Questions Raised on Carlyle Lobbyist

By David S. Hilzenrath
Washington Post Staff Writer
Monday, August 15, 2005

The board of an Illinois pension fund planned to ask District-based Carlyle Group last week about millions of dollars it paid a politically connected lobbyist for help in winning half a billion dollars in investments from the fund.

However, when Carlyle Managing Director David M. Rubenstein appeared in Chicago on Thursday, the board of the Illinois Teachers' Retirement System refrained from asking about the finder's fees paid to Robert Kjellander, an Illinois lobbyist who was recently elected treasurer of the Republican National Committee. The board wanted to avoid interfering with a federal investigation, said John Day, a spokesman for the pension fund.

Neither Carlyle, a prominent investment management firm, nor Kjellander has been accused of any wrongdoing. But the episode highlighted a broader inquiry that is roiling the pension board and companies that do business with it.

On Aug. 3, a federal grand jury indicted former pension fund board member Stuart Levine on charges of soliciting kickbacks from investment firms seeking business with the pension fund. Levine has pleaded not guilty, said his attorney Marc W. Martin, who declined to comment further.

The Justice Department has been investigating business dealings with Illinois state boards, and the probe is continuing, said Randall Samborn, a spokesman for the U.S. attorney's office in Chicago.

"We have no reason to believe that we are a subject of their investigation," Carlyle spokesman Christopher Ullman said. "Carlyle did everything the way it should have been done."

The relationship of Carlyle, lobbyist Kjellander and the state pension fund has become a focus of attention in Illinois since the Chicago Tribune reported on it this month.

The pension fund manages more than $30 billion of retirement assets for teachers and administrators in Illinois public schools.

Carlyle retained Kjellander in 2002 in an effort to land a share of the fund's investments. It agreed to pay Kjellander's consulting firm up to 1 percent of the capital the pension fund committed to invest with Carlyle, spokesman Ullman said. The investment firm has paid $3.1 million under that agreement and owes $1.4 million, Ullman said.

Kjellander, who chaired President Bush's reelection campaign in the Great Lakes region, was elected treasurer of the Republican National Committee on Aug 5.

On Friday, the board of the Illinois Teachers' Retirement System decided to prohibit future finder's fees for intermediaries such as Kjellander, said Day, its spokesman. The pension fund will continue to allow such fees for investment banks and "recognized third-party marketers," Day said.

There's disagreement over what Kjellander did to earn his finder's fees.

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