment pledges from CalPERS using bribery too. CalPERS is the biggest pension fund of California state workers.
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