Oct. 7 (Bloomberg) -- Former New York State Comptroller Alan Hevesi pleaded guilty to participating in a pay-to-play scandal at the public pension fund he once ran, the highest-ranking official convicted in a three-year investigation by state Attorney General Andrew Cuomo.
Hevesi, 69, who was elected to the post in 2002 and resigned in 2006, admitted today to a second-degree charge of receiving reward for official misconduct before Justice Lewis Bart Stone in state Supreme Court in Manhattan. Hevesi, a Democrat, agreed to cooperate in Cuomo’s probe and may avoid prison time.
Hevesi said in court that he gave preferential treatment to Markstone Capital Partners, approving $250 million in pension fund investments in exchange for almost $1 million in gifts, including $75,000 in travel expenses, $380,000 in sham consulting fees for a lobbyist, and more than $500,000 in campaign contributions.
“I deeply regret my conduct, and I sincerely and deeply apologize to the people of the state of New York, the court and my family,” Hevesi said.
The judge said he may be sentenced to 1 1/3 years to 4 years in prison or as little as no time at all. Sentencing is set for Dec. 16. Stone freed Hevesi on his own recognizance.
Cuomo, the Democratic candidate for governor, started in 2007 to investigate corruption at New York’s Common Retirement Fund, the third-largest in the U.S., recently valued at $124.8 billion. At least six people have pleaded guilty to criminal charges, 15 investment firms have settled and more than $130 million has been paid to the fund and state from the probe.
Morris Awaits Trial
Henry “Hank” Morris, Hevesi’s former top political consultant, is awaiting trial on charges he corrupted the investment process to benefit money managers who made campaign contributions and politically connected placement agents who received lucrative fees, including himself.
Hevesi said today he knew Morris was “a paid placement agent in connection with Common Retirement Fund investments” and that Morris steered fund investments “to friends and political associates.”
Steven Rattner, co-founder of Quadrangle Group LLC, also has been the subject of Cuomo’s investigation for his alleged role in corruption at the fund. Cuomo has alleged Rattner arranged for Quadrangle to retain Morris as a placement agent.
Rattner, who has denied any wrongdoing, sought to use Morris to obtain an increase in the state fund’s investment with Quadrangle, Cuomo has said. Rattner paid $1.1 million in finder’s fees to Morris.
“It’s an ongoing matter,” Cuomo spokesman Richard Bamberger said today when asked about Rattner.
Hevesi was sole trustee of the fund from 2003 to 2006, the official responsible for managing and investing its money. He resigned as comptroller after pleading guilty to a felony in December 2006 for using state employees to chauffeur around his disabled wife, ending his 35-year career in politics.
The judge said today that Hevesi would be considered a first-time felony offender when he sentences him for his latest conviction because “he did not commit the acts which are part of this crime subsequent to the time he was convicted of a felony.”
Pay to Play
Cuomo has elicited admissions and cooperation from at least half a dozen other men connected to the corruption.
Elliott B. Broidy, founder of Markstone Capital Partners, pleaded guilty in December, saying he worked with officials at the comptroller’s office “to confer benefits upon public servants for having violated their duties.”
Broidy said in that in seeking investments from the pension fund, he made almost $1 million in payments for the benefit of high-ranking officials, including luxury travel. On five occasions from 2003 to 2006, he said, he traveled to Israel and Italy with “high-ranking officials” of the comptroller’s office.
“Pursuant to our agreement, Broidy paid at least $75,000 in travel expenses incurred by myself, other Office of the New York State Comptroller officials, and my adult children, in connection with these trips,” Hevesi said in court today.
Hevesi also said Morris arranged for Broidy to enter into a sham consulting agreement with a lobbyist friend of Morris, who was a political supporter of his. He said Broidy paid or caused to be paid in excess of $380,000 to the lobbyist over more than two years.
Broidy also arranged more than $500,000 in campaign contributions as directed by Hevesi or his campaign staff, Hevesi said.
David Loglisci, chief investment officer of the state fund under Hevesi, pleaded guilty in March to a violation of the state’s general business law for allowing Morris the power to choose which money managers received alternative investments from the pension fund.
Loglisci, who also agreed to cooperate, said in court then that he was instructed by a senior official to get approval from Morris before recommending or declining investment suggestions. He also said he ceded authority over alternative investments at the direction of senior officials.
“The political motivations for investment selection were chronic and institutionalized throughout the office, creating a culture of corruption at the highest levels,” Loglisci said in court.
Tainted by Kickbacks
In all, about $5 billion of the New York state pension fund’s $9.5 billion in alternative investments made in the 2003-2007 period were tainted by kickbacks, according to the U.S. Securities and Exchange Commission, which is also investigating.
Loglisci had been charged in March 2009 along with Morris in a 123-count indictment. Morris, who has pleaded not guilty, faces trial on enterprise corruption and more than 70 other charges.
Cuomo has alleged that Morris’s corrupt “group” participated in 19 separate investments generating $35 million in placement fees, with Morris himself or entities he owned taking $19 million.
Morris said in a court filing in March that he didn’t commit any crimes related to “access and influence” at the state’s pension fund.
Ex-New York Liberal Party Chairman Raymond B. Harding also pleaded guilty in the pension scandal. Harding admitted taking $800,000 in placement fees in exchange for political favors.
Harding said Morris steered the placement work to him “so that I could receive hundreds of thousands in fees to reward me for my political support of Alan Hevesi,” according to a transcript of his October 2009 guilty-plea hearing in New York state court in Manhattan.
Harding said at the hearing that, under his leadership, the Liberal Party endorsed Hevesi in campaigns including his successful race for comptroller in 2002.
Harding said he learned in 2004 that Hevesi was trying to find private sector-employment for an unidentified state assemblyman to create a vacancy in the Legislature for his son, Andrew Hevesi.
Harding said he helped the assemblyman get a job at a health insurance company. In May 2005, Andrew Hevesi was elected to the vacant seat.
“Alan Hevesi later thanked me for my assistance,” Harding said.
Calls in the last week to Andrew Hevesi’s assembly office haven’t been returned.
Saul Meyer, founder of Dallas-based pension consultant Aldus Equity, pleaded guilty last October to fraud charges, saying he paid $300,000 to Morris to secure money from the pension fund.
Meyer also obtained $200 million more than the original commitment to the Aldus/NY Emerging Fund at the same time he helped a son of Hevesi place $25 million at a public pension fund in New Mexico, according to the complaint against Meyer. Aldus was an adviser to the New Mexico pension fund and recommended that the deal go through. Cuomo has identified the son as Daniel Hevesi.
The son earned a $250,000 fee for New Mexico’s investment with a fund known as Catterton Partners VI, according to the complaint. He thanked Meyer for “NM,” records obtained by Cuomo’s office show.
Calls to New York attorney Laura Brevetti, who has represented Daniel Hevesi, weren’t returned.
Cooperating With Cuomo
Earlier, Barrett Wissman, a Dallas fund manager accused of paying and receiving kickbacks, and Julio Ramirez Jr., a Los Angeles placement agent who solicited and shared in illicit payments, pleaded guilty in connection with the probe. Wissman and Ramirez also are cooperating with Cuomo.
Before his 2002 election as state comptroller, Hevesi served for eight years as New York City’s comptroller. He spent 22 years in the state Assembly, representing a district in the borough of Queens while he was a professor of political science at Queens College. He holds a doctorate in public law and government from Columbia University.
Hevesi was re-elected to a second term as state comptroller in November 2006 in the face of a finding by the state ethics commission that he had violated the law.
The next month, he pleaded guilty to defrauding the government and agreed to resign from office. He admitted using state employees as drivers and personal aides for his disabled wife. Hevesi’s 2006 plea deal spared him prison time.
Current state Comptroller Thomas P. DiNapoli, a Democrat chosen by the Assembly to succeed Hevesi, has banned the use of placement agents or lobbyists in investments with the fund, and banned contributions from those who do business with the fund.
“My predecessor Alan Hevesi is the latest in a line of corruption that just keeps getting longer,” he said today in an e-mailed statement. “It’s time to take away the pension of anyone found guilty of committing a felony in the course of his or her official duties.”
Bamberger said today in a statement that DiNapoli isn’t involved in any investigation by the attorney general’s office. He said the office reviewed an investment known as Intermedia, which was approved under Hevesi and increased under DiNapoli, and “determined that no action is warranted.”
Cuomo supports legislation to establish a board of trustees to oversee the state pension fund in place of the current sole trustee.
Nationally, state and federal prosecutors are investigating whether money managers made campaign contributions and illegally paid politically connected placement agents for access to the $2 trillion in U.S. public retirement funds.
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