Pay-to-Play Pension Convict Granted Parole

(November 16, 2012) – Alan Hevesi, the former New York Comptroller and head of the $129.4 billion New York State Common Retirement Fund, will be released from prison in time for the holidays.

Hevesi, 72, was granted parole after serving 19 months in prison on corruption charges for misuse of pension fund assets. Hevesi pleaded guilty in a pay-to-play scandal in 2010 after an investigation led by then-Attorney General Andrew Cuomo turned up “unlicensed placement agents, secret fees,” and favorable treatment of certain money managers who were major campaign contributors, according to a release from the attorney general’s office.

He had been sentenced to between one and four years in jail, and was held in a medium-security prison in Marcy, New York.

At a parole hearing last year, Hevesi was repentant, according to New York Times reports.

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“I’m certainly guilty,” he said, adding, “I have time in prison to think through all the people that I’ve hurt.” Asked by the board then what he would have done differently, he said: “Not being moronically stupid.”

While Hevesi was the sole trustee of the state pension fund, he was not cited as the ringleader in the pay-to-play scandal. After his probe into the case, Cuomo accused Hevesi’s chief political consultant, Hank Morris, of leading a $35 million corruption scheme.

In fact, the former CIO of the New York State Common Retirement Fund (CRF), David Loglisci, pleaded guiltily along with the others, but received no jail time. The New York county grand jury’s 2009 indictment of Loglisci and Morris alleged that the CIO was little more than a pawn for the political strategist. The documents claimed that Morris and others arranged Loglisci’s appointment to CIO to facilitate “corruption of the alternative asset investment process.” In 2004, according to the indictment, these senior officials “determined that the original CIO of the CRF was not sufficiently accommodating” to Morris and his associates. Morris “participated in the decision to remove the original CIO and promote defendant Loglisci to that position.

Morris faced a parole board at the same time as Hevesi, but met a different end.

“After a review of the record, interview and extensive deliberations, the panel has determined that if released at this time, there is a reasonable probability that you would not live and remain at liberty without again violating the law and your release would be incompatible with the welfare of society,” the parole panel wrote in its decision.

(November 16, 2012) – The chief federal lobbyist for the California Employees’ Retirement System (CalPERS) does not foresee the Volcker Rule coming into full effect by the year’s end.

In a CalPERS board meeting on November 15, board member J. J. Jelincic, former president of the California State Employees Association, questioned Tom Lussier about his take on the immediate future of the Volcker Rule. Nearly two years after the financial regulatory legislation was publically endorsed by President Barack Obama, it still has yet to be finalized or implemented.

Jelincic asked: “Tom, in your month in Washington, for October, you point to [Senators Carl] Levine and [Jeff] Merckly as pushing to get the Volcker rule implemented. Is there—as you look at the tea leaves—is there going to be any effort to get that done before the end of the year? Is it going to get pushed aside until they deal with or don’t deal with the fiscal cliff?”

Lussier was not overly optimistic on this section of the Dodd-Frank Act being implemented before the year’s end.

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“I think there will be a push, but I would not be at all surprised to see it delayed until after the beginning of the year,” Lussier said. “The reality is that at this point, most of the work to be done is regulatory. And there are members of Congress, for example, Chairman [Barney] Frank, who has basically said, yes, it needs to happen, but if delay allows it to happen more effectively, then he is okay with that.”

The Volcker Rule separates financial institutions’ investment banking and private equity activities from those firms’ consumer lending arms. Effectively, the rule bans the practice of proprietary trading (prop trading) by commercial banks and their affiliates.

For institutional investors, this rule—if implemented and operates as intended—would reduce counterparty risk for the assets held by major multi-armed finance firms, such as Morgan Stanley and Goldman Sachs.

CalPERS’ lobbyist reported some appetite for the low-awaited implementation, but likely not enough to actually get it down before 2013.

“So the reality is [that] there are somewhat mixed messages in terms of the speed in which this has moved,” Lussier told the board of the $242.5 billion pension system. “That causes some confusion right there. But I would be very surprised if this issue gets any sort of high priority. At this point, we are sort of expecting a pretty brief lame duck [session], that will in all likelihood just push these issues into the next Congress. But we don’t see a lot of other issues being considered.”