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Follow the Pension Money

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One year later, Hevesi rebounded, easily winning the Democratic nomination for state comptroller with Morris calling the shots, then eking out a victory over Republican John Faso in the acrimonious general election. Hevesi hammered Faso over his conservative positions on gun control and abortion—Morris-identified vulnerabilities, but issues the state comptroller has little to do with.

It was Morris’s last big campaign. In 2003, he passed the tests required to become a securities broker or dealer. He also took care of another requirement for the financial business, becoming affiliated with Searle & Co., a small Connecticut securities firm that had its offices above a Christian Scientist reading room in Greenwich, Connecticut, and whose clients were mostly wealthy local families. With his best friend taking control of a $100 billion pension fund, Morris would launch the firm into an entirely new orbit.

The universe of investment options is very, very large. The time and research abilities of the staff of a public pension fund are very limited. So someone in the middle of that equation who can get an investment firm a meeting with the public officials controlling the money—and who can vouch for the worthiness of the beseeching money manager—is a very valuable person indeed.

“Cuomo has made the term ‘placement agent’ the equivalent of ‘child molester,’ ” says one investment-banking veteran. “But the use of placement agents is widespread and in many ways they’re necessary. And 99.9 percent of these guys sit at a desk all day and have no political contacts.”

“There are many smaller firms that are not going to get in the door without a placement agent,” an experienced public-pension-fund player says. “If you have a legitimate placement agent that does serious due diligence on a money manager before they bring them in, that’s somebody who the professional staff trust, because they can’t see everybody. But then there’s the agents who are politically connected; that’s how they get in the door. In New York, there is a high degree of the politically connected.”

When an associate tried to sever the deal, Morris passed word: “Tell that little peanut of a man that I can take the business away as easily as I provided it.”

As of Hevesi’s election, no one was better connected than Morris. Investigators say he helped force out Jacques Jiha, the chief investment officer for the state’s Common Retirement Fund, when Jiha didn’t pay enough attention to the equity-fund managers recommended by Morris and Jack Chartier, Hevesi’s chief of staff. Morris, investigators say, helped select Jiha’s replacement, then-33-year-old David Loglisci, a former investment banker. One large mystery in the case is what, if anything, Loglisci got out of his dealings with Morris. Prosecutors have not charged Loglisci with profiting directly from the arrangement. The prestige of his powerful job, where he oversaw the flow of investments from the country’s second-largest public fund, seems to have been Loglisci’s greatest reward. But his job also appears to have paid off for his friends and family.

Investigators allege that Morris inserted himself into existing relationships between the pension fund and money managers. One example they cite is the comptroller’s history with the Carlyle Group. The global private-equity behemoth is used to getting its way. With $84 billion under its management, and advisers and investors who’ve ranged from former president George H.W. Bush to George Soros, Carlyle knows how to exert muscle and push buttons. But for years Carlyle was frustrated in its attempts to land New York State pension money using its in-house sales staff. So it enlisted an outside placement agent: Andrew Stein. And in 2002, Stein earned about $4 million in fees, getting Carlyle money from the state pension fund, overseen by then-Comptroller McCall, as well as the city pension fund, administered by then-Comptroller Hevesi and a board of trustees.

Hevesi succeeded McCall in January 2003, and for a while Stein continued to thrive. In April 2003, the state comptroller’s office agreed to invest in a new European fund assembled by the Carlyle Group. Stein’s Arapaho Partners collected a $1.7 million brokers fee on the deal. But it was Stein’s last big score from the pension fund. “Knowing Hank,” a longtime political colleague says, “he thought, Well, I could do this too.

For the next two years, when Carlyle wanted New York State investments, it went through Morris, landing $730 million in pension money. Searle collected $13 million in fees, investigators say, and passed more than $7 million of it to Morris.

Sometimes Morris drummed up new business on his own. In 2004, investigators say, Morris contacted Odyssey Investment Partners. One of the firm’s founders, Stephen Berger, had long been active in Democratic politics. Odyssey had hired CSFB, the large investment bank, to serve as its placement agent with the state pension fund—until Morris allegedly told Berger that the fund had its “own” placement agent, Searle. Odyssey switched to Searle and soon received $20 million from the state pension fund.


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