Kickbacks. Pay-to-Play. In New York ?!?!

Aides to Hevesi Indicted in Kickback Scheme
The New York Times by DANNY HAKIM - March 19, 2009

ALBANY, NEW YORK — Two top advisers to Alan G. Hevesi, the former state comptroller, were charged on Thursday in a 123-count indictment that said they had turned New York’s $120 billion pension fund into a criminal enterprise that netted them and other Hevesi associates tens of millions of dollars in kickbacks from firms investing the fund’s money. Hank Morris, who was once Mr. Hevesi’s chief political adviser and a nationally known Democratic consultant, was charged with myriad counts — including falsifying records, bribery, money laundering, grand larceny and fraud — in an indictment brought by the state attorney general, Andrew M. Cuomo. Mr. Morris collected more than $15 million in fees from investment companies during Mr. Hevesi’s tenure as comptroller, from 2003 to 2006, according to court papers.

David Loglisci, who was the top investment officer of the pension fund, was charged with multiple counts related to official misconduct, falsifying records and fraud. The two men, arraigned in State Supreme Court in Manhattan, pleaded not guilty and were released pending the posting of bail, which was set at $1 million for Mr. Morris and $350,000 for Mr. Loglisci. The indictment said that at least two other people participated in the criminal conspiracy, but it did not name them. While Mr. Hevesi was not charged, the investigation is continuing and Mr. Cuomo did not rule out future actions against him. Mr. Cuomo said that Mr. Hevesi had benefited from the scheme because Mr. Morris encouraged investment firms to pour millions of dollars in contributions into Mr. Hevesi’s campaign fund. “This is the first of several cases and developments that will be announced on this matter,” said Mr. Cuomo, adding in a statement that “mixing politics, self-dealing, kickbacks and billions in taxpayer funds is nothing short of the perfect public-integrity storm.”

The Securities and Exchange Commission, which conducted a parallel investigation, also charged the men with violating several federal securities laws and is seeking to recoup the proceeds from their scheme. P. David Soares, the Albany County district attorney, also took part in the investigation, which started in his office. Mary L. Schapiro, the chairwoman of the S.E.C., said, “These two men used their influential positions to extract kickbacks from investment firms that wanted to do business with New York’s common retirement funds.” The two men are accused of directing half of the $10 billion that the pension fund invested in so-called alternative investments, like hedge funds and private equity firms, to those that used Mr. Morris or his associates as paid intermediaries. Firms that were not willing to pay were often turned down, according to the indictment. To conceal his conduct, the indictment said, Mr. Morris laundered payments through a half-dozen limited liability companies he had created, and through Searle & Co., a Connecticut investment firm that he worked for while he was advising the comptroller.

The firms that paid fees to Mr. Morris or firms with which he was affiliated included some of Wall Street’s best known: the Carlyle Group, Pequot Capital and HM Capital, formerly known as Hicks, Muse, Tate & Furst, the indictment said. None of the investment firms or their employees were charged, though the S.E.C. filed civil charges against three companies Mr. Morris created. Mr. Morris, 55, is also accused of rewarding Mr. Loglisci, 38, and another unnamed top official in the comptroller’s office for their help. Mr. Morris invested $100,000 in an independent film, “Chooch,” produced by Mr. Loglisci’s brother, investment firms doing business with the fund also invested in the movie, according to the indictment. “You couldn’t make this up,” Mr. Cuomo said.

William J. Schwartz, a lawyer for Mr. Morris, said, “The New York State pension fund made hundreds of millions, if not billions, of dollars on investments Hank Morris lawfully introduced to it, and the fund did not pay him one penny.” “There was no fraud and no corruption,” he added. “Hank Morris is innocent and we will defeat these charges at trial.” Mr. Cuomo’s office said it had frozen $11 million worth of Mr. Morris’s assets. Irving P. Seidman, a lawyer for Mr. Loglisci, said the indictment was “based on false and misleading evidence.” “The statements contained in the legal documents filed in this matter are manipulative, fictional writings by an investigation that had all sorts of political conflicts of interest,” he added, without elaborating. A lawyer for Mr. Hevesi did not have immediate comment.

Jack Chartier, Mr. Hevesi’s former chief of staff, was not charged. He has been a subject of the investigation, with scrutiny focusing on gifts that investment firms made on his behalf to the actress Peggy Lipton, a close friend, as well as a large loan and rental payments. Scott Fein, a lawyer for Ms. Lipton, said that “she cooperated fully in the investigation and I believe all would agree she was blameless.” Mr. Cuomo would not say whether some of the unnamed people participating in the criminal conspiracy faced charges in the future or had already cut deals with his office in exchange for cooperation. He said, “An unnamed high-ranking official in the comptroller’s office secured from Morris and others doing business with the office gifts and bribes, including cash, rent payments for his female companion’s luxury Manhattan apartment, a sham $100,000 loan for the girlfriend and a job and other benefits for her daughter.” A lawyer for Mr. Chartier did not return calls for comment immediately after the indictment was released.

Mr. Hevesi resigned as comptroller in late 2006 after he pleaded guilty to a felony related to his use of state workers to drive his ailing wife. After his departure, local, state and eventually federal investigators expanded that investigation to encompass broader practices in his office. The state comptroller has unusual sway over the pension fund, since he serves as its sole trustee; many other states have opted to have their funds overseen by boards. The current comptroller, Thomas P. DiNapoli, has defended the sole trusteeship, while Mr. Cuomo continued to express concerns about it on Thursday. Mr. Morris, a native of Long Island, is a political operative known for his intense and aggressive style. He directed Charles E. Schumer’s successful 1998 campaign to unseat Senator Alfonse M. D’Amato — he made sure everyone knew that Mr. D’Amato had used an expletive to refer to Mr. Schumer — and even pushed his own mother, Rita, a retired professor, to run for Congress in 1992. She lost. He also advised Senator Dianne Feinstein’s failed 1990 campaign for California governor.

But he was closest to Mr. Hevesi. The two men met in the 1970s, when Mr. Hevesi was a fledgling assemblyman from Queens and Mr. Morris was on the staff of the Assembly speaker, Stanley Steingut. Mr. Morris helped shape Mr. Hevesi’s rise to become comptroller of New York City and then state comptroller, and managed his unsuccessful run for mayor in 2001. According to the indictment, after Mr. Hevesi was elected comptroller in 2002, Mr. Morris ousted the chief investment officer of the pension fund and installed Mr. Loglisci in the job. He then held wide sway over investment decisions made by the pension fund. He even held meetings with Mr. Loglisci and other officials from the comptroller’s office at the offices of his political consulting firm, Morris & Carrick. The indictment calls him “a de facto gatekeeper for alternative investment transactions” made by the pension fund. “When you follow the money in New York, the biggest pool of money is the New York State pension fund,” Mr. Cuomo said. “Morris used the fund as his own piggy bank.”