Pay-to-Play Scheme Snags Hevesi, But Not DiNapoli

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In exchange for almost $1 million in campaign cash and other gifts, former New York State Comptroller Alan Hevesi admitted Thursday that he handed access to $250 million in state retiree funds to a California-based private equity firm.

With his guilty felony plea, Hevesi became the seventh person, and the highest-ranking public official, to plead guilty in the sprawling pension 'pay-to-play' scandal. The three-year-old case has made waves from coast to coast and includes a parallel Securities and Exchange Commission investigation.

The breakthrough in the case came last year when New York Attorney General and Democratic gubernatorial candidate Andrew Cuomo’s office brokered a plea bargain with Elliot Broidy, a founder and Chairman of Markstone Capital Group LLC. Broidy admitted that he was the source of the $1 million that Hevesi admitted to taking Thursday.

In a 2009 teleconference, Attorney General Cuomo played his cards very close to the chest, only describing how “four high-ranking” state officials benefited from Broidy’s largesse. There were lavish luxury trips to Israel, Italy and California. And that was just the tip of the payola iceberg. There was also a six-figure investment in a movie project called “Chooch” and tens of thousands paid to relatives in phony consulting deals.

“The way he goes about doing it is by effectively paying off the state officials that are in the decision making position,” said Cuomo on last year's conference call. “And not just one, but four senior level officials in state government with various favors and payments through family members, through girlfriends, trips, gifts but payoffs.”

On the same call, Cuomo described a systemic culture of corruption that festered at the highest level of the State Comptroller’s office. He made a compelling case that it wasn’t just the character of the men involved that was flawed. It was the very system itself that put all the power to make investment calls in the hands of the comptroller as the so-called “sole trustee.”

“Where were the checks and balances? Where were the counter pressures in the organization?” Cuomo asked rhetorically. “When you have a sole trustee there is no counter pressure, there is no check and balance. It is one person at the top and if senior officials are involved in inappropriate activity than it kind of shuts down the entire agency. Nobody wants to say anything because their bosses are involved.”

Months after Broidy, it was David Loglisci's turn to take a plea deal. Loglisci, the state pension's chief investment official, reported to Hevesi and allegedly worked the scheme with long-time Hevesi confidant Hank Morris who had set himself in a business outside the government.

Cuomo’s probe continues, now with Hevesi’s cooperation.

But according to the Attorney General’s Communication Director, Richard Bamberger, that probe does not extend to the current New York State Comptroller Tom DiNapoli. DiNapoli, a veteran State Assemblyman, was picked to fill out the rest of Hevesi’s term after Hevesi pled guilty in an earlier criminal probe.

For the three years since his selection as the state’s Chief Financial Officer, DiNapoli says he has tried to bring transparency to how his office manages the $129 billion in public employee pension funds. But since Cuomo started the high-profile probe, DiNapoli has found himself trying to counter speculation that the pay-to-play probe extended into his current operation. It has cast a shadow over DiNapoli even as he geared up his campaign for reelection this summer.

Behind the scenes, the AG was taking a closer look at a state pension investment known as Intermedia. The initial investment was made on Hevesi’s watch, but it was increased after DiNapoli took over. But as Hevesi pled guilty Thursday, DiNapoli got good news. “The office has concluded our review of that investment and determined that no action is warranted,” wrote Richard Bamberger. “Mr. DiNapoli is not involved in any investigation or matter in this office.”

Earlier this week, DiNapoli's formidable Republican rival Harry Wilson used the “pending probe” of DiNapoli’s office like a bat on DiNapoli. Wilson is a former hedge fund manager who is primarily self-funding his campaign. DiNapoli did his best to swing back, by accusing Wilson of being a “Don Juan of Wall Street.”

But Wilson is not your typical GOP partisan. His last major resume credit was working for the Obama Administration and saving General Motors -- a job he got with help from Steven Rattner, who, in a surreal twist, figures prominently in the pay-to-pay pension saga himself.

In addition to the still-unresolved fate in the pay-to-play case of Hank Morris, who has vowed to fight the charges, is that of former Obama administration 'Car Czar' Rattner. Rattner is the major Democratic donor who was tapped by President Obama to rescue the auto industry. Rattner served as Mayor Bloomberg's chief wealth manager and used his off-shore expertise to set up the Bloomberg Family Foundation, as reported in The New York Observer.

Rattner became caught up in the New York State pension case through his role as a principal in the Quadrangle Group, which the Attorney General and the Securities Exchange Commission allege was a key entity in the pay-to-play conspiracy. Rattner and Quadrangle hired Hank Morris as a "placement agent." The Wall Street Journal has reported that Cuomo has already given Rattner criminal immunity in the case, but Cuomo will only say the investigation is ongoing.

Rattner is no longer with Quadrangle. In April of this year, the company formally settled with Cuomo's office and the SEC and paid a total of  $12 million to settle the case. It also issued a public letter describing Rattner's actions in hiring the politically-connected Morris as "inappropriate, wrong and unethical."

At the time, Rattner, a former New York Times reporter, had no comment. In his book “Overhaul,” which lionizes his work in Washington, Rattner says he and his former colleagues at Quadrangle cooperated in the pension probe for months before it blew up publicly. Rattner says that before he and Quadrangle hired Hank Morris, they "checked him out" with Senator Chuck Schumer. "Both of us had worked on Chuck Schumer's first campaign for Senate in 1998," writes Rattner. Rattner says Schumer told him Morris was a "straight shooter."

Rattner says he disclosed the existence of the pension probe to the Obama White House as part of his vetting process for the auto czar job.

Rattner quotes White House press Secretary Robert Gibbs defending him to the press corps when Rattner and Quadrangle became ‘page one’ news. “He’s not accused of doing any wrong-doing and is not likely to face any criminal or civil charges related to this,” predicted Gibbs.

At the time Mayor Bloomberg offered a similar full-throated testimonial for his principal financial advisor. Rattner said that his integrity had never been questioned before. “Nothing in my entire professional life has had been so painful as that episode,” recounts Rattner.

For his part, Rattner offers his own testimonial to the current Republican candidate for New York State Comptroller. It comes in the form of an entire chapter in "Overhaul" titled “Harry Wilson’s War” and recounts how Wilson, and his team worked to save General Motors from the junkyard.