Alan Hevesi: Shakedown at the Pension Fund
Alan Hevesi spent a dozen years as the people's top fiscal watchdog—first for the City of New York, and then for the state. The entire time, two loyal gatekeepers were ever at his side: One was his slippery, back-slapping deputy, Jack Chartier; the other, his brilliant and furtive political adviser, Hank Morris.
They met as budding young politicos in the State Assembly and stuck together as a team for more than 30 years, pushing ever higher up the political ladder.
Last week, the team broke up with a bang. The comptroller's gatekeepers, we learned, were collecting their own tolls. Morris was arrested, charged in Andrew Cuomo's staggering 123-count indictment with helping pluck some $35 million from companies seeking to handle investments for the state pension fund of which Hevesi was the sole trustee.
Chartier has not been heard from. But take it on good authority that he is the one referred to in the indictment as "John Doe 2," the insider who steered Morris to lucrative investment deals and shared in the spoils. Confronted with his own culpability-which included using state resources in his pathetic wooing of a faded starlet-Chartier was quick to see the light. His information helped prosecutors shape the charges against Morris and David Loglisci, the pliable young banker installed by Chartier and Morris as the chief investment officer overseeing $150 billion in pension funds.
For his part, Hevesi sits at home now in Queens, waiting to see if prosecutors have gleaned sufficient information from his old friend and other sources to make a criminal case against him as well. The former comptroller "vehemently denies all wrongdoing," says his attorney, Bradley Simon.
Two years ago, Hevesi said the same thing right before being forced from office as he pleaded guilty to breaking state laws by having aides chauffeur his ailing wife. Even then, he retained a small reservoir of sympathy. The episode seemed the result of a guilty conscience, spawned by his wife's shaky health and abetted by the usual arrogant abuse of the perks of office. Hevesi's image as a sober manager of the public fisc remained largely intact.
That image shattered last week as well. The damning documents released by Cuomo and the Securities Exchange Commission, which filed its own complaint, make clear that if the comptroller didn't know that his top aides were running his office as their private shopping market, he's guilty at least of criminal neglect of duty.
From the moment Hevesi won election in November 2002, records show, Morris headed straight for the investment aisle at the comptroller's office, filling his shopping cart with both hands. A political consultant his entire life with no background in investment, Morris suddenly took the qualifying exams to become something called a "placement agent"-essentially a talent scout for investors seeking clients with deep pockets. Presto: Within weeks, the biggest firms from all over the globe suddenly found themselves in need of Morris's services to present their bona fides to the pension fund. To receive the loot, he set up dummy corporations. All told, some $19.5 million went directly into his pocket that way.
He and Chartier quickly cleared the one obstacle in their path—a veteran Hevesi aide named Jacques Jiha, who was initially named chief investment officer for the state's Common Retirement Fund. Jiha, who was Hevesi's top economist in the city comptroller's office, later said that Chartier was steadily on his case to meet with specific equity fund managers. He lasted a year before being pushed out. Loglisci got his old job. Anyone here believe that kind of maneuver gets done without the boss's approval?
Morris, the indictment states, promoted his own deals, while squelching those offered by firms that didn't ante up. The SEC complaint says that Morris pushed to have the pension office take its first plunge into risky hedge funds. When a minority investment firm negotiating to handle "emerging funds" balked at hiring Morris, Loglisci dropped it, the complaint states. In its place he put a non-minority company willing to deal Morris in. When that firm later sought to break away from the consultant, Morris allegedly relayed word that he could take the fund's business away "just as quickly as he had given it."
At one point, the complaint claims, Morris told the director of Odyssey Investment Partners, who was seeking pension business, that the state had its "own" placement agent-a little outfit called Searle in Connecticut. Odyssey quickly dropped the big investment bank it had intended using, unaware that 95 percent of Searle's fees were going to Morris. Loglisci soon steered a $20 million investment Odyssey's way-netting Morris's little company about $400,000. The fees, said the SEC, "were little more than kickbacks."
Morris also used his leverage, according to Cuomo's indictment, in a more traditional squeeze play, exacting millions in campaign donations for Hevesi. Companies often dole out such gifts, but records show that the generosity shown by some investment firms was exceptional. Directors of Levine Leichtman Capital Partners, for instance, donated $110,000 to Hevesi within a year of being tapped to invest $20 million of pension funds (Morris received $200,000 in fees for those deals, although attorneys for Levine Leichtman said the firm was unaware of the payments and had zero dealings with Morris [see correction appended]). Top officials of the mighty Carlyle Group, one of the world's largest private equity firms, doled out $43,000 in donations to Hevesi, while making payments of $12 million that reached Morris and his confederates.
The tough legal theory behind the criminal case against Morris being pushed by Cuomo and his forceful prosecutors, Linda Lacewell and Ellen Biben, is that the consultant became the de facto ruler over pension investments, and thus owed taxpayers the same fiduciary duty as any state official. Morris's able attorney, William Schwartz, quickly seized on that loophole, saying his client is a private citizen who had "lawfully introduced" the fund to investors. Loglisci also did no wrong, said his lawyer, the venerable Irving Seidman.
But for any political reporter who's watched over the past decade as Morris exerted almost Svengali-like control over Hevesi's political behavior, the notion of a Morris takeover isn't such a stretch. It gets even more credible given the indictment's startling assertion that Morris, Hevesi, and Chartier, a/k/a John Doe 2, held regular meetings about pension fund investments at the Madison Avenue offices of Morris's political consulting firm. What? They didn't have conference rooms at the comptroller's Third Avenue headquarters?
Cuomo said that the scandal he found inside Hevesi's office resulted from a "toxic mix" between two viral ingredients: the state's ever-porous campaign fundraising laws, and the comptroller's one-man rule of the pension fund. "You put the two of them together, and it's a deadly cocktail," said the attorney general.
That combustible combination has exploded before. Back in 1988, comptroller Ned Regan kept his own Chartier/Morris figure on the state payroll. The aide, Joe Palumbo, took his own doltish step too far, committing his boss's fundraising strategy to paper: "Those who give will get," he typed. He then left his clever advice lying around. A copy soon reached Jack Newfield and myself.
The memo led to a week-long series in The Daily News, a grand jury probe, and dramatic public hearings by a special State Commission on Government Integrity. The panel was an attempt at political shock therapy, aimed at creating a reform groundswell. In its final report in 1990, Commission chairman John Feerick challenged Governor Mario Cuomo to revamp the campaign laws, terming them "a disgrace and embarrassment." Little changed, leading to this latest scandal, which is as big as any back then. What it does do is give the Cuomo family one more shot at some critical unfinished business.
Correction: In the original version of this story, Tom Robbins erred in describing Levine Leichtman Capital Partners as a "client" of indicted political consultant Hank Morris. Although documents filed in connection with the case give that impression, subsequent information suggests that Levine Leichtman was unaware that legitimate fees it paid to secure pension fund work were allegedly secretly shared with Morris.
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