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Elliot Broidy, the chairman of Markstone Capital Partners, pleaded guilty Thursday to charges that he helped his company land a lucrative deal with New York's public pension fund by giving nearly $1 million worth of illegal gifts to state officials in a pay-to-play kickback scheme at the Office of the New York State Comptroller.

The California venture capitalist made an unannounced appearance in a Manhattan courtroom to admit to a felony charge of rewarding official misconduct.

Prosecutors said the state invested $250 million in Markstone after Broidy showered them with gifts and favors, including trips, payouts to friends and relatives and a secret investment in an obscure movie called "Chooch," produced by an official's brother.

"This is an old-fashioned payoff of state officials," New York Attorney General Andrew Cuomo said. "This is effectively bribery of state officials, and not just one but a number of state officials in the comptroller's office." The investigation against Broidy has been going on for two years.

Following his guilty plea, Broidy resigned from all operational and supervisory roles at Markstone, one of the largest private equity firms investing in Israel.

Broidy resigned in the spring from the board of the Los Angeles Fire and Police Pensions fund after the Securities and Exchange Commission made inquiries related to the case.

Markstone said in a statement that it didn't expect the case to affect its investments. The company said it was appointing Dan Gillerman, Israel's former ambassador to the United Nations and former chairman of the Federation of Israeli Chambers of Commerce as its new chairman.

Markstone is the largest private investment fund in Israel. Its Israeli managers, Ron Lubash and Amir Kess, said they were not under investigation and its Israeli investments were not affected in any way by the case, and the fund would continue operations.

However, a number of Israeli capital market figures were much less optimistic about Markstone's future and its attempt to project business as usual. It faces a number of potential threats to its existence, such as a decision by the U.S. Securities and Exchange Commission to shut it down or decisons by its American pension fund investors - especially from New York - to withdraw their money.

Markstone's Strategic Advisory Board includes former Teva chairman Eli Hurvitz and Jacob Perry, the chairman of United Mizrahi Bank and former director of the Shin Bet security service.

A source in the Israeli capital markets told TheMarker a few months ago that it was difficult to understand how Lubash and Kess, foromer investment bankers with no experience in private equity funds, managed to raise $800 million, including from such a sought-after investor as the New York State pension fund. Now it is clear how they did it: Broidy, who received the lion's share of Markstone's management fees, bribed them.

Markstone was founded in 2003 and raised its first $400 million in February 2004. The fund has invested in Israel in such well-known firms as Netafim and Steimatzky, as well as in the Prisma investment house, which recently merged with Psagot.

Of the $800 million Markstone has raised, about 90% came from U.S. pension funds. The fund's success with the U.S. investors helped it to raise tens of millions of dollars from Israeli institutional investors such as Bank Hapoalim and Bank Leumi as well as insurance companies and pension funds.

As of the end of June, Markstone had invested $552 million of the funds it raised.

One Markstone investor, the California Public Employees' Retirement System, the largest public pension fund in the U.S., said it was reconsidering its $50 million investment, which has produced a 4.9% return so far.

Broidy is the latest in a string of private equity executives and investment advisers to plead guilty in connection with Cuomo's investigation of pension fund activities during the tenure of former state Comptroller Alan Hevesi.

Markstone is still being investigated. Broidy, who is forfeiting $18 million of fees, is cooperating in the probe, Cuomo said. He was freed on bail after entering his plea in State Supreme Court Thursday and will be allowed to travel, with restrictions. He could get up to four years in prison for the charge of rewarding official misconduct, a Class E felony, but his cooperation could lead to a lighter sentence.

More arrests seem likely in the probe. Cuomo announced Thursday that four high-level officials in the comptroller's office had improperly accepted gifts or other lucrative benefits from Broidy. He would name only one, the pension fund's former chief financial officer, David Loglisci, who already faces charges in the case.

However, the Attorney General's office said Broidy had subsidized five trips to Israel, and one to Italy, for a "very high ranking" official in the comptroller's office in connection with Markstone's attempt to get business from the pension fund.

Those trips included first-class air travel, luxury hotel suites, a helicopter tour, a car and driver and a security detail, at a total cost of about $75,000.

The official was not named in court, but state travel records show that Hevesi himself made several trips to Israel in 2005 and 2006 during the period when Broidy is alleged to have arranged for travel. The records also show taxpayers picked up some at least some expenses associated with those trips, including $20,894 in airfare.

Hevesi's lawyer, Bradley Simon, declined to comment.

Previously, Hevesi has denied accepting any improper gifts or bribes. He resigned in late 2006 after pleading guilty in an unrelated scandal involving the improper use of a state chauffeur and security detail.

A Broidy spokesman, Christopher Clark, said in a written statement that his client "regrets the actions that brought about this course of events, but is pleased to have resolved this matter with the NYAG and will be cooperating in the ongoing investigation."

In court Thursday, Broidy described other gifts to higher-ups in Hevesi's administration, including an official who he said arranged for him to pay $90,000 to cover his girlfriend's rent and hospital bills, plus another $44,000 in payments to the girlfriend's relative.

While that official has also not been identified in court filings, a person familiar with the investigation said he is former Hevesi chief of staff Jack Chartier. The woman who received the money, the person said, was the actress Peggy Lipton.

Lipton, famous for starring in the 1960s TV show "The Mod Squad," hasn't been accused of any wrongdoing.

Another state official, prosecutors said, was rewarded indirectly by Broidy when his relative was given a "sham" consulting contract worth more than $380,000.

Additionally, Broidy put up $300,000 that was ultimately invested through an intermediary in "Chooch," a low-budget independent film set in Mexico and in the New York City borough of Queens and produced by Loglisci's brother.

The movie was financed with contributions from a number of businessmen trying to land investments from the state pension fund, valued in May at $109.9 billion. It was distributed on DVD by a company owned by the Quadrangle Group, the private equity firm founded by Steven Rattner, now the former head of the Obama administration's auto industry task force.