Former New York Liberal Party boss Raymond Harding received $800,000 through state pension fund transactions in return for political favors, Attorney General Andrew Cuomo alleged in a criminal complaint yesterday.

Cuomo also announced that former hedge fund manager Barrett Wissman pleaded guilty to his role in the pay-to-play scheme and would pay $12 million in penalties and forfeitures. At the same time, the Securities and Exchange Commission filed civil charges against Harding and Wissman for their alleged participation in the scheme.

Harding pled not guilty yesterday in a New York County criminal court.

"This case strikes at the heart of public integrity and the accountability and transparency the people of New York deserve from their government," Cuomo said in a statement. "The scheme reached another branch of New York State government when an Assembly seat was used as a pawn for personal profit."

The indictment was the latest development of an ongoing two-year investigation into the state pension fund and former Comptroller Alan Hevesi that last month charged Henry "Hank" Morris, a political adviser and fundraiser to Hevesi, and former deputy comptroller David Loglisci, 38, for allegedly orchestrating a scheme to extract kickbacks from investment management firms seeking to manage the assets of the New York State Common Retirement Fund.

Citing cooperation with Cuomo's office, the SEC said yesterday that it had added the charges against the two men to a complaint it already filed on March 20 in a federal court in New York City against Morris and Loglisci for their alleged role in the scheme.

Cuomo alleged that Morris and Loglisci made Harding a "sham placement agent" for transactions in which the state's common retirement fund invested in the Paladin Homeland Security Fund, Pequot Diversified Offshore Fund, and Pequot Private Equity Fund IV so that Harding could receive fees in return for past political favors and for helping Hevesi's son Andrew Hevesi get elected to the state Assembly.

According to the complaint, Harding told a person identified as "Official A" in 2003 that he was having financial difficulties and needed money to help pay his son's legal expenses. His son, Russell Harding, the former president of the New York City Housing Development Corp., pleaded guilty that year to embezzling $400,000 from the corporation and to possession of child pornography.

Harding, who had repeatedly delivered the Liberal Party's endorsement to Hevesi in his campaigns for Assembly from 1971 to 1993, for mayor in 2001, and for state comptroller in 2002, asked the official to steer business from the comptroller's office his way, the complaint said. Morris then made Harding the placement agent on a $20 million investment the pension fund made in Paladin, which netted Harding $300,000, though his role in the transaction was concealed, according to the complaint.

The complaint says Harding also helped then-Assemblyman Michael Cohen to find a six-figure job at the Health Insurance Plan of New York. Cohen's vacancy allowed Andrew Hevesi to run in a special election for that seat, which he won in 2005. Afterward, Harding then made $505,000 as a placement agent on three transactions in which the pension funds invested $110 million in 2005 and 2006 with Pequot funds, according to the complaint. However, the complaint alleges that Harding's role in the transactions was concealed and that he was paid by the broker through personal checks.

Morris and Loglisci "were using the fund as a piggy bank to pay people who did them political favors like clearing an Assembly seat for the comptroller's son," Cuomo said yesterday in a conference call with reporters. Cuomo said that they had no evidence that Andrew Hevesi was aware of the alleged scheme.

Harding's attorney, Gary Naftalis, said that his client looks forward to defending against these "baseless accusations" in court.

"Ray Harding is innocent of these charges," Naftalis said. "Ray has had a long and honorable career and his work as a placement agent on behalf of highly respected firms was entirely honorable and lawful. "

Yesterday the SEC amended that suit to include Harding, Wissman, three entities through which Wissman allegedly perpetrated the fraud - Flandana Holdings Ltd., Tuscany Enterprises LLC, and W Investment Strategies LLC - as well as two investment management firms that he was affiliated with at the time, HFV Management LP, and HFV Asset Management LP.

The SEC claims Wissman, a longtime family friend of Loglisci, arranged some of the payments made to Morris and was rewarded with at least $12 million in sham "finder" or "placement agent" fees. It claims that Harding was allegedly inserted by Morris and Loglisci into fund transactions for the sole purpose of receiving compensation.

Wissman and Flandana Holdings partially settled with SEC's charges, without admitting or denying the allegations. HFV Management and HFV Asset Management agreed to pay a $150,000 penalty and to be permanently enjoined from violating securities and adviser laws. The charges against Harding remain pending, the SEC said. The commission alleges that Harding aided and abetted securities fraud violations committed by Morris and Loglisci.

Hevesi resigned as comptroller in 2007 after pleading guilty to a felony count of misusing state funds and was replaced by Thomas DiNapoli. The comptroller is the sole trustee of the state's $121.9 billion pension fund. Cuomo said that the investigation is continuing and that more charges are expected.

Lynn Hume contributed to this story.

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