By Dan Primack
February 17, 2011

Henry “Hank” Morris, one of the masterminds of a pay-to-play scandal involving the New York state pension system, today was sentenced to up to four years in prison. He also agreed to repay $19 million in ill-gotten gains, and to be permanently banned from the securities industry in New York State.

Morris had plead guilty to a feloly violation of The Martin Act last November, and is the first person associated with the scandal to receive jail time. Well, at least so far. Former New York controller Alan Hevesi, former pension system official David Logiscli and five other people also have plead guilty and are expected to be sentenced shortly.

Here is how the New York Attorney General’s office summerized Morris’ misdeeds, in an official statement:

During Hevesi’s administration, from January 2003 through December 2006, Morris engaged in a fraudulent scheme in which he used the pension fund’s multi-billion dollar alternative investment portfolio to enrich himself with so-called placement fees, and to hand out favors and paybacks to political friends and allies.

Morris knew that Hevesi and then-Chief Investment Officer David Loglisci both had fiduciary duties to act exclusively in the best interests of the members and beneficiaries of the pension fund.

Nevertheless, Morris worked with Hevesi and Loglisci to facilitate the approval of certain proposed alternative investments in order to generate fees for Morris or individuals chosen by Morris. Through this scheme, he promoted more than $5 billion worth of public pension fund securities transactions that brought him $19 million in fees. Morris concealed his involvement in these investments from pension fund staff. Morris has acknowledged receiving millions of dollars in fees on over twenty investments and secretly sharing fees with other favored associates.

In addition, Morris admitted arranging for Raymond Harding, the former head of the Liberal Party, to receive fees on at least two pension fund investments. Morris also admitted that as Hevesi’s chief political consultant, he sought and received contributions for Hevesi’s reelection campaign from financial firms and individuals who appeared before the state pension fund.

The prison sentence given to Morris — which includes a minimum of 1.3 years — was the maximum term available to NY Supreme Court Justice Lewis Bart Stone.

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