Inside Rick Lazio's Biggest Wall Street Deal—The Chummy E-Mails

Diverting nearly a billion in retiree benefits into subprime risk? Oh, just watch him work the e-mail.

Inside Rick Lazio's Biggest Wall Street Deal—The Chummy E-Mails

Within Hours of George Bush's May 3, 2007, announcement that he was naming Charles Millard head of the $64 billion Pension Benefit Guaranty Corporation (PBGC), Rick Lazio got an e-mail about it from a fellow JPMorgan Chase executive.

"Assume you know Charlie Millard," wrote Tom Block, the bank's top in-house lobbyist, attaching the White House press release.

"I do know him well," Lazio replied.

Lazio would boast in subsequent internal Morgan e-mails obtained by the Voice that he was "very friendly with the head of PBGC."

How friendly? Lazio and Millard would soon start down the path of a near-billion-dollar deal that eventually ensnarled both in multiple federal probes that looked into their apparent efforts to game a government bidding process, as well as subsequent attempts by Lazio to get Millard a job.

This is the story of that stunning deal, Lazio's biggest score at Morgan, which earned him a $1.3 million bonus in 2008 and another $300,000 in the first four months of 2009, in addition to a combined $585,000 salary.

These details of Lazio's exercise in insider influence are emerging just as his gubernatorial campaign boasts that he's the man who should be elected to clean up Albany. The key facts about his conduct crawl from his own computer in an e-mail trail that reaches as high as America's number one banker, Morgan CEO Jamie Dimon, who was drawn in as Lazio pushed to win Morgan a lucrative contract that would put retiree benefits into risky investments.

No one will be prosecuted for this chummy dealing, because neither the quid (the allocation of the $900 million Millard awarded Lazio's firm) nor the quo (Lazio's efforts to get Millard a job) came to fruition, nipped in the bud by investigations that began almost as soon as the deal began to come together, leaving prosecutors with nothing more than compelling proof of intent. But a botched scam can be a blessing in disguise, as the electronic fingerprints of these two clumsy conspirators prove beyond a click of a doubt.

Now in their fifties, Lazio and Millard were once the golden boys of New York Republican politics, with curly-haired Lazio toppling a Democratic House incumbent from Long Island in 1992, and chiseled-chinned Millard running for the East Side House seat two years later, losing to Carolyn Maloney. As much as both have tried to prove they're more than just pretty faces, most observers have long viewed them as lightweight bookends.

Now the Republican and Conservative Party designee for governor (though still facing September primaries), Lazio went from law school to a communications job at the Suffolk County District Attorney's office, launching a career that moved him from the Suffolk County legislature to Congress, where he chaired the House housing subcommittee for nearly six years.

The rest of the nation got to know him in 2000 when he lost to Hillary Clinton in the most expensive Senate race in modern history. As competitive as he was then, Lazio's decade-long absence from public life has hardly made our hearts grow fonder, as every poll and fundraising filing confirms. He's made millions at Morgan, taking a leave in May 2009 that continues, oddly, to this day, as if he and Morgan are planning on his returning after a loss this November (or sooner).

Millard, the son of the onetime Coca Cola chairman, came out of the same Manhattan GOP club as Rudy Giuliani, winning a City Council seat in 1990. After the 1994 House defeat, he ran the city's Economic Development Corporation for four Giuliani years. His reputation took a major hit, however, after it was revealed that Giuliani ally and then–Liberal Party chair Ray Harding was lobbying Millard's agency, while at the same time choosing Millard's top staff (Millard had even hired Harding's son, Russell). Both Hardings later pled guilty in separate felony cases unrelated to EDC.

Aided, like Bernie Kerik, by Rudy's pull with the Bush family, Millard took charge of PBGC, which insures the pension benefits of 44 million Americans enrolled in 29,000 "defined benefit plans." Without any pension or insurance background, he was suddenly sitting atop a mountain of assets, as vital to retirees as it was alluring to investment bakers.

Three weeks after Millard's first day at PBGC on May 29, 2007, Lazio e-mailed his assistant asking her to get Millard's contact information. Then, on July 3, he invited Millard to the annual dinner of the State Conservative Party, a Hilton Hotel fundraising event honoring Newt Gingrich, mastermind of the 1994 House campaign that they had both participated in together all those years earlier. Lazio's personal PAC, Rough Riders, paid $5,000 for a table at the dinner; Morgan, $5,000 for a second. Millard, however, declined the invitation and passed along his personal e-mail address. A Lazio aide noted that Millard "wants to speak with you on his new position."

Millard's pass is understandable: His presence might have been awkward at a dinner where Gingrich spent the night bashing his new boss, President Bush. Millard, who moved to Rye after his city political career fizzled, told the Westchester County Business Journal that he was talking with friends in the Bush administration about taking another position when they asked if he'd be interested in the PBGC job. "My first reaction was probably like a lot of people reading this: What's that?"

Millard was still getting acquainted with the agency when he testified at his confirmation Senate hearing that September. Yet he was already talking about fundamentally changing PBGC's investment policy, shifting billions in assets from what he called "extremely conservative" investments to higher-yield ones. Maryland Democrat Barbara Mikulski, who then chaired the aging committee, did not hide her alarm. "I am really requesting as chair that before any board decision is even taken that you share" the new investment policy "with us," asking pointedly: "Do I have your commitment on that?" Millard said he'd be "absolutely be happy to discuss" the policy with the committee.

Millard was only acting director that fall, awaiting confirmation and commuting to his new job in Washington. With eight kids at home and a very pregnant wife, he frequently scheduled Monday or Friday meetings in New York. Lazio was quite willing to make Morgan's expertise available to him, introducing Millard to an array of exciting and risky investment approaches for PBGC. One Monday meeting in October in New York was listed in Millard's calendar as "Credit Derivatives with Rick Lazio." The two continued talking and e-mailing in November, when Lazio sent Millard an eight-page "follow-up," list of "frequently asked questions about pension transfers." The document appeared to propose the transferring of some PBGC benefit plans to subsidiaries created and controlled by JPM. Lazio was providing an insurance analyst to "help" Millard "scope the project properly."

On December 4, the exchange shifted to a two-inch-thick Morgan document listed in the attachment as "Investment Portfolio Details: Subprime, Alt-A Exposure," which Lazio passed on to Millard. The attachment highlighted "information on a couple of insurance companies," including raves about AIG. He flattered Millard: "Challenging the culture in government requires persistence and good arguments," he wrote. "I hope we can help a little on the latter." Millard got the package from him at 10 in the morning, and an 8:49 e-mail that night indicated he wanted to talk to Lazio "re whether JP Morgan will negotiate."

For reasons that aren't clear, the Millard/Lazio e-mails then ceased for a few months. Millard was confirmed on December 17 and, though he had previously said he wouldn't propose a new investment policy until spring, he actually forced it past an unusual session of the three-member board in early February. The policy allowed PBGC—a traditionally cautious protector of retirement funds that is financed by premiums from participating employers, and steps in when companies can no longer make monthly pension payments—to set aside 10 percent of its assets in alternative investments, 5 percent in real estate, and 5 percent in private equities. Mikulski never got her promised hearing, but penned a letter to Millard with Senator Ted Kennedy shortly after the policy was announced, calling it "much more aggressive" and saying it would "move billions from stable bonds" into "riskier investments."

On April 24, 2008, a friend of Millard's e-mailed him a Wall Street Journal story announcing that Lazio was leaving the bank's governmental relations unit and was becoming a managing director in the real estate and infrastructure group within Morgan's asset-management division. "It's not a traditional role for a former public servant," Lazio boasted. By the start of May, he and Millard were back in regular contact, and now he was no longer the bank's lobbyist: He had joined the very unit that would handle Millard's contract, an unlikely coincidence.

In May, Lazio wrote his "very friendly" e-mail about Millard to Joseph Azelby, the head of the real estate group that he had just joined. The author of a confidential Morgan analysis had just granted him permission to pass sensitive Morgan market predictions on to Millard. So, on June 3, he attached "JPM Asset Management long term assumptions prepared for this year" in an e-mail to Millard, calling the numbers "important inputs" in Morgan's internal process and asking him to show it to no one.

The same day, one Morgan executive e-mailed another about a conversation he'd just had with Katherine Rosa, a managing director in the Private Equity Group (PEG). "Kathy asked me to let you know she met with Rick Lazio this morning," wrote Kristopher Nichol. "Turns out that Lazio is very good friends with Charles Millard. Lazio and Millard have worked together on political and investment projects. Kathy is optimistic that this connection will give PEG one more front on which to move the relationship with PBGC forward." Lazio's sweet "in" with Millard obviously had his colleagues salivating.

Millard responded within 10 minutes of receiving Lazio's e-mail about JPM's long-term assumptions—hardly enough time to read the secret study. The relationship was on such a roll that he asked if Lazio would be in D.C. over the next couple of weeks. The two immediately arranged a New York meeting for the next Monday. But Millard discovered that he couldn't keep the appointment: "On the phone with him now," Millard's assistant e-mailed while talking to Lazio just two minutes after Millard decided he had to cancel. Lazio told the assistant that he and others from Morgan "would like to come to Rye Monday morning first thing like 7 am-8am," suggesting an emergency visit to Millard's house.

That didn't work, so the two began a repeated exchange, trying to set a date and location, with Lazio offering to come to D.C. if Millard couldn't "break free a NYC date." Lazio had to find a date that suited other Morgan executives. They finally settled on June 12 at Morgan's offices at 245 Park Avenue, a Thursday, 9:30 a.m. meeting, unusual for Millard, who was usually in Washington at that time. That morning, Millard sent his assistant an e-mail to make sure that his chief of staff, George Koklanaris, was in the Park Avenue lobby "on computer for the Lazio meeting." He was.

The long and secret meeting's purpose was to discuss a contracting process that wouldn't formally begin until July 31, putting Morgan on the inside track to win a bid it was helping to shape. Lazio's e-mail immediately before the meeting scouted out a "nice" conference room. He, John O'Shea, and Morgan alternative investment chief John Garibaldi attended from Morgan. O'Shea's postmortem said Millard "would like our help in shaping his vision," and he pointed out that Millard anticipated "external criticism" for shifting pensioner money to riskier investments, but said it was "mainly politically driven."

O'Shea also predicted in this e-mail, sent to 15 Morgan executives—including Jes Staley, head of asset management and a Morgan king—that Millard would propose a Strategic Partnership, with $500 million allocated each for private equity and real estate. And that would be just a taste: Millard was publicly indicating that as much as $15 billion in PBGC assets would ultimately be up for grabs.

Conversations continued, and on June 30, O'Shea wrote another e-mail to many of the same executives, asking them to review a lengthy document on Morgan's partnership capabilities with PBGC. Seeking input, he was preparing it to be sent urgently to PBGC. All of this was going on a full month before PBGC planned on issuing its public bid for strategic partners.

On July 7, a Lazio superior, Michael O'Brien, e-mailed him and other members of the team asking each to list "the top 2 or 3 pieces of business that you are working on to get closed this year." Lazio replied: "I don't think I have a top 2 or 3 business opportunities to close in 2008. Should I? I would love to make progress on the PBGC opportunity but it's a long shot to get all commitments this year." O'Brien got back: "Your help with PBGC greatly appreciated." In other words, Millard's deal was literally all Lazio had.

Three days before PBGC publicly asked for bids in an "RFP" on July 31, O'Shea sent Koklanaris a 10-page list of "sample RFP questions." He also sent him contact information for Morgan clients "with whom our relationship has grown into one that resembles the type of strategic partnership that we have discussed." The same day, Lazio and Millard once again exchanged e-mails connected to a phone call. On July 30, Millard instructed Koklanaris to make sure the RFP went to six people, including all three eventual winners (Morgan, Blackrock, and Goldman Sachs). Lazio was, of course, on the list.

Rebecca Batts, the PBGC Inspector General who was the first to probe Millard's contracts with the three new "Strategic Partners" grilled Millard about O'Shea's RFP e-mail. Her report, completed shortly after Millard left the agency, noted that the file name of O'Shea's attachment ("v5.doc") suggested it was "the fifth version of an ongoing collaboration," and Millard replied that he didn't know if it was. Questioned about the Morgan RFP suggestions, he "explained that he likely had discussed proposed questions with several firms." Indeed, he made multiple calls to Goldman during the same three July days that he'd been in touch with Lazio and O'Shea.

"We concluded that allowing some bidders to pose sample questions could offer an unfair advantage to some bidders," Batts found. Millard's contact with bidders "allowed some, but not all, to have frequent and in-depth access to a key procurement decisionmaker," casting "serious doubt on the integrity of the process," her report said.

Federal regulations bar any contact between the people making decisions about bids and the bidders themselves during the blackout period between the release of an RFP and the selection of the winners. Katherine Rosa sent out an e-mail marked "URGENT" on July 31 informing other executives: "We can have no more conversation with PBGC on the topic." Nonetheless, Batts found 10 calls between Lazio and Millard before the October 31 selection day, more than any other winner, two originating with Lazio and three others from Millard's cell phone. At the same time that Millard was talking to Lazio, he was e-mailing a firm he would eliminate to say: "The rules of ethics prevent me from having our lunch meeting."

The Morgan team was so confident it would win this bid that O'Shea scheduled a half-hour meeting with Staley for August 21, e-mailing Lazio about it: "Rick, feel free to join. I know you might have mentioned this opportunity with Jes. I want to make sure he is fully briefed. . . . Let me know if this meeting is overkill given any previous discussions you might have had with Jes." Lazio and O'Shea were jockeying for position to reel in credit (and bonuses) two months before a decision would be announced.

Millard reached out to his assistant on October 24, just a week before the selection, seeking Lazio. It was a Friday night, and Millard sent a "Can I reac[h]" e-mail to Lazio at 9:27 p.m. That Saturday, Lazio e-mailed back with a schedule of where he'd be and a series of numbers for Millard to use. He did the same again on Sunday. Their exchanges got so frantic that by October 28, Millard was asking if they could talk "right now." On October 29, Lazio was calling from a Florida hotel room. Though Millard at one point e-mailed that these contacts were "not business," the subject line on two actually read "Strat partnerships." One referred to O'Shea.

Finally, at 7:08 a.m., on October 31, Millard e-mailed Lazio: "U guys got 900m. 600 real estate. 300 private equity." It was less than the billion discussed in June, but it was weighted toward Lazio's real estate division. The three contracts, including Goldman and Blackrock, combined to re-allocate $2.5 billion in assets, with a potential payout of $100 million in fees. Lazio replied immediately: "Fantastic. Thank you so much. Let me know when you would like to discuss."

Batts, the Inspector General, determined that despite Millard's denials, there was a "strong indication" that the late-October conversations between Lazio and Millard, which explicitly broke blackout period rules, were about the partnerships. Her report said that Millard's multiple explanations for these contacts "evolved" during the probe, with the ex-director initially claiming that the two were discussing New York politics. In an April 28, 2009, written explanation to the IG, while Lazio prepared to launch his gubernatorial committee, Millard claimed that he and his "friend since the mid-90s" were talking about Lazio possibly joining the McCain administration in a cabinet-level office. Millard said he was "working at that time on the McCain presidential team's potential transition," and Batts did, in fact, find that Lazio was listed on a McCain document titled "Top Tier Presidential Appointment Process Overview."

But the McCain transition leader told the IG that "candidates were not called as part of the process," and that any calls about candidates "were made from the legal offices" of the GOP transition in Washington. Batts then discovered that Lazio was the only one on Millard's transition list of potential candidates that Millard actually called, a fact he later conceded. Batts tells the Voice that her auditors were "very frustrated" by Millard's changing excuses for the contacts with Lazio. "We went to corroborate" these claims, she said, "and couldn't."

Millard and Lazio did talk about McCain during this period, but it had nothing to do with a Lazio appointment. "Just heard dour news on Indiana from an inside player," Lazio wrote in late October, saying John McCain was down by 10 points. Millard sensed he was weeks away from unemployment during the worst recession since the 1930s. Way back in June, O'Shea noted in the memo that followed Millard's meeting at Morgan, that "Time is an obstacle," observing that "a change of an administration will cap" Millard's tenure. "CM said that even in the case of a McCain victory," he wrote, "he is not likely to remain in the post long," an early indication that Millard expected to do these deals and get out, potentially using them as a golden parachute.

On November 3, the day before the election, Millard sent a 9:58 a.m. e-mail to his two personal assistants asking them to "arrange a time for me to speak today" with 16 people, almost all of whom were with the three winning bidders. Lazio was the first name on the list. Millard worked his way through the list that day and on election day.

The two met on November 11. Their communications were suddenly turning more clandestine, with Lazio asking that they get together at 815 Second Avenue, the offices of the Ad Council, where Lazio was a board member. On November 12, Millard: "Great to see you and thanks for all." On November 13 at 6:39 in the morning, Lazio: "Have another idea with some paper. Where would you like me to send it?" And in the same early exchange that morning, Lazio: "I'll be setting up the meeting with Jamie," a reference to Dimon. Lazio also asked if Millard had connected "with Jes Staley yesterday," the asset unit head. Millard: "Jes and I traded calls. Probably get him on fri. Let me know re Jamie."

On December 2, Millard e-mailed himself a list of six names ostensibly connected to his job search. Lazio was on it, as were Larry Fink from Blackrock and John Weinberg from Goldman. On December 12, a Friday, Millard's assistant e-mailed Millard that Lazio's office called. "Ric sent you an email to your personal"—where much of this dialogue appears to have been diverted—"and said to please look over the weekend prior to your meeting with Jamie Dimon on Monday," referring to documents Lazio had apparently sent him. "Also, Rick would like to meet you in the lobby at 270 Park Avenue at 10:50am and bring you to Jamie Dimon's office." That Sunday, Millard and Lazio exchanged e-mails about spending 10 or 15 minutes together before or after the December 15 meeting.

The next day, Millard sent Lazio's private e-mail account a bio, résumé, and several news clips about himself. On December 17, Millard sent the same package to an aide to David Knowlton, the managing partner of a boutique corporate finance firm tied to Lazio. Knowlton actually appeared on Lazio's seating list for the Conservative Party dinner in 2007 that he'd tried to get Millard to attend. "Rick Lazio and David have discussed me," Millard informed the aide, "and David expressed a willingness to spend a little time helping me think about what I do next."

Even as Millard and Lazio were actively pursuing Millard's next job, PBGC's press secretary was trying to work out the details of a press release with Morgan announcing the new contract. They were waiting on a quote from Dimon, which the press assistant e-mailed to Millard on December 19. Having just met with the job-hunting head of PBGC, Dimon said how pleased Morgan was "to have been chosen to partner" with the agency.

"Are you ok with the quote from Jamie?" Lazio e-mailed. "I tried to beef it up."

But a couple of hours later, Lazio e-mailed again: "Politically, probably would be better if Jes Staley gave the quotes. What do you think?"

Millard: "Jes wd be good."

Batts, in her investigation, focused on the 29 e-mails between a senior Goldman official and Millard in the same period "assisting him in his search for employment," including e-mailing the package of bio and clips he sent to Lazio. She "concluded that the receipt of employment assistance from a winning bidder raises serious ethical concerns," noting that the whistleblower who spurred the IG probe contended that Millard "contacted certain executives" during the pre-bid and bid process "in order to enhance his future employment prospects."

Millard characterized that suggestion as "ridiculous," contending in his written statement that he "already had numerous contacts at such financial firms." On January 26, 2009, in his departing interview with Pensions & Investments, a trade journal, Millard said he had "yet to accept a position," though he believed he would "wind up with a job in the asset management or insurance industries." In fact, when Millard wrote the statement to the IG in April, he'd already been out of work for three months. He later created his own Cardinal Advisors, LLC, a firm without a website or a phone number. It lists its address as 370 Park Avenue, the five-story Racquet & Tennis Club not known to house offices. The club says Millard has a mailbox there.

"I fully understood that under the ethics rules," Millard wrote, "I would not be able to work at any of the firms we selected," a temporary bar that explains why Lazio and Goldman were trying to make immediate connections for him elsewhere. Millard's attorney tells the Voice that his client "abided by all procurement rules."

Rebecca Batts, who reports to the PBGC board and not its executive director, started an audit of the Strategic Partnership contracting process in October 2008, while Millard was still weighing the 16 bids. When a whistleblower who has never been identified went to Batts with evidence that the selection was tainted by collusive contacts, she turned the heat up, slowing the transfer of PBGC assets to the three firms.

Batts's focus was Millard, not the winning bidders. She didn't interview Lazio and won't comment about whether she tried. But when the Voice asked her about Lazio, she did say, "We were certainly troubled with the JPMorgan executives as well as others."

The IG finished her 23-page report in May 2009, finding that Millard had "inappropriately communicated with bidders," including 95 pre-award calls with Morgan, and "violated" federal procurement policies. Senator Herb Kohl, the new chairman of the aging committee, called a hearing about the findings for May 20. On May 5, Kohl wrote Jamie Dimon a letter requesting detailed information "related to your firm's contract award" from PBGC by May 12. Kohl got nothing from Dimon before the hearing. When news about the report and the possible cancellation of the contracts began breaking on May 14, an internal Morgan e-mail warned other executives: "We may need to brace for press inquiries. No mention of us yet." Within hours, the Times posted a story with a picture of Lazio, but the focus was more on the other two bidders.

Millard appeared at the hearing and took the fifth on every question. His interim successor, Vincent Snowbarger, a former Republican congressman from Kansas who was deputy director under him, indicated at the hearing that Millard's new investment policy and the three deals would likely be scrapped. Senator Claire McCaskill pointed out during Batts testimony that it wasn't just Millard who had "broken" the rules. "I assume," she said, "that the people who were on the other end of these conversations were breaking rules also, correct?" She added: "We're shareholders, the American people, in some of them," a reference to the TARP money that had gone to Morgan and Goldman.

Shortly before the hearing, two Democratic and two Republican senators had written to Batts, requesting a probe of the winning bidders and Millard. In response to McCaskill, Batts testified that "we take the concerns" of the senators about the corporate conduct "very seriously" and "we've had discussions with the Department of Justice on the matter." She said their investigation would focus on "post-award contacts" between Millard and the executives regarding "placement assistance" for the departing PBGC director. Batts tells the Voice that her answers to McCaskill were sparse because she had to "parse her words when there was an open criminal investigation."

Morgan isn't answering any questions about Lazio, not even on when his final day at the office was or whether it provided legal assistance for him during these probes. But Lazio has said he left in May, and he formed his campaign committee on May 22, two days after this explosive hearing. Even as he began his anti-Albany crusade, the U.S. Attorney for the Southern District, the PBGC IG, and the Senate Committee on Aging were launching inquiries into his conduct. Morgan finally delivered documents in response to Kohl's May letter on August 7. Requests to interview Lazio were rebuffed until Senate investigators threatened to depose him under oath. On September 30, nine days after Lazio formally announced his candidacy and months after he began his campaign, he finally talked for half an hour with Senate staffers.

On March 10, 2010, Batts wrote the four senators, telling them that her office and the Southern District had "concluded" their investigation of "Millard's contact with the companies and executives involved with the award" of the contracts and that "no charges will be filed." Two officials involved in the probes acknowledged that the primary reason why no charges were filed was because the companies, including Morgan, never got PBGC's assets, and the job-hunting efforts were derailed, ostensibly by the investigations.

What's most shocking about Lazio and Millard's determination to plunge ahead with this contract was that every outside observer was issuing warnings about PBGC's new alternative policy. Republican Senator Chuck Grassley, who ultimately signed the letter calling for the criminal probe, called the strategy potentially "disastrous" in August 2008, months before the contracts were awarded. As far back as April 24, the very day Lazio joined Morgan's asset management unit, the Congressional Budget Office did a report on the strategy and said it "increases the risk that PBGC will not have sufficient assets to cover retiree payments." Unconcerned, Millard then extended the proposed contracts from two to four years, trying to lock them in after he left.

In July, the Government Accountability Office issued the report Millard anticipated at his conference at Morgan, concluding the policy as "carrying more risk than acknowledged." A GAO director later testified that the agency's "concern" at the time was that the PBGC board wasn't given "a balanced presentation" when it adopted the plan and "made a decision to go with the investment policy without having all the information" it needed, told only of the upside, not the risk.

That same month, Larry Kohn, a Morgan director, e-mailed Lazio with a copy of a brilliant piece in Institutional Investor filled with doubts about "Millard's gambit," including warnings from the Boston University professor who had crafted the earlier PBGC investment policy, Zvi Bodie, who said that the new strategy could accelerate the demise of traditional pensions. "I also have a paper on Zvi Bodie's point if interested," wrote Kohn, an offer that drew no response from Lazio.

In fact, PBGC lost more than $4 billion in 2008 prior to the award of the contracts. On October 24, 2008, the same day that Millard began his week of blackout period contacts with Lazio, he weathered an extraordinary barrage of questions from Congressman George Miller at a hearing of the House Education and Labor Committee he chairs. Millard claimed that the losses PBGC was taking were better than the devastated market, but Miller pointed out a 23 percent drop in equities, declaring it "a little disingenuous" for Millard to suggest "that the equity thing is going swimmingly." Miller forced Millard to concede that his new policy was chasing yield in securitized emerging market debt, large U.S. and European office properties, and junk bonds.

The O'Shea memo after the June meeting with Millard said he was "happy to have passive exposure, even for REITS," the already troubled real estate investment companies. "No HF's at this point," wrote O'Shea, suggesting that even hedge fund investments might come later.

When Miller pressed Millard about these alarming risks in an economy already imploding, Millard hid behind the wisdom of the managers he was about to pick. "The world is littered with institutions who relied on other people to make those choices for them," said the congressman. "They all hired the smartest people in the room." Millard went home that night and reached out for Rick Lazio, the person he was betting a billion in worker assets on, unhindered by Miller's warning.

The state Lazio now wants to lead has more than 4,000 plans with more than five million employees that are covered by PBGC.

It's true that Morgan had trimmed its mortgage security exposure and was better positioned than other firms in 2008. But it was still America's leading credit default swap player, with $81 trillion in what's called "notional" derivatives outstanding, a market that is little more than a "notion." Thirty-six percent of Morgan's $328 billion in prime, subprime, and home equity loans were "credit-impaired" at the end of 2008, just when this deal was done.

It is one thing that all of this risk was worth it to Millard, who will never be heard from again in public life.

It is quite another that a would-be governor, hungry for a deal and a bonus, cared so little.

wbarrett@villagevoice.com

Additional research assistance by Gavin Aronsen, Michael Cohen, Nicole Maffeo, Adam Schwartzman, and Jenny Tai

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