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Univ. of Toledo College of Law

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Wednesday, April 15, 2009

SEC and New York State File Charges Against Former New York State Political Leader and Hedge Fund Manager in Pension Fund Fraud

The SEC today charged Raymond Harding, who is a former leader of the New York Liberal Party, and Barrett Wissman, a former hedge fund manager, in connection with a multi-million dollar kickback scheme involving New York's largest pension fund.  According to the SEC's complaint, Harding and Wissman participated in a scheme that extracted kickbacks from investment management firms seeking to manage the assets of the New York State Common Retirement Fund. (The SEC previously charged Henry "Hank" Morris and David Loglisci with orchestrating the fraudulent scheme to enrich Morris and others with close ties to them.) Specifically, the SEC alleges that Wissman arranged some of the payments made to Morris, and Wissman was rewarded with at least $12 million in sham "finder" or "placement agent" fees. Harding received approximately $800,000 in sham fees that were arranged by Morris and Loglisci.

In addition, Attorney General Andrew M. Cuomo today announced charges against Harding and a guilty plea from Wissman for their alleged involvement in the kickback scheme at the Office of the New York State Comptroller.  The felony complaint alleges that Harding obtained over $800,000 in illegal fees on State pension fund investments as a reward for opening up a State Assembly seat for then Comptroller Alan Hevesis son and for over 30 years of prior political endorsements.  The felony complaint filed today in New York County Criminal Court charges that Harding committed multiple felonies in violation of the Martin Act, the New York securities fraud statute.

The SEC's amended complaint additionally charges three entities through which Wissman perpetrated the fraud - Flandana Holdings Ltd., Tuscany Enterprises LLC, and W Investment Strategies LLC - as well as two investment management firms with which he was affiliated at the time, HFV Management L.P. and HFV Asset Management L.P. According to the SEC's amended complaint, Wissman was a longtime family friend of Loglisci and a key participant in the kickback scheme. Wissman worked with Loglisci and Morris to extract sham finder fee payments for Morris and for himself from investment managers. Wissman received millions of dollars in sham fees and other illicit payments, and arranged millions of dollars in additional payments for Morris. In addition, Wissman caused HFV Management L.P. and HFV Asset Management L.P. to pay sham finder fees to Morris in one New York State Common Retirement Fund transaction.

According to the SEC's amended complaint, Harding was a political ally who was allegedly inserted by Morris and Loglisci into at least two fund transactions for the sole purpose of compensating Harding, and Harding received a total of approximately $800,000 in sham "finder" fees. In one of those transactions, the investment management firm already had a finder and Morris arranged for that finder to secretly split his fee with Harding. In another transaction, Morris and Loglisci simply inserted Harding as a finder on an investment solely for the purpose of directing money to Harding.

In a partial settlement of the SEC's charges, Wissman and Flandana Holdings Ltd. have consented, without admitting or denying the SEC's allegations, to the entry of a partial final judgment that permanently enjoins them from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") and defers the determination of disgorgement and financial penalties until a later date.

In addition, HFV Management and HFV Asset Management have consented, without admitting or denying the SEC's allegations, to the entry of a final judgment that permanently enjoins them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 206(2) of the Advisers Act, and that orders them to pay a penalty in the aggregate amount of $150,000.

The SEC's charges against Harding remain pending. The amended complaint alleges that Harding aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b-5 committed by Morris and Loglisci. The SEC is seeking a permanent antifraud injunction, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties

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