STATE OF NEW YORK

COUNTY OF NEW YORK

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THE PEOPLE OF THE STATE OF NEW YORK

-against- SCI# 4632/2010

ALAN G. HEVESI, CONFIDENTIAL

SUBMISSION PURSUANT
Defendant. TO CPL §§ 390.40, 390.50
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Prosecutor’s Pre-Sentencing Memorandum

The People of the State of New York, by the New York State Office of the Attorney
General (the “Attorney General”), respectfully submit this memorandum of sentencing pursuant
to Criminal Procedure Law §§ 390.40 and 390.50.1

I. Introduction

On October 7, 2010, defendant Alan G. Hevesi (“Hevesi” or “Defendant”) surrendered to

the Attorney General for arrest on a felony complaint charging him with one count of receiving
reward for official misconduct in the second degree, a class E felony, in violation of Penal Law §
200.25. Hevesi pleaded guilty to that charge pursuant to Superior Court Information Number
4632/2010 before the Honorable Lewis Bart Stone in the State Supreme Court, New York
County, Part 31.

To assist the Court in sentencing, set forth below are the details of Defendant’s
underlying case and certain information concerning Defendant’s conduct that was covered by his
plea on October 7, 2010. For the reasons set forth below, the People recommend the maximum
term of incarceration in this case.

II. Background

A. Details of the Investment Process at the New York State Common Retirement Fund

In March 2007, the Office of the Attorney General commenced an industry-wide

investigation (the “Investigation”) pursuant to the Martin Act into allegations of “pay-to-play”
and corruption of the investment process at the New York State Common Retirement Fund (the
“CRF”).

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CPL § 390.40 provides that the prosecutor may file with the court a written memorandum setting forth any
information he may deem pertinent to the question of sentence. CPL § 390.50 provides that the prosecutor’s pre-
sentencing memorandum is confidential “and may not be made available to any person or public or private agency
except where specifically required or permitted by statute or upon specific authorization of the court.”
 The New York Office of the State Comptroller (the “OSC”) administers the CRF, the
retirement system for New York State government employees. The New York State
Comptroller, a statewide elected official, is designated by the legislature as the sole trustee
responsible for faithfully managing and investing the CRF for the exclusive benefit of over one
million current and former State employees and retirees. The Comptroller and CRF staff
members owe fiduciary duties and other duties to the CRF and its members and beneficiaries.

Hevesi served as Comptroller from January 2003 through December 2006. During his
administration, the CRF invested in a wide variety of investment vehicles, including private
equity funds, and beginning in approximately 2005, hedge funds.

The CRF was a large and desirable source of investments funds. Gaining access to and
investments from the CRF was a competitive process, and frequently investment managers
retained third parties known as “placement agents” or “finders” (hereinafter “placement agents”)
to introduce and market their funds to CRF. If an investment manager paid a fee to the placement
agent in connection with an investment made by the CRF, the CRF required that the investment
manager make a written disclosure of the fee to the Chief Investment Officer.

Once the CRF was introduced to an alternative investment fund in which it had an
interest, CRF investment staff performed due diligence on the fund. The CRF could not invest in
a fund unless the proposed investment had been vetted by an outside consultant and
recommended by multiple levels of investment staff, including the Director of Alternative
Investments, the Chief Investment Officer, and the Comptroller.

B. The Investigation

The Investigation revealed that the investment process at the CRF was corrupted by
Hevesi’s chief political advisor, Henry “Hank” Morris, and his associates, as outlined below. As
a result of the Investigation, in or about March 2009, a grand jury returned a 123-count
indictment (the “Indictment”) of Morris and of David Loglisci, the CRF’s Director of Alternative
Investments and then Chief Investment Officer, charging them with the crimes of enterprise
corruption, violations of the Martin Act, money laundering, and related offenses. Subsequent
charges stemming from Morris’s and Loglisci’s scheme followed, including criminal charges
against Raymond B. Harding, former Chair of the New York State Liberal Party; Barrett
Wissman, a Dallas-based hedge fund manager and associate of Morris and Loglisci; unlicensed
placement agent Julio Ramirez, Jr.; investment advisor Saul Meyer; venture fund manager Elliott
Broidy; and against former Comptroller Hevesi himself. All of these charges resulted in guilty
pleas.

C. The Scheme to Corrupt the Investment Process

As conceded by Morris and Loglisci in their allocutions, from 2003 through 2006,
through Morris’s and Loglisci’s actions, the process of selecting investments at the CRF was
skewed and corrupted to favor political associates, family and friends of Morris and Loglisci,
and other OSC officials. Morris and Loglisci corrupted the alternative investment selection
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process by making investment decisions based on the goal of rewarding Morris and his
associates, rather than based exclusively on the best interests of the CRF and its members and
beneficiaries. Morris and Loglisci favored deals for which Morris and his associates acted as
placement agents, or had other financial interests, which interests were often concealed from
CRF investment staff and others.

As a result of Morris’s and Loglisci’s scheme, Morris and his associates earned fees on
more than five billion dollars in commitments to more than twenty private equity funds, hedge
funds, and fund-of-funds during the Hevesi administration. These deals generated tens of
millions of dollars in fees to Morris and his associates, and $19 million to Morris himself.

In March 2010, Loglisci pleaded guilty to a Martin Act felony for his role in the scheme
described above. Morris pleaded guilty to a Martin Act felony in November 2010. Pursuant to
the terms of his plea agreement with the Attorney General, Morris is to pay $19 million in
forfeiture to the CRF. Morris was sentenced to an indefinite term of one and one third to four
years of incarceration on February 17, 2011—the maximum sentence available for the Martin
Act violation to which he pleaded.

On December 3, 2009, Elliott Broidy, founder and Chairman of Markstone Capital Group
LLC, pleaded guilty to a felony charge of rewarding official misconduct in connection with his
involvement in a pay-to-play kickback scheme at the OSC. Broidy acknowledged paying nearly
$1 million in gifts for the benefit of OSC officials and to obtain $250 million in CRF investments
in Markstone. Broidy is scheduled to be sentenced on April 1, 2011.

D. The Defendant

Hevesi has spent his career in public service. After earning a Ph.D in public law and
government from Columbia University in 1971, Hevesi served as a New York State
Assemblyman from 1971 to 1993. He then served as Comptroller of the City of New York from
1994 to 2001, and finally as State Comptroller from 2003 to 2006. On December 22, 2006,
Hevesi pleaded guilty to a charge of defrauding the government, a class E felony, and paid over
$200,000 in restitution and fines. Although he had won reelection as State Comptroller in
November 2006, Hevesi resigned his office pursuant to his guilty plea. This guilty plea arose
from Hevesi’s improper use of state resources to drive and otherwise assist his wife. As set forth
below, the conduct upon which the present felony is predicated occurred during Hevesi’s term as
Comptroller, and therefore prior to sentencing on the charge of defrauding the government.
Therefore, because sentence on the prior conviction was not imposed before commission of the
present felony, Hevesi is not a second felony offender for the purposes of this sentencing
proceeding. See Penal Law § 70.06(b).

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 III. Details of Defendant's Conduct

From January 1, 2003 through December 22, 2006, Hevesi served as New York State
Comptroller and the sole trustee of the CRF. Hevesi understood that he was obligated to act
exclusively in the best interests of the members and beneficiaries of the CRF, free from political
considerations and other improper pressures, and both to avoid and to disclose conflicts of
interest and the appearance of conflicts of interest.

A. Hevesi Favors Markstone; Receives Benefits

Beginning in June 2003 through September 2005, Hevesi approved a series of CRF
investments totaling $250 million in Markstone Capital Partners ("Markstone"), a private equity
fund managed by Elliott Broidy. In exercising his discretion as Comptroller to approve these
deals, he gave preferential treatment to Markstone and Broidy, who was a friend of Hevesi’s and
a political fundraiser for Hevesi’s campaign. Hevesi also sought to help Broidy in his efforts to
market Markstone by encouraging other public pension funds to invest in Markstone.

In violation of his fiduciary and other duties as a state public official and the sole trustee
of the CRF, Hevesi knowingly accepted and agreed to accept benefits from Broidy for having
improperly favored Markstone, both at the same time that Broidy was soliciting investments
from the CRF, and after Markstone had received investments from the CRF. Ultimately Hevesi
approved over $250 million in CRF investments to Markstone.

As part of this scheme, Hevesi knew that Broidy gave or caused to give benefits
amounting to nearly $1 million dollars to Hevesi and others, as set forth below. These benefits
included at least $75,000 in travel expenses for Hevesi, his family and other CRF officials,
approximately $380,000 in “consulting fees” to a third party, and campaign contributions to to
political campaigns in excess of $500,000. Hevesi did not disclose the fact or circumstances of
the benefits he received from Broidy to investment staff or others at the OSC.

B. Details of Benefits Provided by Broidy

1. Travel Expenses

Broidy and Hevesi agreed that Broidy would pay for certain travel expenses on Hevesi’s
behalf, and Hevesi was aware that Broidy concealed his payment of some of these expenses
through the use of charitable organizations and false invoices submitted to the OSC.

On at least five occasions, from in or about April 2003 to in or about June 2006, Hevesi
traveled to Israel, and on one occasion to Italy, with Broidy and certain high-ranking OSC
officials. Broidy paid at least $75,000 in travel expenses incurred by Hevesi, his adult children,
and other OSC officials, in connection with these trips. In addition, Broidy paid for expenses
associated with several trips that Hevesi made to California for campaign fundraising purposes.

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 2. Sham Consulting Agreement

During Hevesi’s tenure as Comptroller, with Hevesi’s knowledge, Morris arranged for
Broidy to enter into a sham consulting agreement with a lobbyist friend of Morris who was also
a political supporter of Hevesi. Pursuant to this sham consulting agreement, Broidy paid or
caused to be paid in excess of $380,000 to the lobbyist over a period of more than two years. As
Hevesi knew and understood, Markstone failed to comply with its obligation to disclose to CRF
staff that payments to the lobbyist had been made in connection with the CRF’s investment in
Markstone.

3. Campaign Contributions

From in or about June 2003 through in or about August 2006, Broidy made or arranged
for in excess of $500,000 in campaign contributions as directed by Hevesi or his campaign staff.

C. Hevesi’s Awareness of Morris’s Scheme

Notwithstanding previous public statements initially denying any knowledge of the

Morris scheme, or that Morris was doing business with the CRF, Hevesi admitted in his
allocution before the court that throughout his tenure as Comptroller, Hevesi knew and
understood that Morris solicited contributions to Hevesi’s re-election campaign from those doing
business with the CRF. Hevesi further knew and understood that during his tenure as
Comptroller, Morris was a paid placement agent in connection with multiple CRF investments,
and that Morris steered CRF investments to friends and political associates.

IV. The People’s Recommendation: Maximum Term of Incarceration

The offense of receiving reward for official misconduct in the second degree is a Class E
felony. As such, this crime is punishable by up to an indeterminate term of imprisonment ranging
from one to three years, up to one and one-third to four years. Penal Law § 70.00, subdivisions
1, 2(e), and 3(b). The People recommend the maximum term of incarceration available in this
case.

In formulating its sentencing determination, the Court has broad discretion to consider all
relevant facts, including the number and seriousness of the offenses involved, as well as the
particular circumstances of the individual before the court and the purpose of a penal sanction,
i.e., societal protection, rehabilitation and deterrence. See People v. Farrar, 52 N.Y.2d 302, 305
(N.Y. 1981); People v. Ramirez, 89 N.Y.2d 444, 450 (N.Y. 1996). “Sentencing courts, in the
exercise of their unique judicial function in criminal proceedings, are wisely allocated wide
latitude as they are recognized to be in a superior position to dispense proportionate and fair
punishment.” Ramirez, 89 N.Y. 2d at 450 (quoting People v. Day, 73 N.Y.2d 208, 212 (N.Y.
1989)). In making its sentencing determination, the Court may properly consider a broad range
of facts, provided that the Court is satisfied that the information it considers is both reliable and
accurate. See People v. Seplow, 226 A.D.2d 178 (1st Dep’t. 1996); People v. Naranjo, 89

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N.Y.2d 1047, 1049 (N.Y. 1997); see also People v. Baker, 738 N.Y.S.2d 739 (3d. Dep’t 2002)
(finding grand jury minutes “reliable and accurate”).

In exercising its discretion, the Court can consider all facts relevant to the question of
sentence. At the time of his plea, Hevesi acknowledged his awareness of the fundamentals of the
Morris scheme—that Morris was a paid placement agent who appeared before the CRF, and that
Morris solicited campaign contributions for Hevesi’s re-election campaign from those funds that
sought to do business before the CRF. The People urge the Court to consider this admission in
its sentencing determination.

The State Comptroller is New York’s chief fiscal officer, elected by the people to ensure
that taxpayer money is being used effectively and efficiently to promote the common good.
Among his responsibilities, the Comptroller conducts audits on New York State agencies and
public benefit corporations and issues reports concerning the State’s finances. As noted above,
the Comptroller is the sole trustee of the CRF, and in that capacity he is ultimately responsible
for managing a $129 billion fund exclusively in the best interests of over one million current and
former public employees. In short, the Comptroller is elected to safeguard the integrity of the
economic life of the state—an awesome responsibility.

Hevesi failed spectacularly to live up to that responsibility. Hevesi’s criminal conduct—

accepting gifts for abusing the power of his office—would be troubling had he held any public
office. But Hevesi was elected State Comptroller; his criminal conduct implicates the core
mandate of that office, and constitutes a breach of trust that goes directly to the heart of the
Comptroller’s unique and critical function of safeguarding the economic integrity of state
government, and specifically the state pension fund. Hevesi’s conduct put the state pension fund
at risk, and put his personal interests above the interests of the pension fund beneficiaries, a clear
violation of the Comptroller’s duties and responsibilities under the law.

In light of this, the People seek the maximum sentence of incarceration available in this
case. Hevesi’s conduct constitutes a monumental betrayal of the public trust, exceptional even in
these dark days when stories of public corruption dominate the headlines. Hevesi’s abuse of
office put the pensions of approximately one million current and former state workers at risk, but
more fundamentally, Hevesi’s actions threatened the very fabric of state government—the same
government he swore to protect.

The public must be reassured that when elected officials abuse their positions of power
and access to line their pockets, and abdicate the responsibilities they swore to uphold, they will
be meaningfully punished. Throughout his term as Comptroller, Hevesi conducted himself as
though he were above the law. By imposing the maximum sentence of incarceration, the Court
will prove that even those in the loftiest positions of power are still bound by the same laws as
the rest of the people of New York. Further, an incarceratory sentence, aside from helping to
restore confidence in the proper functioning of government, will serve an essential deterrent
effect on other public servants, should they be tempted to improperly and impermissibly
capitalize on their own positions of power. See, e.g., People v. Stumbrice, 194 A.D.2d 931, 935
(3d Dep’t 1993) (affirming incarceratory sentence for defendants convicted of defrauding a
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public assistance system in light of the “substantial need to deter and punish such fraud on [a]
taxpayer-funded . . . system”).

Hevesi is a particularly sophisticated individual who was in a unique position to

understand his duties and responsibilities as Comptroller, and the consequences for abandoning
those responsibilities. Hevesi earned a Ph.D in public law and government from Columbia
University in 1971. He spent his career in public service, as a New York State Assemblyman
from 1971 to 1993, as Comptroller of the City of New York from 1994 to 2001, and finally as
State Comptroller from 2003 to 2006. Hevesi may argue that a lifetime spent dedicated to public
service should weigh in his favor and against an incarceratory sentence. However, it is precisely
because of this lifetime of education and experience that Hevesi must be called to account for his
bad acts—one glance at Hevesi’s record of achievement is enough to show that Hevesi’s crimes
were committed with a full and complete understanding of their consequences, for Hevesi’s
office, for the government of the State of New York, and for Hevesi personally.

In formulating its sentence, the Court should give consideration to Hevesi for the fact that
he accepted responsibility for his conduct prior to indictment, pleaded guilty at a strategically
significant time in the Attorney General’s investigation, and agreed to cooperate with the
Attorney General’s investigation.

In light of this consideration, should the Court impose a sentence of incarceration, the
People recommend no additional monetary component to the Court’s sentence. Although Broidy
paid benefits totaling approximately $1 million, Hevesi only personally received approximately
$75,000 in travel reimbursements. The remaining benefits were not paid directly to Hevesi.
Rather, Broidy paid $380,000 in sham consulting fees to a lobbyist with Hevesi’s knowledge and
consent, $500,000 in campaign contributions as directed by Hevesi, and approximately $130,000
to friends of a high ranking OSC official. These payments were made by Broidy—they were not
state funds, and were not taken from the CRF and the OSC. Furthermore, as part of his plea
agreement with the Attorney General, Broidy has agreed to forfeit $18 million—including the $1
million in benefits he paid to and on behalf of Hevesi.2

2
Pursuant to an Assurance of Discontinuance with the Attorney General announced February 8, 2010, Markstone
separately agreed to return $18 million to the CRF.
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 Based on the severity of his crimes, and the abuse of the his position of power, of which
the defendant is guilty, the People recommend that the Court impose the maximum sentence of
incarceration available in this case.

Dated: New York, New York

February 28, 2011

ERIC T. SCHNEIDERMAN
Attorney General
State of New York

By: ____________________________________
Noah Falk
Assistant Attorney General
(212) 416-6286