New York state's criminal probe of kickbacks paid by companies eager to manage its $122 billion state pension fund has exposed "a national network of actors" whose schemes are ongoing, state Attorney General Andrew Cuomo said on Thursday.
"This is all across the nation, and it's continuing today," the Democratic attorney general said on a conference call.
The probe, which began two years ago, has fixed the spotlight on the use of placement agents hired by investment firms to open the doors of the New York State Common Retirement Fund. For more details, please see: [ID:nN15509853]. Cuomo said he is also is scrutinizing lawyers and lobbyists.
The investigation is another effort to stamp out graft and the practice of "pay to play," which involves giving gifts or campaign donations to win public contracts. So far the probe has looked into the web of relationships and business contracts involving money managers, politicians and pension officials spanning the country from New York City and the state capital, Albany, to Texas, New Mexico and California.
On Thursday, the U.S. Securities and Exchange Commission, which is working with Cuomo, charged that Dallas-based Aldus Equity Partners won New York pension business because of "its willingness to illegally line the pockets of others."
The state pension fund had aimed to hire more women and minority-owned investment firms and had begun talks with one. But Aldus was chosen, Cuomo said, when the minority-owned firm "allegedly refused to pay kickbacks to Morris and another associate."
Aldus, a private equity firm, says it manages over $5 billion, and the probe already has cost Aldus clients in New Mexico and New York. Cuomo said Aldus also is active in Louisiana, Oklahoma, Texas, California, and New York City.
ANOTHER VIEW OF GIVE AND TAKE
Both Cuomo and the SEC charged that Saul Meyer, an Aldus founder, paid about $320,000 to a shell company owned by Henry Morris, a top fund-raiser for New York's former state comptroller. This led the New York state pension fund's then-chief investment officer, David Loglisci, to invest $375 million with Aldus from 2004 to 2006.
Demonstrating the power that Morris wielded over pension investments, Cuomo said Morris told a Meyer intermediary: "Tell that little peanut of a man that I can take business away as easily as I provided (it)."
Lawyers for Morris and Loglisci, who were indicted in March, say they are innocent.
On Thursday, Meyer was charged with a state securities felony and released on $200,000 bail. His lawyer Paul Shechtman said: "Time and evidence will show that Saul Meyer did nothing wrong."
Aldus knew that Morris was "working both sides of the deal," Cuomo said, by marketing funds for investments in the Aldus/NY Emerging Fund in which Morris had a 35 percent stake.
Aldus Equity lawyer Matthew Orwig faulted the SEC for acting before finishing its probe, calling the threatened legal action "appalling and careless with the law and with people's reputations." Aldus partners said they were disappointed by the "unexpected legal developments."
Aldus could face more legal peril. The New York state pension fund is weighing legal remedies against Aldus and Meyer after ending its investment with the firm. New York City pensions could cut ties with the firm, while New Mexico's governor called on the state Education Board to drop its contract with Aldus a day after ordering the state investment officer to do so.
Cuomo said that while Meyer was seeking more business with New York's pension fund, he helped Daniel Hevesi, a son of Alan Hevesi, the former state comptroller whose oversight of the state pension fund is being probed, earn a $250,000 fee on a New Mexico pension deal.
Alan Hevesi's lawyer Bradley Simon has said the former comptroller "has not been charged with any misconduct with respect to mismanagement of the New York state pension fund."