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SEC charges state official and political adviser with defrauding retirement fund

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The Securities and Exchange Commission has charged New York’s former deputy comptroller and a top political adviser for extracting millions of dollars in kickbacks from investment manag

The Securities and Exchange Commission has charged New York’s former deputy comptroller and a top political adviser for extracting millions of dollars in kickbacks from investment management firms seeking to manage the assets of New York’s largest pension fund.

The SEC’s complaint alleges that Henry "Hank" Morris (pictured), the top political adviser, and David Loglisci, former deputy comptroller, 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 Morris as well as others with close ties to Morris and Loglisci.

Specifically, the SEC alleges that Loglisci caused the fund to 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 to obtain investments from the fund. As asserted in the SEC’s complaint, Morris made more than USD15m in such purported placement and finder fees.

"Investments should be based on sound decisions not shady deals," says SEC chairman Mary Schapiro. "We will continue this investigation and will pursue anyone who unlawfully profited from their privileged access to the hard-earned contributions of public employees."

According to the SEC’s complaint, filed in federal district court in Manhattan, the payments to Morris and others were kickbacks that resulted from quid pro quo arrangements or that were otherwise fraudulently induced by the defendants.

As laid out in the complaint, Loglisci ensured that investment managers who made the requisite payments to Morris – and other recipients designated by Morris and Loglisci – were rewarded with lucrative investment management contracts, while investment managers who declined to make such payments were denied fund business.

The SEC alleges that Loglisci repeatedly directed investment managers, who solicited him for investment business, to Morris or certain other individuals and signalled 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 allegedly hired a finder or placement agent of their own and were already 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.

The SEC further asserts that Loglisci and Morris took steps to conceal these improper payments and quid pro quo arrangements from relevant 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 even 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 USD100,000 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 private equity firm for a low-budget film that Loglisci and his brothers produced.

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

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