New York brings more charges in pension kick-back scandal

New York Attorney General Andrew Cuomo has charged former leader of the New York Liberal Party Raymond Harding with receiving $800,000 in sham finder’s fees in connection with the kick-back scandal that has rocked the $122 billion New York State Common Retirement Fund.

Harding is accused of acting as a fraudulent placement agent for investments the pension made to two private equity firms – Paladin Homeland Security Fund and Pequot Private Equity Fund IV.

The pension made a $20 million investment in the Paladin Homeland Security Fund in 2004 and Harding received about $300,000 in fraudulent placement fees for the transaction, according to the complaint. In October 2005 and June 2006, the pension 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 allegedly received more than $500,000 in sham placement fees from a person affiliated with Pequot’s placement agent, Shelbourne Securities, the complaint said.

Harding was allegedly handed the deals in exchange for a series of endorsements and other political favours for former New York State Comptroller Alan Hevesi, who pleaded guilty to fraud in 2006. Harding allegedly “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 said.

Cuomo and the US Securities and Exchange Commission have already charged David Loglisci, former deputy comptroller and chief investment officer of the pension, and Henry Morris, a former top political advisor to Hevesi, with fraud in connection with the kick-back scandal.

Cuomo and the SEC allege Loglisci directed the pension to invest billions of dollars with private equity firms and hedge fund managers who paid millions in sham “finder’s fees” to win investments from the fund. Loglisci allegedly made sure investment managers that made the appropriate payments to Morris, and other designated recipients, were rewarded with commitments.

Morris allegedly made $15 million from the scheme, which ran from 2003 to 2006. Loglisci also personally benefitted from the operation by obtaining funding from Morris and the principal of a private equity firm for a low-budget film he and his brothers produced called “Chooch”.

No private equity firm has been charged in the scandal, but media reports this week said the SEC and Cuomo are considering lodging civil charges against some of the firms, including The Carlyle Group, for inappropriate payments.

“Carlyle has fully cooperated with the New York Attorney General’s investigation. We understand this is an industry-wide investigation and that we are not the focus of the investigation,” said Chris Ullman, a Carlyle spokesman. “Our agreements with placement agents, whether large Wall Street firms or smaller broker-dealers, call for all parties to abide by all laws to ensure the integrity of the investment process.”

Barrett Wissman, who formerly headed up Texas-based hedge fund Hunt Financial Ventures, pleaded guilty to his role in the scandal on 31 March and will pay up to $12 million in penalties.

Morris directed the pension to invest $100 million in Hunt Financial Ventures, and Wissman paid Morris a finder’s fee of $600,000. On other deals, according to the complaint, Wissman acted as a placement agent and kicked back portions of his fees to Morris, while hiding the payments from the investment firms.