SEC Charges Former N.Y. Official, Top Pension Fund Adviser With Fraud

Mar 19 2009 | 2:52pm ET

The Securities and Exchange Commission today charged New York's former Deputy Comptroller and a top political adviser with taking millions of dollars in kickbacks from hedge funds and private equity firms seeking to manage the assets of New York's largest pension fund.

The SEC's complaint alleges that Henry “Hank” Morris, the top political adviser and chief fundraiser for former New York State Comptroller Alan Hevesi, and David Loglisci, former Deputy Comptroller and Chief Investment Officer of the New York State Common Retirement Fund, orchestrated a fraudulent scheme from 2003 through late 2006 that corrupted the integrity of the New York State Common Retirement Fund in order to enrich the pair as well as others with close ties to them.

Specifically, the SEC charges that Loglisci had the fund invest billions of dollars with private equity firms and hedge fund managers who together paid millions of dollars in the form of sham “finder” or “placement agent” fees win mandates from the pension fund. Morris made more than $15 million in such placement and finder fees.

Loglisci allegedly directed investment managers, who solicited him for investment business, to Morris or certain other individuals and signaled to the investment managers that they first needed to “hire” Morris as a finder or placement agent. Neither Morris nor anyone else who received the payments at issue allegedly performed legitimate placement or finder services for the investment management firms who made the payments.

According to the SEC's complaint, the investment managers, in some instances, had already hired a placement agent of their own and were negotiating an investment with Loglisci when they were told that they also needed to “hire” Morris or another individual. Once the sham finder fee was agreed upon, Loglisci approved the proposed deal with the investment management firm.

Loglisci and Morris also allegedly took steps to hide the payments and quid pro quo arrangements from members of the Comptroller's investment staff and the fund's investment advisory committee. In some instances, the two men even arranged for investment managers to make payments to another individual who would then covertly funnel a portion of these sham fees to Morris, sometimes without the knowledge of the investment managers.

In addition, Morris allegedly paid the girlfriend of a high-ranking member of the Comptroller's staff nearly $100,000 in cash to ensure that the staff member would not ask questions or otherwise reveal the scheme to others.

According to the evidence, Loglisci also personally benefited from his role in the scheme. In addition to receiving Morris's support for promotion to Deputy Comptroller, Loglisci obtained funding from Morris and the principal of a p.e. firm for a low-budget film that Loglisci and his brothers produced.

James Clarkson, acting regional director of the SEC's New York regional office, said, “Kickback schemes corrupt the integrity of the investment decision-making processes. These defendants enriched themselves and their associates at the expense of the fund.”

The SEC's complaint, which also charges three entities owned and controlled by Morris, seeks permanent injunctions against future violations of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

In a parallel criminal action, the Office of the Attorney General of the State of New York today also announced the indictment of Morris and Loglisci.

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