NY pension advisers charged in kickback scheme

NEW YORK Fri Mar 20, 2009 8:25am EDT

NEW YORK (Reuters) - The former New York state comptroller's top fund-raiser and pension investment chief on Thursday were arrested and charged with taking millions of dollars in kickbacks from money manager firms.

More than 20 investment deals made by the state's $122 billion (84.48 billion pounds) pension fund were "tainted" by the kickbacks, and five of the investments involved The Carlyle Group, one of the world's largest private equity funds, New York Attorney General Andrew Cuomo said.

Henry Morris, who was the fund-raiser for former comptroller Alan Hevesi, and David Loglisci, who was the state pension fund's top investment officer, were charged with securities fraud, bribery, money laundering and other crimes in a 123-count indictment.

The two men were also charged in a civil complaint by the U.S. Securities and Exchange Commission.

"Morris used the fund as his own piggy bank and took approximately $30 million in fees for himself and his business partners on investments which Morris himself had a role in approving," Cuomo said.

Morris and an unidentified partner received more than $13 million in "sham placement fees" from five investments totalling $730 million that involved The Carlyle Group, Cuomo said.

Morris's lawyer, William Schwartz, said in a statement that Morris was innocent. The pension deals that Morris recommended earned "hundreds of millions, if not billions, of dollars," he said. "There was no fraud and no corruption."

Loglisci's lawyer, Irving Seidman, also said his client is innocent, adding that his client's investments benefited the pension fund and that the deals were vetted by outside fiduciaries, including bankers, lawyers and attorneys.

Chris Ullman, a spokesman for Washington, D.C.-based Carlyle Group, said the firm "has fully cooperated with the New York Attorney General's Office and is not a target of the investigation."

New York puts its pension fund under the control of the comptroller, which, when coupled with lax campaign finance laws, "breeds corruption," Cuomo said. Morris helped pick Loglisci as the pension fund's top investment officer.

If convicted on all the criminal charges, Morris would face up to 340 years in prison and Loglisci would face up to 193 years in prison, Cuomo said.

Under a forfeiture order won permitting the seizure of assets, Cuomo said his office had frozen approximately $11 million of Morris's assets, including banks accounts and property. Morris was released after posting a $1 million cash bail. Loglisci's bail was set at $350,000 and both men's travel was restricted.

Companies controlled by Morris were also indicted.

Cuomo and Securities and Exchange Commission Chairman Mary Shapiro told reporters that their probes were continuing, and said they would rule out the possibility that more individuals or companies could be charged.

Former state Comptroller Alan Hevesi, who was not charged by the Cuomo or the SEC, resigned in December 2006 after pleading guilty to a felony charge of defrauding the government over his use of state drivers to chauffeur his ailing wife.

Current comptroller Thomas DiNapoli said the pension reforms he has proposed include public campaign financing. "The reforms we've instituted would have stopped the transgressions committed during the Hevesi administration."

Cuomo said that Hevesi's senior staffers took "hundreds of thousands of dollars worth of gifts and bribes for themselves and their families and friends."

"The charges entail a web of corrupt acts for both political and personal gain," he said.

Cuomo charged that Loglisci accepted sham "investments" for the production by his brother of a low-budget movie, "Chooch," and said an unnamed high-ranking official in the comptroller's office got cash from Morris and rent payments for his girlfriend's luxury apartment.

The indictment also listed other investment firms involved in deals allegedly tainted by kickbacks: Access/NY European Fund, Aldus New York Emerging fund, GKM/NY Venture Capital Fund, Olympia John Street Fund LP, Paladin Homeland Security Fund and Strategic Co-Investment Partners.

(Additional reporting by Elizabeth Flood Morrow in Albany, Grant McCool in New York; Editing by Leslie Adler)