Attorney General Andrew M. Cuomo today announced that his office has issued subpoenas to over 100 investment firms and their agents in Cuomo’s expanding investigation into corruption and kickback schemes involving the New York State and City pension funds.
Today’s announcement stems from the Attorney General’s broadening investigation into individuals and companies who make or receive improper payments in connection with lucrative business opportunities with state and city pension funds. Under state and federal law, securities brokers are generally required to be licensed and registered with a broker-dealer in order to protect the investing public from unscrupulous and unqualified brokers. In occasional cases, a registered broker is not required. But, after Cuomo’s investigation found that 40 to 50 percent of agents obtaining investments from New York pension funds were unregistered, his Office issued subpoenas today to over 100 investment firms and agents involved in securing business from the state and city pension funds.
“These subpoenas are the essential next step in our widening investigation into the corruption of public dollars at New York pension funds,” said Attorney General Cuomo. “They will shed light on a process that has been perverted by some unscrupulous individuals and unregulated firms at the expense of hard-working public employees and honest taxpayers. The troubling pattern of unlicensed agents highlights yet another systemic weakness in New York’s pension fund, creating a situation which is fraught with peril and prone to abuse. This investigation will continue until public trust has been restored and reform has been achieved.”
In the Attorney General’s preliminary examination into the use of third party agents before both the New York State and City pension funds, the Office found that 40 to 50 percent of agents acting to secure business with the state and city funds were unregistered:
- For the New York State pension fund, the Office found 45 agents on state pension fund investments for 2003 through 2006. 22 of those were unregistered, or 49 percent.
- For New York City, the Office found 41 agents for the same period of 2003 through 2006. 17 of those were unregistered, or 42 percent.
- For New York City, for the broader time period of 2003 through 2009, the Office found 70 agents, 30 of which were unregistered, or 41 percent.
The Attorney General’s Office issued Martin Act subpoenas today to 53 unlicensed agents and 49 investment firms that paid them. The subpoenas include questions designed to uncover:
- Which firms used which unlicensed agents, why, and in what manner;
- What fees unlicensed agents were paid, and for what services, if any;
- How the firm came to retain the unlicensed agent;
- Whether the firms did any due diligence about the unlicensed agents; and
- Whether payments to unlicensed agents were disclosed to the pension fund.
Cuomo’s Office is working closely with state and federal officials to formulate a coordinated effort to combat corruption and abuse of pension funds across the country.
Today’s announcements arise from a two-year, ongoing investigation into corruption involving the New York State Comptroller’s Office and the State pension fund. The charges began with allegations of a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi, in which the New York state pension fund was used as a piggy bank for the Comptroller’s chief political aide and a favor bank for political allies and other friends.
In a 123-count indictment unsealed in February, Hevesi’s top political advisor, Hank Morris, and former Chief Investment Officer, David Loglisci, were the first to be charged with, among other charges, enterprise corruption, Martin Act securities fraud, grand larceny, bribery and money laundering. The indictment alleges Morris and others reaped more than $30 million in undisclosed fees, gifts, and bribes as a result of tainted investment deals.
Last month, former Liberal Party Chairman Ray Harding was also charged with allegedly obtaining over $800,000 in illegal fees on State pension fund investments as a reward for over 30 years of political support to Hevesi, including helping to open up a State Assembly seat for his son. Additionally, hedge fund manager Barrett Wissman pleaded guilty to a felony charge under the Martin Act for conduct related to the pension fund, and has agreed to pay $12 million in penalties and forfeiture to the State of New York.
In the latest criminal complaint brought by this investigation, pension adviser Saul Meyer, of the Dallas-based firm Aldus Equity was charged yesterday with allegedly paying illegal kickbacks to Hank Morris in exchange for business with the State fund. Meyer was also charged with helping another one of Hevesi’s sons secure an investment with a New Mexico public pension fund while at the same time, Meyer was seeking increased business with the New York State fund.
Morris, Loglisci, Harding and Meyer are presumed innocent until or unless proven guilty.
The State pension fund is the biggest pool of money in the State and the third largest public pension fund in the country, most recently valued at approximately $122 billion. At the time of the events charged, it was valued at approximately $150 billion. The New York State Comptroller is the sole trustee of the Fund, responsible for managing and investing the pension fund solely in the best interests of the over one million current and former State employees.
This branch of the investigation is being conducted by Ellen Nachtigall Biben, Special Deputy Attorney General for Public Integrity.