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ALAN G. HEVESI, Defendant. --------------------------------------------------------------------X
CONFIDENTIAL SUBMISSION PURSUANT TO CPL §§ 390.40, 390.50
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”).
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 presentencing 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 2
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).
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.
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 5
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 6
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
Pursuant to an Assurance of Discontinuance with the Attorney General announced February 8, 2010, Markstone separately agreed to return $18 million to the CRF.
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
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