The New York State Attorney General Andrew M. Cuomo Announces Criminal Charges Against Ray Harding And Guilty Plea From Hedge Fund Manager Barrett Wissman In Pay-to-play Kickback Scheme At The New York State Comptrollers Office
NEW YORK, NY (April 15, 2009) - Attorney General Andrew M. Cuomo today announced charges against Raymond B. Harding, a past Chair of the former New York State Liberal Party, and a guilty plea from hedge fund manager Barrett Wissman for their alleged involvement in a pay-to-play kickback scheme at the Office of the New York State Comptroller. The felony complaint alleges that Harding obtained over $800,000 in illegal fees on State pension fund investments as a reward for opening up a State Assembly seat for then Comptroller Alan Hevesis son and for over 30 years of prior political endorsements. The felony complaint filed today in New York County Criminal Court charges that Harding committed multiple felonies in violation of the Martin Act, the New York securities fraud statute.
Cuomo also announced that hedge fund manager and classical music impresario Barrett Wissman has pled guilty to a Martin Act felony for his role in the pay-to-play scheme and will pay $12 million in penalties and forfeiture to New York State over a period of three years. Wissman, formerly associated with Texas-based hedge fund Hunt Financial Ventures (HFV), will be sentenced at a later date.
Today's announcements arise from a two-year, ongoing investigation into corruption involving the New York State Comptrollers Office and the State pension fund (the Fund). The charges to date allege a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under Comptroller Hevesi, in which the State pension fund was used as a piggy bank for the Comptrollers chief political aide and a favor bank for political allies and other friends.
"This case strikes at the heart of public integrity and the accountability and transparency the people of New York deserve from their government," said Attorney General Cuomo. "Corruption breeds corruption and unchecked becomes pervasive. Here, as alleged, the scheme reached another branch of New York State government when an Assembly seat was used as a pawn for personal profit. The State pension fund should not be used as a political tool - it is held in trust for over one million State employees and their families. Our investigation will continue until we have unearthed all aspects of this scheme and restored the public trust."
Last month, Cuomo announced the indictment of Henry Hank Morris and David Loglisci, who acted as Hevesis top political advisor and Chief Investment Officer, respectively, from 2003 to 2006. In a 123-count indictment filed in New York State Supreme Court, Morris and Loglisci are charged with conspiring to sell access to the Fund in exchange for millions of dollars in kickbacks and other payments from private equity firms. The charges entail a web of corrupt acts in which top officials from the Comptrollers Office manipulated investment decisions at the Fund for personal and political gain.
According to todays felony complaint, Harding participated in a corrupt scheme devised by Morris and Loglisci to skew the process of selecting investments at the State pension fund to favor political allies, friends and family. Morris and Loglisci allegedly made Harding a sham placement agent for three investments in order to repay him for past political favors to Hevesi. Through investment deals with Paladin and Pequot, two private equity firms, Harding is charged with securing over $800,000 in sham placement fees.
In May 2004, the State pension fund made a $20 million investment in Paladin Homeland Security Fund (NY), a private equity fund focusing on homeland security investments. Paladin is a politically-connected firm, including founding partner Michael Steed, a former Executive Director of the Democratic National Committee, and Managing Director William Mulrow, who ran in the primary for New York State Comptroller against Hevesi in 2002. Harding is charged with receiving $300,000 in sham placement fees on this transaction. In October 2005 and June 2006, the State pension fund invested $100 million in Pequot Diversified Offshore Fund, plus an indirect $10 million investment in Pequot Private Equity Fund IV through a fund of funds. Harding is charged with receiving over $500,000 in sham placement fees from a person affiliated with Pequots placement agent, Shelbourne Securities LLC.
The complaint alleges that Harding was handed these deals in exchange for a series of endorsements and other political favors for Alan Hevesi over the years. According to the charges, Morris and Loglisci used the State pension fund to reward Harding for more than thirty years of political loyalty to Hevesi. Harding repeatedly delivered the Liberal Party endorsement to Hevesi in his campaigns for the Assembly, where he served from 1971 to 1993, for Mayor in 2001, and finally as State Comptroller in 2002.
The complaint includes the following allegations. In early 2005, Harding helped create a vacancy in the New York State Assembly so that Comptroller Hevesis son, Andrew Hevesi, could take the seat. In particular, Harding helped the incumbent Assemblyman in the 28th District in Queens get a six-figure job at an insurance company to generate a vacancy in the Assembly seat. A high-ranking official in the Comptrollers Office (Official A) helped arrange for the Queens Democratic Party to endorse Andrew Hevesi for the open seat. Official A then met with an aide to the then Governor and requested that the Governor certify a special election for the vacant Assembly seat as quickly as possible, which would discourage competition for the seat. Andrew Hevesi was elected to the open Assembly seat in May of 2005.
For this and other political favors, Harding was allegedly rewarded with more than half a million dollars in sham placement fees on the Pequot deals. The felony complaint does not allege that Andrew Hevesi or Pequot were aware of the machinations to free up the Assembly seat that Andrew Hevesi now holds.
The felony complaint alleges that Harding committed Martin Act securities fraud. The Attorney General intends to seek an indictment against Harding related to this conduct. The defendant Harding and the separately indicted defendants Morris and Loglisci are presumed innocent unless and until proven guilty.
The Attorney General also announced that hedge fund manager and placement agent Barrett Wissman pled guilty to a felony charge under the Martin Act, and has agreed to pay $12 million in penalties and forfeiture to the State of New York. Wissman played multiple roles in the corrupt scheme alleged to date. As alleged, when Wissman was looking for investors for his hedge fund, HFV, Morris opened the door, arranging for the State pension fund to invest in hedge funds for the first time and in particular to invest in HFV. In exchange, as charged, Morris demanded and Wissman paid kickbacks to Morris. The State pension fund invested $100 million in HFV, and Wissman paid Morris $600,000.
On other deals, as charged, Wissman acted as a placement agent and secretly kicked back part of his placement fees to Morris for securing the investments from the State pension fund. For example, on a deal involving an investment fund known as Access, Morris is charged with making sure the Comptrollers office approved the deal; in exchange Wissman allegedly kicked back part of the fees to Morris, while concealing this arrangement from Access and others.
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 valued at 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.
Attorney General Cuomos investigation into the State pension fund has led to charges of a web of interlocking relationships, where money and favors were exchanged between senior-level State officials, the Comptrollers chief campaign aide, and those doing business or seeking to do business before the Comptrollers Office, all in breach of fiduciary duties and the public trust. The indictment filed against Loglisci and Morris alleges that the process of selecting investments at the Fund - investments of billions of dollars - was skewed and corrupted to favor their political associates, family and friends. Morris and others allegedly reaped more than $30 million in undisclosed fees, gifts, and bribes as a result of these tainted investment deals.
In a parallel civil lawsuit today, the Securities and Exchange Commission amended the complaint against Morris and Loglisci to add Harding, Wissman and certain HFV entities as defendants, and announced a settlement with the HFV entities and a partial settlement with Wissman. Attorney General Cuomo thanked the SEC for its invaluable assistance in the investigation.
The Attorney General also expressed his appreciation to Albany County District Attorney P. David Soares for his assistance in the investigation.
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 Nachtigall Biben, Special Deputy Attorney General for Public Integrity, and Linda A. Lacewell, Special Counsel.
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