Effective 12 September 2016, CFA Institute imposed a Revocation of membership and of the right to use the CFA designation on Matthew Michael O’Reilly (San Antonio, Texas), a charterholder member. A Hearing Panel found that O’Reilly violated the Code of Ethics and Standards of Professional Conduct: I (A) - Knowledge of the Law; I(B) - Independence and Objectivity; I(C) - Misrepresentation; I(D) - Misconduct; III(A) - Loyalty, Prudence, and Care; VI(A) - Disclosure of Conflicts; and VI(C) - Referral Fees (2005). This result was subsequently reviewed and affirmed by an Appeal Panel.
From 2003 to 2009, O’Reilly was a principal partner and the Chief Compliance Officer at Aldus Equity Partners/Aldus Capital Corp. (“Aldus”), a private equity advisor in Dallas, Texas. Aldus was founded in 2003 by O’Reilly and a partner named Saul Meyer.
In 2009 and 2010, the Attorney General of New York brought criminal charges against several former State officials and Meyer, alleging that, beginning in 2003 or 2004, Aldus had obtained the business of the New York State Common Retirement Fund (a pension fund for the State’s police officers and firefighters) by corruptly paying “placement fees” or “kickbacks” to an entity controlled by those government officials. Based on the same allegations, the New York State Comptroller brought civil cases against Aldus, O’Reilly, Meyer, and others.
The New York State officials and Meyer pleaded guilty to criminal offenses. Aldus and O’Reilly subsequently settled the State’s civil case by agreeing to forfeit all interests in the investment funds involved, and pay $1 million in damages. O’Reilly paid $412,500 of this by forfeiting unpaid management fees.
In 2010, the New Mexico Educational Retirement Fund (a pension fund for the State’s teachers and school administrators) sued Aldus, O’Reilly, and others alleging a similar “pay to play” kickback scheme to obtain business from the Fund and to make false statements regarding the firm’s use of placement agents. That matter is pending.
In 2011, the New Mexico State Investment Council (the trustee for two sovereign wealth funds designed to benefit the State’s schools and taxpayers) also sued Aldus and Meyer alleging that Aldus paid kickbacks to obtain business from the Council. To settle the Council’s lawsuit: Aldus paid $500,000; O’Reilly and another partner paid $120,000; and Meyer paid $150,000.
The CFA Institute Hearing Panel found that, starting as early as 2003, and continuing into 2004 and 2005, O’Reilly saw several “red flags” and had a “heightened awareness” about the possible wrongdoings by his partner, Saul Meyer, including that a person close to the governor of New Mexico had paid Meyer $10,000 in cash, and that Meyer’s contacts in New Mexico claimed they had significant influence over the New Mexico Educational Retirement Fund.
By September 2006, O’Reilly and his partners had become so suspicious of Meyer’s conduct that O’Reilly secretly recorded a telephone call with him, and an executive team meeting that Meyer and the other Aldus partners attended. In those recorded conversations, Meyer admitted that he was involved in unethical behavior to get business in New Mexico and that Aldus had sometimes recommended investments that were not good funds. Subsequently, the Aldus partners decided to terminate Meyer.
However, Aldus, with O’Reilly’s knowledge and consent, subsequently reversed the decision to terminate Meyer. The firm’s partners, including O’Reilly, chose to keep secret the damaging information they had gathered against Meyer and, instead, attempted to restrain his powers and conduct going forward.
After Meyer had admitted to unethical behavior in New Mexico, O’Reilly knew, or clearly should have known, that Aldus had been engaging in similar misconduct in New York. But O’Reilly took no action to inform or protect Aldus’s clients or their beneficiaries. As a result, from 2006 to 2009, O’Reilly shared in Aldus’s receipt of millions of dollars in fees after he knew or should have known that the firm may have unethically obtained some, if not all, of that business. O'Reilly’s failure to put the interests of the retirement funds’ and trusts’ beneficiaries above his own interests, and those of the firm, violated his fiduciary duties.