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OAG pre-sentencing memo 2-28-11

OAG pre-sentencing memo 2-28-11

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Published by: jspector on Apr 14, 2011
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04/14/2011

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STATE OF NEW YORKCOUNTY OF NEW YORK--------------------------------------------------------------------XTHE PEOPLE OF THE STATE OF NEW YORK
-against-
SCI# 4632/2010ALAN G. HEVESI,
CONFIDENTIALSUBMISSION PURSUANT
Defendant.
TO CPL §§ 390.40, 390.50
 --------------------------------------------------------------------XProsecutor’s Pre-Sentencing MemorandumThe People of the State of New York, by the New York State Office of the AttorneyGeneral (the “Attorney General”), respectfully submit this memorandum of sentencing pursuantto Criminal Procedure Law §§ 390.40 and 390.50.
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I.
 
IntroductionOn October 7, 2010, defendant Alan G. Hevesi (“Hevesi” or “Defendant”) surrendered tothe Attorney General for arrest on a felony complaint charging him with one count of receivingreward 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 Number4632/2010 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’sunderlying case and certain information concerning Defendant’s conduct that was covered by hisplea on October 7, 2010. For the reasons set forth below, the People recommend the maximumterm of incarceration in this case.II. BackgroundA. Details of the Investment Process at the New York State Common Retirement FundIn March 2007, the Office of the Attorney General commenced an industry-wideinvestigation (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 anyinformation 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 agencyexcept where specifically required or permitted by statute or upon specific authorization of the court.”
 
 2The New York Office of the State Comptroller (the “OSC”) administers the CRF, theretirement system for New York State government employees. The New York StateComptroller, a statewide elected official, is designated by the legislature as the sole trusteeresponsible for faithfully managing and investing the CRF for the exclusive benefit of over onemillion 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 hisadministration, the CRF invested in a wide variety of investment vehicles, including privateequity funds, and beginning in approximately 2005, hedge funds.The CRF was a large and desirable source of investments funds. Gaining access to andinvestments from the CRF was a competitive process, and frequently investment managersretained 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 placementagent in connection with an investment made by the CRF, the CRF required that the investmentmanager 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 aninterest, CRF investment staff performed due diligence on the fund. The CRF could not invest ina fund unless the proposed investment had been vetted by an outside consultant andrecommended by multiple levels of investment staff, including the Director of AlternativeInvestments, the Chief Investment Officer, and the Comptroller.B. The InvestigationThe Investigation revealed that the investment process at the CRF was corrupted byHevesi’s chief political advisor, Henry “Hank” Morris, and his associates, as outlined below. Asa result of the Investigation, in or about March 2009, a grand jury returned a 123-countindictment (the “Indictment”) of Morris and of David Loglisci, the CRF’s Director of AlternativeInvestments and then Chief Investment Officer, charging them with the crimes of enterprisecorruption, violations of the Martin Act, money laundering, and related offenses. Subsequentcharges stemming from Morris’s and Loglisci’s scheme followed, including criminal chargesagainst Raymond B. Harding, former Chair of the New York State Liberal Party; BarrettWissman, a Dallas-based hedge fund manager and associate of Morris and Loglisci; unlicensedplacement agent Julio Ramirez, Jr.; investment advisor Saul Meyer; venture fund manager ElliottBroidy; and against former Comptroller Hevesi himself. All of these charges resulted in guiltypleas.C. The Scheme to Corrupt the Investment ProcessAs 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 wasskewed 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
 
 3process by making investment decisions based on the goal of rewarding Morris and hisassociates, rather than based exclusively on the best interests of the CRF and its members andbeneficiaries. Morris and Loglisci favored deals for which Morris and his associates acted asplacement agents, or had other financial interests, which interests were often concealed fromCRF investment staff and others.As a result of Morris’s and Loglisci’s scheme, Morris and his associates earned fees onmore than five billion dollars in commitments to more than twenty private equity funds, hedgefunds, 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 schemedescribed above. Morris pleaded guilty to a Martin Act felony in November 2010. Pursuant tothe terms of his plea agreement with the Attorney General, Morris is to pay $19 million inforfeiture to the CRF. Morris was sentenced to an indefinite term of one and one third to fouryears of incarceration on February 17, 2011—the maximum sentence available for the MartinAct violation to which he pleaded.
 
On December 3, 2009, Elliott Broidy, founder and Chairman of Markstone Capital GroupLLC, pleaded guilty to a felony charge of rewarding official misconduct in connection with hisinvolvement 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 investmentsin Markstone. Broidy is scheduled to be sentenced on April 1, 2011.D. The DefendantHevesi has spent his career in public service. After earning a Ph.D in public law andgovernment from Columbia University in 1971, Hevesi served as a New York StateAssemblyman from 1971 to 1993. He then served as Comptroller of the City of New York from1994 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 inNovember 2006, Hevesi resigned his office pursuant to his guilty plea. This guilty plea arosefrom Hevesi’s improper use of state resources to drive and otherwise assist his wife. As set forthbelow, the conduct upon which the present felony is predicated occurred during Hevesi’s term asComptroller, 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 thepresent felony, Hevesi is not a second felony offender for the purposes of this sentencingproceeding. See Penal Law § 70.06(b).

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