An unprecedented effort to force all public pension systems in California to disclose how much money is paid to deal-brokering middlemen known as “placement agents” and to make public any gifts or contributions that agents make to the funds’ board members awaits action by the governor. Lawmakers in both houses approved the new rules without dissent in the final hours of the legislative session.

“We have already seen enormous damage done to people’s confidence in our public pension systems because of the actions of a few unscrupulous placement agents,” Assemblyman Ed Hernandez, D-West Covina, the author of the disclosure legislation, wrote earlier. “Any placement agent acting in good faith should have no problem complying.”

The disclosures, sought by state Treasurer Bill Lockyer and state Controller John Chiang, are intended to head off the kinds of alleged wrongdoing that occurred in New York, where so-called “pay to play” allegations have prompted investigations by the state attorney general and the U.S. Securities and Exchange Commission.

“The lack of transparency and ethical standards governing influence peddlers was an invitation for corruption. AB 1584 ensures that public pension funds do not become pay-to-play ATMs for the unscrupulous,” Chiang said.

New York Attorney General Andrew Cuomo launched a probe into activities at the $122 billion New York City pension fund at the request of the city comptroller, who had urged the elimination of the placement agents. The agents typically serve as a link between those who seek investment capital and the pension fund, which has assets to invest. They also lobbied the funds – a practice that has since been banned. In New York, one person pleaded guilty to a misdemeanor count of securities fraud and agreed to cooperate with investigators. The fraud allegedly occurred while the placement agent worked in a Los Angeles investment management firm, authorities said, bringing new attention to the issue in California.

In May, two members of a Los Angeles public pension board, Elliott Broidy and the former president of the California Public Employees’ Retirement System, Sean Harrigan, resigned a month after the federal SEC asked to look at their income, the Los Angeles Times reported. The board oversees a $10.7 billion fund for retired police officers and firefighters.

“While I have done nothing wrong, I recognize that this entire matter has become a huge distraction for all parties involved in the business of operating an $11 billion public pension system,” Harrigan said in a statement. Harrigan and Broidy had been asked to disclose their communications with firms under scrutiny in the New York investigation.

Apart from the placement agents’ fees, Hernandez’s AB 1584 requires an array of disclosures and restrictions, and all would need to be adopted by next June.

For example, pension fund officers or high-level investment staff members who leave the system must wait at least two years before acting as agents before the boards. The rule, which already exists at the State Teachers Retirement System and CalPERS, applies to those who were in their positions for less than five years before leaving. The Hernandez bill would take the “revolving door” restriction at STRS and CalPERS and apply it to all public pension funds.

Placement agents who violate the disclosure rules would be banned from soliciting new investments from the system, although the restriction could be eased or waived entirely by a majority vote of the board in public. In addition, the fund could not enter into any agreement with an external investment manager who does not provide in writing consent to adhere to the disclosure rules.

Placement agents would be required to disclose all campaign contributions and gifts made to any board member during the two-year period prior to the time the agent solicits investments, and to disclose any contributions and gifts made later while the agent receives compensation in connection with an investment.

This year, CalPERS adopted a policy requiring those people or firms that hire placement agents to “disclose fees and other information about the placement agents they hire to seek CalPERS business.” The public pension fund is often approached by people seeking capital for their businesses.

“This policy will help us ensure that our decisions are made solely on the merits of proposed investments with full transparency and disclosure,” said Rob Feckner, CalPERS Board President. “We want to know who’s being hired, how much they’re being paid, what they’re paid for, and who pays them.”

According to CalPERS, the rules also require that placement agents must register as broker-dealers with the U.S. Securities and Exchange Commission(SEC) or the Financial Industry Regulatory Authority. The disclosures must include “agents” identities, resumes of key people, description of compensation and services, copies of agreements, and if the agent is registered with the SEC or as a lobbyist in any state or national government.”

The new guidelines affect partners and external managers who retain placement agents to arrange meetings, prepare presentation materials, identify potential limited partners and otherwise facilitate communication with CalPERS regarding potential investment of its assets.

CalPERS, which has assets of $198.5 billion, said it commits capital to external managers and funds but isn’t involved in the fees that they pay agents who may represent their business to the pension fund.

STRS adopted its own disclosure rules earlier.