WASHINGTON — A top political adviser to former New York Comptroller Alan Hevesi and the state’s former deputy comptroller yesterday were indicted on 123 counts and separately charged with securities fraud for steering state pension fund investment business to certain private equity firms and hedge funds in return for millions of dollars of kickbacks.
Henry “Hank “ Morris, 55, a top political adviser and chief fundraiser for Hevesi, and David Loglisci, 38, former deputy comptroller and chief investment officer for the retirement fund, were slapped with the 123 count criminal indictment by Attorney General Andrew Cuomo in state court for kickbacks they allegedly received from November 2002 through July 2008.
Separately, the Securities and Exchange Commission charged the pair in a federal court in Manhattan with securities fraud and for aiding and abetting fraud committed by the private investment managers that oversaw some of the state’s pension funds from 2003 to late 2006.
If convicted on all charges in Cuomo’s indictment, Morris faces up to 340 years in prison and Loglisci faces 193 years. In a statement, the AG said he had obtained a forfeiture order permitting the seizure of assets up to $35 million and has frozen $11 million worth of Morris’s assets. Both defendants are prohibited under an injunction from selling off their assets, he said.
The SEC is seeking a permanent injunction against future violations of the securities laws, disgorgement of ill-gotten gains with interest, and financial penalties.
The two men were arraigned yesterday in the State Supreme Court of Manhattan, pleaded not guilty, and were released pending the posting of bail, which was set at $1 million for Morris and $350,000 for Loglisci, according to the New York Times.
In addition to Morris and Loglisci, the SEC named in its civil suit three offshore and other entities owned and created by Morris that he and Loglisci allegedly used to covertly funnel the kickbacks from the firms without the knowledge of the comptroller’s staff. Morris also allegedly concealed payments through Searle & Co., an investment firm that he worked for while advising Hevesi.
Meanwhile, the suits note the lengths the pair took to conceal the payments. In one instance, they bribed the girlfriend of one of Hevesi’s staff members with $100,000 to keep quiet about the scheme.
Hevesi was not charged in either suit -- nor were additional unnamed individuals said to have participated in the scheme -- but Cuomo and SEC officials stressed that their investigations are far from over. Hevesi resigned in late 2006 amid a separate criminal matter, in which he pleaded guilty to using a state employee to chauffeur his wife to and from medical and other appointments, which violated state ethics laws.
According to both suits, as part of his job, Loglisci was charged with investing roughly half of a $10 billion portion of the New York State Common Retirement Fund’s assets that was designated for “alternative investments” with private equity firms and hedge fund managers.
But in determining where to invest those assets, Loglisci established quid pro quos in which the investment managers at the firms were instructed to make contributions to Morris before the state would hire them. Investment firms that declined to provide these alleged kickbacks were not hired.
Cuomo said that over 20 investment deals were allegedly tainted by the kickback schemes and self-dealing, including five with a fund co-run by the Carlyle Group, a private equity giant, to invest in energy companies. The Carlyle fund invested about $730 million of the retirement fund’s assets, allegedly netting Morris and a partner nearly $13 million in sham placement fees, Cuomo said. A spokesman for Carlyle did not return phone calls for this story.
All told, Morris and others allegedly pocketed more than $30 million in “undisclosed fees, gifts and bribes” under the scheme, Cuomo said. But the SEC only claimed that Morris made “at least” $15 million in sham “finder or “placement agent” fees under the scheme. Loglisci also allegedly benefitted financially from the scheme by obtaining funding for a low budget film that he and his brothers produced titled “Chooch.”
“Investments should be based on sound decisions, not shady deals,” SEC chairman Mary Schapiro said in a statement.
Cuomo said that “mixing politics, self-dealing, kickbacks, and billions in taxpayer funds is nothing short of the perfect public integrity storm.”
“The over one million New Yorkers and their families who are the beneficiaries of this fund deserve to have their hard-earned retirement accounts kept free from politically driven investments and personal agendas,” he said in a statement. “We owe it to them to hold accountable those who would seek to corrupt the system and violate the public’s trust.”
Irving Seidman of Seidman & Seidman PC, which represents Loglisci, said his client is “a young man of integrity” and any suggestion that he acted with impropriety is “false.”
Seidman said that the retirement fund increased in value from roughly $80 billion to $170 billion during the four years he managed the program, and that any payments made on behalf of the pension program adhered to a lengthy system of oversight. He also said that while Loglisci managed the fund, it won seven awards for its integrity and transparency, four of which were certificates of achievement for excellence in financial reporting granted by the Government Finance Officers Association from 2004 through 2007.
William J. Schwartz, a partner at Cooley Godward Kronish LLP who is representing Morris, said in a statement that the fund made “hundreds of millions, if not billions, of dollars on investments that Morris lawfully introduced to it, and the fund did not pay him one penny.”
“There was no fraud and no corruption,” Schwartz said. “Hank Morris is innocent, and we will defeat these charges at trial.”