Cuomo Announces Guilty Pleas in Pay-to-play Probe

October 7, 2009 ( - Attorney General Andrew M. Cuomo announced two guilty pleas in the ongoing investigation relating to the New York State Common Retirement Fund (CRF).

Raymond Harding, the former chair of the Liberal Party, and Saul Meyer, a founding partner of Dallas-based Aldus Equity, both pled guilty to felony securities fraud charges for their involvement in pay-to-play kickback schemes at the New York State Office of the Comptroller and the CRF.

Meyer pled guilty to the Martin Act charge against him for fraud relating to the CRF investments in the Aldus/NY Emerging Fund and Strategic Co-Investment Partners, L.P. (Strategic Co-Investment), a joint venture between PCG, the Clinton Group, and Barrett Wissman. He also pled guilty to fraud in investment transactions relating to public pension funds in New Mexico (see Cuomo Announces Multi-state Effort on Pension Abuse ).

Harding and Meyer each face up to four years in prison.

According to the announcement, during his plea, Harding admitted to having participated in a scheme devised by Hank Morris, the top political adviser to former New York State Comptroller Alan Hevesi, and David Loglisci, the former state pension fund chief investment officer, to corrupt the process of selecting investments at the state pension fund to favor political allies, friends, and family. As part of this scheme, Morris inserted Harding as a sham placement agent for certain investments with the CRF in order to reward him for political favors to Hevesi.

The announcement said Harding also helped create a vacancy in the New York State Assembly so that Hevesi's son, Andrew Hevesi, could take the seat in a special election. Harding did so by helping the incumbent assemblyman in the 28th District in Queens get a six-figure job at an insurance company.

To reward him for these political favors, Morris and Loglisci helped Harding secure over $800,000 in sham placement fees relating to the pension fund's investments with Paladin and Pequot, two private equity firms. According to Harding, Morris's goal was to provide Harding with $150,000 per year from state pension fund deals - a form of illicit pension in itself for Harding for services and loyalty to Hevesi.

According to the announcement, Meyer admitted that he understood that because of Hank Morris's political connections, Morris had the ability to secure a CRF investment mandate for Aldus. As a result, Meyer entered into an arrangement with Hank Morris pursuant to which Aldus agreed to pay Morris 35% of management fees and profit on the CRF investment.

Meyer stated that Loglisci was aware of the arrangement with Hank Morris, and recommended that the CRF make the investment in the Aldus/NY Emerging Fund at least in part because of Meyer's arrangement with Morris (see DiNapoli Sues Aldus over Pay-to-Play Scheme ). As a result, in or about December of 2004, Aldus received an investment from the CRF in the Aldus/NY Emerging Fund, and, thereafter, obtained millions of dollars in fees in connection with that investment, more than $300,000 of which Aldus paid to Hank Morris.

With respect to the CRF investment in Strategic Co-Investment, Meyer stated that Loglisci directed Meyer to have Aldus perform the due diligence on that fund - a fund in which Loglisci's friend Barrett Wissman had an interest. When Meyer declined this request, Loglisci made it clear that Meyer had no choice, and threatened to pull the CRF investment in Aldus/NY Emerging Fund if Meyer did not perform the due diligence in a way that resulted in Aldus recommending the investment in the fund to CRF.

Loglisci instructed Meyer to prepare a diligence report on the proposed investment that concealed Meyer's concerns to provide a basis for CRF to make the investment in Strategic Co-Investment. Meyer stated that at Loglisci's direction, and notwithstanding his concerns, he ensured that Aldus prepared such a report, leading to CRF's $750-million investment in Strategic Co-Investment, the largest CRF commitment at that time.

In addition, from 2004 through February 2009, Aldus acted as an adviser to the New Mexico State Investment Council (SIC) and the New Mexico Educational Retirement Board (ERB) in the State of New Mexico. Meyer admitted that on numerous occasions, contrary to his fiduciary duty to SIC and ERB, he ensured that Aldus recommended proposed investments that were pushed on him by politically-connected individuals in New Mexico, knowing that these politically-connected individuals or their associates stood to benefit financially or politically from the investments and that the investments were not necessarily in the best economic interest of New Mexico.

The guilty pleas arise out of the two-year, ongoing investigation into corruption by Cuomo's office into millions of dollars of fees investment firms paid to middlemen in return for being hired to invest some of the Empire State's $110-billion pension fund. The SEC is conducting a parallel civil probe of the same ties between investment firms and the agents, lobbyists and lawyers they hired (see New York AG Gets Delay in SEC Pay-to-Play Civil Case ).

Morris and Loglisci have been charged in a separate 123-count indictment with, among other charges, enterprise corruption, Martin Act securities fraud, grand larceny, bribery and money laundering. The indictment, unsealed in March, alleges Morris and others reaped more than $30 million in undisclosed fees, gifts, and bribes as a result of tainted investment deals. That indictment remains pending (see Former NY Common Fund CIO Charged by SEC ).

Previously, hedge fund manager Wissman pled guilty to a felony charge under the Martin Act for conduct related to the pension fund, and agreed to pay $12 million in penalties and forfeiture to the State of New York (see NY State Pension Fund Cuts Fund-of-Hedge Funds Investments ).

Julio Ramirez, an unlicensed placement agent previously associated with Wetherly Capital in Los Angeles, also pled guilty to a Martin Act securities fraud charge for conduct related to the pension fund (see Ramirez Enters Pension Probe Guilty Plea ).