Lisa Chow is the economics reporter at WNYC. She tries to explore in her stories surprising aspects of New York’s many economies—in plain view or hidden, in neighborhoods or sectors.
Major New York newspapers began reporting Tuesday that former state comptroller Alan Hevesi was going to plead guilty to a felony corruption charge. So far, Hevesi has not appeared in court, nor has he been charged with any crime. And state Attorney General Andrew Cuomo, who is the Democratic candidate for governor, has refused to comment on the case, even though it is his office who has been investigating Hevesi.
The investigation centers on a so called pay-to-play scheme. At its core is New York State's $125 billion pension fund, which is overseen by the comptroller's office. Investigators want to know if Hevesi, who resigned in 2006 after he pleaded guilty to a separate felony charge for using state employees to chauffer his ailing wife, was part of a system where companies paid kick-backs to state officials in exchange for the chance to manage and invest portions of that huge pension fund.
History of the case
The investigation began more than three years ago. In March 2009, the attorney general charged Hank Morris, Hevesi's former political consultant, and David Loglisci, the pension fund's former chief investment officer, for allegedly directing hundreds of millions of dollars of pension fund money to money managers on Wall Street, in exchange for contributions to Hevesi's political campaign, overseas trips, fees to Morris' placement agent firm and investments in a movie called "Chooch," produced by Loglisci's brother.
Loglisci pleaded guilty to securities fraud in March 2010.
Morris is fighting the charges and expected to stand trial next year.
The investigation has also resulted in five other guilty pleas from Elliott Broidy, chairman of Markstone Capital; Ray Harding, the former chair of the Liberal Party; Saul Meyer, a founding partner of Aldus Equity; Julio Ramirez, an unlicensed placement agent; and Barrett Wissman, hedge fund manager.
An opportunity for corruption
New York's state pension fund is one of the largest pools of money in the country. And every Wall Street firm wants a piece of it, because they make their money on management fees -- typically 1 to 2 percent of the amount they manage, and 20 percent of profits. The gatekeepers of this money are the state comptroller and the comptroller's staff, or state employees, who are paid government wages. They're paid much less than the money managers in the private sector, but these public employees wield enormous amount of power in deciding which Wall Street firm gets their business. In addition, the state comptroller is an elected official, who needs to raise money to run for office and get elected.
Changes since investigation was announced in 2009
The state comptroller, Thomas DiNapoli, has banned the use of so-called placement agents, or middlemen, who represent Wall Street firms to pension funds to secure business.
The city comptroller, John Liu, has banned the use of placement agents for all private equity investments. For other types of investments, three of the five city pension funds, the Teachers' Retirement System, the New York City Employees' Retirement System and Board of Education Retirement System, require investment firms to disclose their use of placement agents.
In October 2009, New York Attorney General Andrew Cuomo announced a legislative proposal to create a 13-member board of trustees to oversee the state pension fund, changing the current sole trustee management structure. He argued that such change would prevent future pay-to-play schemes. The state's pension system is still under a sole trustee, the state comptroller.