According to Cuomo, who is spearheading the investigation, there is " a matrix of corruption, which grows more expansive and interconnected by the day." So far six people have been charged criminally and two people have pleaded guilty. Among those charged with "enterprise corruption" are Henry "Hank" Morris, and his friend David J. Loglisci. Morris, a former top aide to former New York Comptroller Alan Hevesi, who was in charge of New York’s $122 billion pension, raked in at least $15 million dollars in "placement" fees from private equity firms. Former deputy comptroller Loglisci, the top investment officer of the state’s pension fund, allegedly got paid from Morris and also had private equity firms steer money into a curious movie venture called "Chooch he and his brother produced, and whose plot, aptly enough, concerns a bag of mystery money. Both Morris and Loglisci deny any wrong doing and are currently awaiting trial.
Cuomo’s game plan, according to one lawyer knowledgeable about the investigation, is "to work his way up the food chain." This strategy, as the lawyer explained, involves making deals with less-culpable parties in return for their cooperation and testimony against other private equity firms whose real exposure comes not from their making payments to placement agents, which is perfectly legal in most states, but from their failure to disclose them or, even worse. "disguising them" as sham transactions.
Consider the recent guilty plea of placement agent Julio Ramirez Jr. to a misdemeanor securities fraud violation. According to Cuomo’s office, Ramirez, , who worked for the placement agent Wetherly Capital Group in Los Angeles, entered into a "corrupt arrangement" with Hank Morris to get private equity firms $50 million in investments from New York's $122 billion Common Retirement Fund. Ramirez then split his fees with Morris, but did not disclose Morris’ involvement. Since that omission made him vulnerable to prosecution, he elected to cooperating with the Cuomo’s investigation, further tightening the prosecutorial vice on Hank Morris.
Cuomo also made settlements with the Carlyle Group, one of the nation’s largest private equity firms and Riverstone Holding a private equity company headed by David M. Leuschen. Their joint venture had paid $10 million to Hank Morris’ firm for its help in getting it $730 million in investments from the New York Pension fund. Leuschen, had also invested $100,000 of his own money in the movie Chooch, a movie venture that involved David Loglisci, the chief investment officer of that pension fund. Since the joint venture had fully disclosed its payments to Morris’s firm and could claim that it was not involved in Leuschen’s personal investment in the Chooch investment, Cuomo made a deal with both Carlyle and Riverstone in which each paid a fine– Carlyle $20 million and Riverstone $30 million and agreed not to use placements agents in any future deals and to fully cooperate in the ongoing investigation. In addition, Carlyle, issued statement saying that it "was victimized by Hank Morris's alleged web of deceit." It also moved to sue both him and his company for more than $15 million in damages, further racheting up the pressure on Morris to make a deal. The settlement did not include Leuschen, who is still, according to Cuomo, "under investigation." It also does not bode well the 20 other investment firms ensnared in Cuomo’s Matrix. The Quadrangle Group, for example, paid Morris placement multi-million dollar fees for assisting it get pension fund money in New York, New Mexico, and California and also invested money in the mysterious Chooch venture. But, unlike Carlyle and Riverstone, Quadrangle failed to disclose it’s the fees it paid Morris’ company to New York City Pension Fund and the Los Angeles Fire and Police Pensions Fund. Nor can it separate itself from its Chooch investment by, as Carlyle and Riverstone did, shifting responsibility to a personal investment, since it had one of its own private equity holdings buy the video rights to movie. One possible problem for Cuomo– as well as the SEC investigation is the prominence of Quadrangle’s then chairman Steven Rattner, who in 2009 became a key member of President Obama’s task force that is presently desperately working to save General Motors and the American car industry.
But Cuomo has pledged that "The investigation will continue until we have unearthed all aspects of this scheme." As he is both a tenacious– and ambitious investigator, he will undoubtedly topple more dominoes as he proceeds up the food chain . But will he break the matrix of corruption? Stay tuned.
(Updated June 12)