(June 15, 2010) — New York Attorney General Andrew Cuomo accused an indicted top aide to former state comptroller Alan Hevesi of leading a $35 million fraud scheme at the $129.4 billion New York State Common Retirement Fund, the nation’s third largest public pension fund.

The filing in the New York State Supreme Court in Manhattan was in response to a bid by Henry “Hank” Morris, a once-adviser to former state comptroller Alan Hevesi, to dismiss the March 2009 indictment over alleged corruption at the New York pension fund. Separately, the US Securities and Exchange Commission has charged Morris with securities fraud.

In court papers, Cuomo’s office argued that Morris’ conduct was fraudulent and shouldn’t be excused because of a perception that “everybody does it,” the Wall Street Journal reported. Morris has fought back, saying the case should be dismissed because the “long-standing” practice of using political connections to obtain access to public assets is, while possibly unethical, not illegal.

Morris has been accused of using his ties to Hevesi, who ran the state’s massive pension fund, to take kickbacks and other payments to direct billions of dollars in pension fund investments to favored companies in a “pay-to-play” scheme. He was charged last year in a 123-count indictment with charges that included enterprise corruption, securities fraud, grand larceny, bribery and money laundering, according to an indictment.

“The fact that fraud and corruption may be rampant does not cloak wrongdoers with impunity,” Special Deputy Attorney General Ellen Nachtigall Biben said in the filing Monday. Cuomo said Morris “used lies, deceit and self-dealing” to further his scheme, obtaining “more than $19 million in placement and management fees. The aggregate amount that defendant and members of his criminal enterprise received as a result of their fraudulent conduct exceeded $35 million.”

The former chief investment officer in the comptroller’s office, David Loglisci, was also charged in the case and pleaded guilty in March to a securities fraud charge.

The attorney general’s office additionally argued that Morris, in addition to working as a middleman by using his political influence, secretly worked from the inside, concealing his involvement from most people in the comptroller’s office. He set up sham corporations and didn’t appear at meetings with potential investors in an effort to cover-up the activity, the AP reported.

Private equity firms the Quadrangle Group and the Carlyle Group are among the at least 15 firms that have entered settlements in the probe, Reuters reported, resulting in adoptions of a code of conduct to curb the use of placement agents for pension fund investments.