Attorney General Cuomo Announces Sweeping Indictment In Pay-to-play Kickback Scheme At The New York State Comptroller's Office

NEW YORK, NY (March 19, 2009) – Attorney General Andrew M. Cuomo today announced the indictment of Henry (“Hank”) Morris and David Loglisci on 123 charges, including enterprise corruption, Martin Act securities fraud, grand larceny, bribery, money laundering, and related offenses.  The charges were filed in a 128-page indictment filed in the New York State Supreme Court. 

The indictment announced today arises from a two-year investigation conducted pursuant to New York’s securities fraud statute, the Martin Act.  The investigation is continuing.  If proven, the allegations in the indictment reveal a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels of the Office of the State Comptroller. The charges entail a web of corrupt acts for both political and personal gain. 

The State pension fund is the biggest pool of money in the State and the third largest public pension fund in the country, most recently valued at approximately $122 billion.  At the time of the events charged, it was worth approximately $150 billion.   The New York State Comptroller is the sole trustee of the Fund, responsible for managing and investing the pension fund solely in the best interests of the over one million current and former State employees and their families.

From 2003 to 2006 Hank Morris was Alan Hevesi’s top political advisor, and David Loglisci was the Chief Investment Officer in the Comptroller’s Office. They are charged with conspiring to sell access to billions of taxpayer dollars in exchange for millions of dollars in kickbacks and other payments for political and personal gain.  

“By injecting politics and self-dealing into investment decisions at the State pension fund, the defendants are alleged to have corrupted the New York State Comptroller’s Office,” said Attorney General Cuomo.  “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.  We owe it to them to hold accountable those who would seek to corrupt the system and violate the public’s trust.  Mixing politics, self-dealing, kickbacks, and billions in taxpayer funds is nothing short of the perfect public integrity storm.”

The indictment alleges a web of interlocking relationships, where money and favors were exchanged between senior-level State officials, the Comptroller’s chief campaign aide, and those doing business or seeking to do business before the Comptroller’s Office, all in breach of fiduciary duties and the public trust.  The driving force of the scheme was money, not political partisanship.  The indictment alleges that the process of selecting investments at the Fund – investments of billions of dollars – was skewed and corrupted to favor political associates, family and friends of Morris and Loglisci, and other officials in the Office of the State Comptroller.  In this network of corruption, it is alleged that:

  • Morris extracted millions of dollars in campaign contributions for Alan Hevesi from firms doing business before the Comptroller’s Office.  Frequently, Morris had helped ensure that these firms won the Comptroller’s approval of their proposed investments, which generated millions of dollars in fees for the firms. 
  • Morris used the fund as his own piggy bank and took approximately $30 million in fees for himself and his business partners on investments which Morris himself had a role in approving.
  • Morris and senior-level government officials at the Comptroller’s Office orchestrated a scheme whereby unnamed political cronies of Alan Hevesi got paid sham “placement fees” on investment fund transactions as kickbacks or rewards for political favors and endorsements for Hevesi.
  • Senior-level government officials at the Comptroller’s Office accepted hundreds of thousands of dollars worth of gifts and bribes for themselves and their family and friends.
  • David Loglisci, Chief Investment Officer, steered hundreds of millions of dollars worth of investment deals to Morris and to favored firms and accepted from them hundreds of thousands of dollars worth of benefits in the form of sham “investments” for the production by his brother of a low-budget movie, “Chooch.”  Among the investments were $100,000 from Morris and $100,000 from a principal of another private equity fund doing business with the Office.  Loglisci also caused the head of a private equity fund seeking an investment from the Comptroller’s Office to arrange a contract worth almost $90,000 to distribute the DVD of the movie. 
  • 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 her, and a job and other benefits for her daughter. 

The indictment charges that Morris and others corrupted billions of dollars worth of investments from which they reaped more than $30 million in undisclosed fees, gifts, and bribes.  Over twenty investment deals were allegedly tainted by the defendants’ kickback schemes and fraudulent self-dealing, including the following:

  • Access/NY European Fund, a captive fund of funds with almost $600 million in capital commitments from the State pension fund, generating over $2.3 million in sham management fees for Morris and his partner.  Morris’s role was allegedly concealed from Access.
  • Aldus New York Emerging Fund, a captive fund of funds with $375 million in capital commitments from the State pension fund, generating $262,000 in sham management fees for Morris.  Aldus Equity Partners, L.P. is also an outside consultant and fiduciary to the State pension fund on private equity transactions.  Morris secured this mandate for Aldus after having blocked Pharos from receiving the mandate when a principal of Pharos Capital Group, LLC, refused to pay Morris or his partner.  Morris then caused Aldus to invest in other funds on which Morris also obtained sham placement fees.
  • Five investments involving The Carlyle Group, one of the world’s largest private equity funds, totaling approximately $730 million in capital commitments from the State pension fund.  Morris and his partner obtained over $13 million in sham placement fees.
  • GKM/NY Venture Capital Fund, a captive fund of funds with $800 million in capital commitments from the State pension fund.  Morris and his partner, a political crony of Hevesi, obtained over $650,000 in sham placement fees.
  • Olympia John Street Fund LP, a hedge fund with $900 million in capital commitments from the State pension fund, generating over $6.6 million in fees for Morris and his partner.
  • Paladin Homeland Security Fund (NY), a $20 million private equity fund, generating $300,000 in sham placement fees for a political crony of Hevesi.  That person also received hidden fees of over $500,000 in connection with Pequot Diversified Offshore Fund/Pequot Private Equity Partners Fund IV, which had a combined commitment of $110 million from the State pension fund.
  • Strategic Co-Investment Partners, a co-investment fund with $750 million in capital commitments, the largest capital commitment by the State pension fund at the time.  This generated over $1.2 million in sham management fees for Morris’s partner, with Morris as a secret partner.

Morris and Loglisci are charged with 123 counts, including enterprise corruption, violations of the Martin Act, money laundering, grand larceny, falsifying business records, offering false instruments for filing, receiving rewards for official misconduct, rewarding official misconduct, bribery, and related offenses.  (See attached chart listing charges). 

If convicted on the top charge of enterprise corruption, the defendants face a minimum of 1 to 3 years and a maximum of 8 1/3 to 25 years in prison.  If convicted on all charges, Morris faces a total maximum sentence of 340 years in prison and Loglisci faces a total maximum sentence of 193 years in prison.

In a parallel civil lawsuit filed today, the Securities and Exchange Commission charged Morris and Loglisci with multiple acts of securities fraud.  Attorney General Cuomo thanked the SEC for joining the investigation.

The defendants are presumed innocent unless and until proven guilty.

Also today, Cuomo announced that he had obtained a forfeiture order permitting the seizure of assets up to $35 million.  Pursuant to that order, Cuomo’s Office has frozen approximately $11 million worth of Morris’s assets, consisting of $7 million in bank accounts and $4 million in real property.  Both defendants are under an injunction not to dissipate assets.

The investigation was conducted by Stacy Aronowitz, Deputy Chief of the Public Integrity Bureau, and Assistant Attorneys General Emily Bradford, Rachel Doft, Noah Falk, and Amy Tully, under the supervision of Ellen Biben, Special Deputy Attorney General for Public Integrity, and Linda Lacewell, Special Counsel.

Attachment:

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