Private Equity Firm Tied to New York Pension Scandal Raises $7.7 Billion From Investors

Four years ago this month, the private equity firm Riverstone Holdings agreed to pay $30 million to resolve its role in a “pay-to-play” pension fund investigation by Andrew M. Cuomo, the New York attorney general at the time. Several months later, Riverstone’s founder, David M. Leuschen, paid an additional $20 million to settle his role in the case.

“It is important that both firms and individuals be held accountable for conduct that jeopardized the integrity” of New York’s state pension fund, Mr. Cuomo, now New York’s governor, said at the time.

Mr. Cuomo’s stern words, and the $50 million in payments, were a reputational blow to Riverstone. It seems, though, that the embarrassing episode and the penalties assessed against the firm and Mr. Leuschen have not affected its ability to raise money.

Riverstone announced on Wednesday that it had raised its largest fund ever, a $7.7 billion vehicle that exceeded its $6 billion goal. The domestic oil-and-gas boom has created a sharp demand for energy investments, and Riverstone, one of the country’s leading private equity firms focused on energy and power, has posted some of the sector’s strongest returns.

The fund is Riverstone’s first that it has raised independently from the Carlyle Group, the private equity giant that it worked with on its first six funds, which were co-branded Carlyle/Riverstone or Riverstone/Carlyle.

Carlyle backed two former Goldman Sachs investment bankers, Mr. Leuschen and Pierre F. Lapeyre Jr., when they started Riverstone in 2000.

The joint venture had terrific success, but over time the relationship between the two firms cooled and then was exacerbated by the pay-to-play pension fund scandal.

In 2007, Mr. Cuomo began investigating the millions of dollars and other favors that friends and aides of Alan G. Hevesi, the state comptroller and sole trustee of New York’s pension fund, had received from several private equity firms.

The inquiry focused on whether these favors were in exchange for helping the firms secure large investments from the pension fund, which had $160 billion in assets as of March 31.

As for Riverstone, the fund was accused of making several questionable payments, including $5 million in fees to Hank Morris, an influential middleman, or placement agent, who helped arrange the New York pension fund’s investment in three Riverstone/Carlyle funds totaling $530 million. Mr. Morris was a close friend and former political adviser to Mr. Hevesi.

Mr. Leuschen also made a personal investment of $100,000 in “Chooch,” a low-budget movie that was produced by the brother of David Loglisci, the former chief investment officer of the New York pension fund.

Mr. Hevesi, Mr. Morris and Mr. Loglisci were all indicted on corruption-related fraud charges, and Mr. Hevesi and Mr. Morris served prison time. Mr. Loglisci pleaded guilty, but did not go to prison.

Riverstone and Mr. Leuschen neither admitted nor denied wrongdoing as part of their $50 million settlement, which was the largest amount paid to Mr. Cuomo’s office by a single firm and its executives in the pension fund scandal.

The settlement with Mr. Cuomo has not slowed Riverstone down. Last year, the firm and Apollo Global Management led a $7.15 billion acquisition of the exploration and production unit of the El Paso Corporation and also paid $825 million for UTEX Industries, a maker of sealing products for oil-and-gas drilling. Those prominent deals and other profitable investments helped attract public pensions and other deep-pocketed clients to Riverstone’s latest fund.

“Investors are the lifeblood of our business,” said Elizabeth K. Weymouth, the Riverstone partner responsible for fund-raising, in announcing its record-setting fund. “By providing global and diversified exposure to the energy industry while maximizing risk-adjusted returns, Riverstone strives to help our limited partners meet their investment objectives.”

One investor not returning to Riverstone is New York’s pension fund. A fund spokesman confirmed that it had declined to invest this time around.