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Thursday, March 19, 2009

Top Schumer Aide Indicted For Pension Fraud

Note: Cuomo's Press Release and The Indictment Are Posted Below

This story is just breaking. Hank Morris, a top confidant of U.S. Senator Charles Schumer, has been indicted for pension fraud for using political connections to steer N.Y. State Pension Fund business for a fee:

A political consultant and a former deputy comptroller pled not guilty this morning to enterprise corruption and other charges stemming from an alleged state pension fund scandal.

Hank Morris and David Loglisci were arrested and arraigned this morning in a Manhattan court on 123 counts of enterprise corruption and other felonies.

Prosecutors allege the two engaged in a three-year criminal enterprise to pocket more than $35 million in middleman fees.

They are the first to be charged in a case that took nearly two years to uncover.

State Attorney General Andrew Cuomo's office investigated whether financial firms were using politically-connected consultants in an effort to get business with the state pension fund.

Morris is a top political consultant to former Comptroller Alan Hevesi and Senator Charles Schumer.

The ties between Morris and Schumer go back over a decade, to a time when Schumer considered running for Governor of New York. Schumer defended Morris as troubles regarding the Pension Fund began to swirl in 2007:
Schumer was asked about the troubles surrounding Hank Morris, a political consultant who helped elect Schumer to the Senate. "Well, Hank has been an outstanding political consultant," he said. "He’s a man of great, great intelligence and perception and I find him to be a person of integrity." He added, "But as for this investigation, I don’t know the details."
Morris was the media strategist behind Schumer's win over Alfonse D'Amato, and also worked for Californian Michael Huffington, as reflected in this 1998 PBS News Hour interview:

TERENCE SMITH: And with less than a week to go, there's no letting up. Hank Morris is Schumer's media strategist.

HANK MORRIS: We are not going to let Al D'Amato win one argument in this campaign. He's going to make an argument and we're going to answer him strong --

TERENCE SMITH: As quickly as possible.

HANK MORRIS: --stronger and better.

TERENCE SMITH: Hank Morris knows negative campaigning. In 1996, his firm did the advertising for California Senator Dianne Feinstein, who was locked in an exceptionally bitter campaign with Congressman Michael Huffington. Or, as the ads called him -

AD SPOKESMAN: The Texas oil millionaire Californians just can't trust.

TERENCE SMITH: In the end, the two California candidates spent some $44 million, most of it on advertising, setting a single-race record that may yet be topped by the D'Amato-Schumer battle.

UPDATE No. 1: Morris' Democratic ties run deep, as he worked on now Senator Diane Feinstein's unsuccessful run for California Governor:

Known for his nervous Woody Allen-like speaking mannerisms and penchant for wearing sweaters in all seasons, Mr. Morris has acquired a long list of enemies and former friends who are basking in schadenfreude.

But others praised his acumen; Senator Charles E. Schumer, who hired Mr. Morris to direct his 1998 Senate campaign, said in a statement, “Hank is one of the brightest people around and has done a great job for me.”

....In his slashing approach to the 1998 Senate campaign, he made sure all the world knew that Mr. D’Amato had called Mr. Schumer a “putzhead.”

And in a political ad for Dianne Feinstein’s 1990 campaign for California governor, he raised eyebrows by using file footage of her emotional announcement of the shocking assassination of San Francisco’s mayor in 1978. Ms. Feinstein lost, making her one of Mr. Morris’s more notable failures.

UPDATE No. 2: A primary beneficiary of Morris' business was the now-faltering Carlyle Group hedge fund, which was a big contributor to Schumer's campaigns; last summer Schumer actively blocked attempts to increase taxes on hedge funds such as Carlyle:

Democratic Senator Charles Schumer of New York is fighting a plan to raise taxes on hedge funds and buyout firms with his own legislative poison pill: a demand that other powerful interests share any pain.

Schumer is expressing concern about plans by lawmakers including Republican Senator Charles Grassley that would more than double taxes on private-equity and hedge-fund firms or their managers. He told the Senate Finance Committee this month that he would agree to the proposals only if taxes were also raised on oil-and-gas, venture-capital and real-estate partnerships.

Schumer may be trying to shield both his Wall Street constituents and his party's electoral war chest, Grassley said. The Democratic Senatorial Campaign Committee, which Schumer heads, received $779,100 from employees of private-equity firms and hedge funds in June, six times their combined total in June 2005, federal filings show. That far exceeds the industry's contributions of about $60,000 to the Republican Senate committee....

Schumer is echoing the position taken by the Private Equity Council, a Washington trade group set up by Blackstone Group LP, the Carlyle Group, and Apollo Management LP, which are attempting to defeat the congressional assault on their tax rate on the grounds that they are being unfairly singled out.

UPDATE No. 3: Andrew Cuomo's Office has just released a Press Release which highlights the involvement of the Carlyle Group and other hedge funds:
Five investments involving The Carlyle Group, one of the world’s largest private equity funds, totaling approximately $730 million in capital commitments from the State pension fund. Morris and his partner obtained over $13 million in sham placement fees.

The List of Charges is here, and the full Indictment here. The Securities and Exchange Commission has filed related civil charges. The SEC press release is here, and civil Complaint here.

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