How Washington’s new riches destroyed Tom Daschle.
Norman Ornstein, The New Republic Published: Wednesday, February 04, 2009

So Damn Much Money is the title of Bob Kaiser’s penetrating book on the explosion of lobbying and corruption in Washington over the past quarter century. Kaiser is right, and so is Barack Obama in his attempt to attenuate the corrosive links between lobbying and government–even with the hiccup created by Tom Daschle’s withdrawal.

In over 39 years in Washington, I have seen the city transformed from a sterile national capital akin to Canberra or Brasilia into a social, cultural, culinary, and economic metropolis that can (almost) compete with London and Paris. In 1969, when I arrived here, there was limited regional theater, the Smithsonian museums, and a literal handful of “exotic” restaurants (the most exotic of which was a Cuban dive called the Omega). Fancy clothing was the purview of Raleigh’s, where Hickey-Freeman was as hip as it got.

Today, the museums are world-class, as are the restaurants, the art scene, the fashion. But all this pales in comparison to the biggest change: the sheer amount of money sloshing around. In 1970, the federal budget was all of $195 billion. Today, the budget is over $3 trillion.

With so many federal dollars at stake, the capital injected into the system to influence government decisions has exploded. Law firms, lobbying firms, public relations firms–all have mushroomed over the past four decades, creating thousands of high-paying jobs, some going well into the seven figures.

In 1969, a member of Congress earned $42,500. Today, the pay is nearly four times that, $169,300. But in 1969, the salary of a first-year associate at prime Washington firms was around $10,000–while today, the starting pay for a first-year associate is $160,000, not including hefty bonuses for those who have clerked for a federal judge. Back then, a senior partner in a Washington law firm would earn a bit more than a member of Congress; today, that partner might make ten times a congressional salary.

The disparities have grown even sharper with lobbyists. In 1969, a newly minted lobbyist with solid Capitol Hill experience could count on making a touch more than the $10,000 they earned as congressional staff. Today, the congressional staffer making $50,000 can look at a peer making five or six times that much as a lobbyist. An assistant secretary in an executive department can make similar multiples upon leaving office and taking up lobbying. The explosion of public relations and lobbying firms has meant that huge conglomerates like Burson-Marsteller, Ogilvy, Hill & Knowlton, and WPP have bought up boutique firms created by former executive branch and congressional staffers, turning these staffers into instant multi-millionaires.

It is no wonder that the Washington area is now filled with neighborhoods of three-million-dollar houses; that the city now has its own version of Rodeo Drive, with a Jimmy Choo shoe store even.

Living in a prosperous, vibrant city is nice. But the corrupting influence of all that money is palpable. For senior members of Congress, it is not easy to see one’s peers–much less one’s former employees–leave the Hill and make so much more money. The seemingly inexplicable petty corruption of powerhouses like Dan Rostenkowski and Ted Stevens can be explained, I believe, by their belief that they were making such immense sacrifices to stay in public service that a few additional perks were well-deserved–and still left them far poorer than their lobbyist friends. And for the first time, we have young people who enter public service, not out of idealism or even a thirst for power, but out of a desire to make money.

Jack Abramoff and his colleagues showed that corruption can be painfully blatant. But often a more subtle dynamic is present: congressional staffers, members of Congress, and executive officials answer the phone calls and see the unsavory clients of lobbyists who enjoy prime tickets to Redskins games and golf at Burning Tree or might at some future point be their employers–who wants to alienate someone who might hold the key to a million-dollar job? Laws and regulations get more complicated when drafted by staffers and agency officials who know their market value is much higher when they are the ones who can interpret the nuances or find the loopholes when they leave government service.

Many of these lobbyists and consultants are my friends; most are very honorable people, but all–including Tom Daschle, a man of real integrity and strong basic values–are caught up in a system that is becoming more difficult to keep on the straight and narrow

That is why President Obama’s tough ethics and lobbying restrictions, the most far-reaching ever, are so welcome. Obama’s executive order has a blanket gift ban, will block lobbyists from taking jobs in his administration in any area where they have lobbied over the previous two years, and will bar administration officials from lobbying his administration at all after they leave office–for what could be a full eight years.

There is no doubt that some extremely talented people will be barred from taking jobs in the administration–and others will shrink from the prospect, given the hit on their future earning capability. But there are many talented people who will answer the call to public service without seeing it as an inevitable route to riches. In the rare case where a person is deemed indispensable, there is a waiver provision (first employed for Obama’s nominee for Deputy Secretary of Defense Bill Lynn) but the president has pledged to make it very rare. And, as the Lynn nomination shows, each waiver will get a lot of scrutiny.

Of course, there is another serious price, which has become more apparent over the past few days. Set tough standards, combine them with the kind of vetting process that is the equivalent of full body cavity searches, and you will inevitably have casualties, like Tom Daschle and Nancy Killefer.

None of this suggests that Obama should rethink or dilute either his ethics reform package or his willingness to recruit Washington insiders for key positions. And tough as the reform measures are, they are only the first step in breaking the corrupting influence of money in Washington. Ideally, these moves will encourage Congress to create its own sharper limitations on members and staff moving into lucrative lobbying posts. And it is now critical to pass campaign finance reform that tilts the system dramatically toward small donors and away from big shots, including Washington lobbyists. These steps will not end corruption or the impact of money; a huge federal government invites both. They will not keep some nominees from stepping into embarrassing situations; indeed, they may result in some very good people deciding it is not worth entering government. But at least, for the first time in a long time, public service is being framed as a calling, not as a springboard to get a larger piece of that huge pie.

Hilarious! This is like watching a grade school argument unfold. Democrats tossed the Republicans a hard ball (we will indict and prosecute former Bush lawyers for advising legalities of torture) – so the Republicans toss the ball back “you knew this was happening and never objected” – The political winds have shifted and now pols are getting caught in a sandstorm. Even Majority leader, Steny Hoyer, is asking for ALL the facts to be revealed. My guess? This will die a slow death because both parties would be harmed. In the meantime – more lies, deceit and distractions while Rome is burning…

WASHINGTON (CNN) — A source close to House Speaker Nancy Pelosi now confirms that Pelosi was told in February 2003 by her intelligence aide, Michael Sheehy, that waterboarding was actually used on CIA detainee Abu Zubaydah. Source says Nancy Pelosi didn’t object about waterboard usage because she wasn’t personally briefed about it. Source says Nancy Pelosi didn’t object about waterboard usage because she wasn’t personally briefed about it. This appears to contradict Pelosi’s account that she was never told waterboarding actually happened, only that the administration was considering using it. Sheehy attended a briefing in which waterboarding was discussed in February 2003, with Rep. Jane Harman, D-California, who took over Pelosi’s spot as the ranking Democrat on the House Intelligence Committee. This source says Pelosi didn’t object when she learned that waterboarding was being used because she had not been personally briefed about it — only her aide had been told. The source said Pelosi supported a letter that Harman sent to the administration at the time raising concerns. The source asked not to be identified because of the sensitive nature of matters discussed in classified intelligence briefings.

Pelosi admits attending one briefing in September 2002, but at a news conference last month, she was adamant that she did not know waterboarding was used. “At that or any other briefing, and that was the only briefing that I was briefed on in that regard, we were not — I repeat, we were not — told that waterboarding or any of these other enhanced interrogation methods were used, ” Pelosi said on April 23. Some Republicans have called for Pelosi to testify at congressional hearings. The number two House Democrat — Majority Leader Steny Hoyer, D-Maryland — said Tuesday, “I think the facts need to get out” regarding what members of Congress had been told about harsh interrogations. But when asked whether Pelosi testifying would be appropriate, Hoyer did not directly answer the question, saying, “The issue is what was done. If you don’t have the facts pounded on the table, they (Republicans) are pounding on the table, or they are pounding on Speaker Pelosi. Take your pick. But they are doing so as a distraction, as a distraction from what was done in this case.”

Murtha could have an entire website devoted to his corruption tactics…
The Washington Post – Tues., May 5, 2009

WASHINGTON – The headquarters of Murtech, in a low-slung, bland building in a Glen Burnie business park, has its blinds drawn tight and few signs of life. On several days of visits, a handful of cars sit in the parking lot, and no trucks arrive at the 10 loading bays at the back of the building. Yet last year, Murtech received $4 million in Pentagon work, all of it without competition, for a variety of warehousing and engineering services. With its long corridor of sparsely occupied offices and an unmanned reception area, Murtech’s most striking feature is its owner — Robert C. Murtha Jr., 49. He is the nephew of Rep. John P. Murtha, the Pennsylvania Democrat who has significant sway over the Defense Department’s spending as chairman of the House Appropriations defense subcommittee.

Robert Murtha said he is not at liberty to discuss in detail what his company does, but for four years it has subsisted on defense contracts, according to records and interviews. He said Murtech’s 17 employees “provide necessary logistical support” to Pentagon testing programs that focus on detecting chemical, biological, radiological and nuclear threats, “and that’s about as far as I feel comfortable going.” Giving more details could provide important clues to terrorist plotters, he said. Murtha said he does not advertise being the nephew of John Murtha and considers it “unfortunate” that some will unfairly assume Murtech received its federal contracts because of his uncle’s influence at the Pentagon. “If we’re not doing our job well, we wouldn’t be doing our job,” he said. “I’m successful at the work I do because of the skill sets I have. . . . You don’t know how good someone is unless you work with them.” A spokesman at Murtha’s office did not return calls seeking comment. The lawmaker, a former Marine, has said in the past that he is proud of his family’s service to the military and the government.

Over the years, John Murtha has proudly claimed credit for using his Appropriations Committee seat to steer hundreds of millions in Pentagon work to companies in his district, many of them fledgling enterprises run by campaign contributors. His influence also may be seen in the military improvements at the Johnstown airport that bears his name. The little-used commuter airport doubles as a wartime preparedness facility for the Pentagon after $30 million in improvements.

Family ties
Murtha’s power has had beneficial effects within his family. His brother, Robert C. “Kit” Murtha, built a longtime lobbying practice around clients seeking defense funds through the Appropriations Committee and became one of the top members of KSA, a lobbying firm whose contractor clients often received multimillion-dollar earmarks directed through the committee chairman. Robert C. Murtha Jr. of Murtech is Kit Murtha’s son. He also is a former Marine who once served as a presidential security officer and aide to the president for White House functions. He worked for eight years for ACS, a defense and information technology contractor. When Lockheed purchased ACS in 2004, he started several companies, including Murtech, which he registered as a defense contracting firm. Murtech received its contracts primarily from the Army Space and Missile Defense Command in Huntsville, Ala., which has been generous to companies in John Murtha’s district and enjoys a close relationship with the congressman through a mutual interest in breast cancer research. The Army command has won at least $200 million a year in federal funding for the cancer research, of which Rep. Murtha is a stalwart supporter. In a program called Missiles to Mammograms the command has collaborated with a contractor in Murtha’s district, Windber Medical Center, in a multimillion-dollar project to explore using missile-tracking technology to detect breast cancer. The command awarded its first storage contract to Murtech without competitive bidding, paying $1.4 million a year. Robert Murtha Jr. says the no-bid arrangement was “the government’s choice” and occurred because the government “got itself in a bind.” A contract with SA Scientific of San Antonio was about to lapse, and the command needed Murtech, then serving as a subcontractor to the Texas company, to store materials for the military’s Critical Reagents Program. The program produces lab materials that can be used in handheld devices and sensors to detect the presence of biological toxins.

“We were uniquely qualified because we had already been doing that work,” Murtha said. In justifying the award, the command said in a spring 2007 notice that “Murtech, Inc. possesses a unique combination of certain essential capabilities” to perform the warehousing. Leo Fratis, the Army contracting officer who handled the matter, said there was “nothing improper” about the contract. He said it was awarded on a no-bid basis only because the Army command “had a lot of things going on at the time.”
Pentagon spokesman Julius Evans said the congressman never contacted the Army command about his nephew’s company and has no say in its procurement decisions. “Congressman Murtha has had no influence over any contract award by our organization,” Evans said. The Pentagon has paid $2 million to Murtech to provide “logistics and engineering” for tests of joint dismountable reconnaissance systems, emergency tools and kits that troops can use to evaluate the environment when a release of biological or chemical agents is suspected. Robert Murtha Jr. explained that the work involves Murtech employees moving equipment to Army test locations.

Murtech also was awarded a large piece of military business in September, as part of a contract for detection equipment awarded to ICX Technologies, a client of the lobbying firm PMA Group. PMA founder Paul Magliocchetti is a close friend of John Murtha’s, and his firm’s clients were highly successful in securing hundreds of millions of dollars in defense earmarks from Murtha. PMA is under federal investigation for its campaign donations to Murtha and other lawmakers. Several members of the congressman’s family have served in the military and worked in the government contracting arena. There’s no evidence that Murtech has received direct congressional earmarks. A congressional rule imposed in 2007 requires that lawmakers certify that the earmarks they add to the federal budget would not benefit them or their family members. The nephew disputes the notion that he has secured Pentagon work because of his family ties. In fact, he said, having a powerful relative can sometimes be a distraction. “I’ve been critiqued all my life, having the last name of Murtha,” he said. “Whenever I walk into a room, I don’t know if you like him or if you don’t like him.”

Are taxpayers getting best value?
But Steve Ellis, a spokesman for the watchdog group Taxpayers for Common Sense, said contracts to Murtech raise questions about whether taxpayers are getting the best value. “Historically we’re always concerned when there is a sole-source or single-bidder contract,” he said. “By definition, the taxpayer isn’t necessarily getting the best deal possible. And certainly when you see the company has close ties to one of the most powerful appropriators in Congress, our antenna really perks up.” During an unannounced visit to Murtech headquarters last week, a reporter asking to talk to the owner was waved away by an employee. “He’s not here. Come back another day,” said the woman who opened Murtech’s security door. “Unfortunately, everybody’s stepped out.” But a few minutes later, Murtha emerged and answered questions about the company.

In an interview, Murtha expressed concern that publicity could be harmful to his business. Tom Mann, a Murtech vice president, also defended the company’s operations, noting that Murtech had won the confidence of the Army by doing a good job. Mann said the $4 million in contracts has not been excessive for the quality of work performed and the demands on the business. “With a warehouse and distribution center, there’s a lot of overhead,” he said. “There’s a huge recurring utility bill.” “Busy, busy. We’re always busy here,” said one employee walking outside the building.

May 4, 2009
BAGHDAD (Reuters) – Iraq’s top anti-corruption official vowed Monday to detain senior Trade Ministry officials even though most of them disappeared last week after Iraqi forces tried to serve them arrest warrants.”We are going ahead with pursuing the arrest of the wanted officials. We are especially determined after what happened a few days ago at the ministry,” Rahim al-Ugaili, a judge and head of the Iraqi Integrity Commission, told Reuters. Last Wednesday, guards at the Trade Ministry in central Baghdad fired shots into the air when the Integrity Commission sent forces to serve arrest warrants for nine ministry employees, including the head of the Iraqi Grain Board and Trade Minister Abdul Falah al-Sudany’s two brothers. The commission forces responded by firing into the air as most of the officials facing arrest orders escaped out the ministry’s back exit. Only the ministry spokesman was arrested.

The government of Prime Minister Nuri al-Maliki has vowed to curb rampant corruption in Iraq, a fledgling democracy whose government was rebuilt from the ground up after the 2003 ouster of Saddam Hussein, but very few officials have been prosecuted.
Iraq has been awash in opportunities for corruption since 2003, due to huge U.S.-funded reconstruction projects, billions of dollars in oil revenues, and weak government oversight. In 2008, only Somalia and Myanmar were seen as more corrupt than Iraq, according to Transparency International. In a country where tens of thousands of people have died since 2003, and armed groups have vied for control of state resources, many anti-corruption officials have been killed or threatened. One former anti-corruption boss fled the country.
The Trade Ministry has denied wrongdoing in the corruption charges, which include allegations of fraud related to the import of food used in Iraq’s public rations program. Sudany, who was not charged, denied in the state newspaper Monday that he was preparing to flee the country and said he was ready to answer any questions about the ministry, which includes the state Grain Board.
An employee of the Trade Ministry, requesting anonymity, said she had not seen any of the officials facing arrest since last Wednesday. Iraq is one of the world’s top importers of rice and wheat. The Grain Board regularly tenders for millions of dollars worth of grain, which is shipped to its southern Basra port and distributed across the country.

In November of 2007, while campaigning, John Edwards said: “Washington is awash with corrupt money, with lobbyists who pass it out, with politicians who ask for it,” he said. In finishing his speech, he reiterated: “this election is the ‘great moral test of our generation.’ Now, 18 months later we have Mr. Edwards being investigated for use of PAC money for personal use.
Review this release and try and control your anger…

RALEIGH, N.C. (AP) — His once-prominent political career is buried and the turmoil of his marriage is playing out in public. Now, John Edwards is facing a federal inquiry. The two-time Democratic presidential candidate acknowledged Sunday that investigators are assessing how he spent his campaign funds — a subject that could carry his extramarital affair from the tabloids to the courtroom. Edwards’ political action committee paid more than $100,000 for video production to the firm of the woman with whom Edwards had an affair. The former North Carolina senator said in a carefully worded statement that he is cooperating. “I am confident that no funds from my campaign were used improperly,” Edwards said in the statement. “However, I know that it is the role of government to ensure that this is true. We have made available to the United States both the people and the information necessary to help them get the issue resolved efficiently and in a timely matter.”

While Edwards focused his comment on campaign funds, he also had a range of other fundraising organizations — including two nonprofits and a poverty center at his alma mater — that have come under scrutiny. Chief among them was the PAC that paid Rielle Hunter’s company for several months in 2006 for Web videos that documented Edwards’ travels and advocacy in the months leading up to his 2008 presidential campaign. The committee also paid her firm an additional $14,086.50 on April 1, 2007. Edwards acknowledged the affair with Hunter last year, months after dropping his presidential bid.

At the time of the 2007 payment, the PAC only had $7,932.95 in cash on hand, according to records filed with the Federal Election Commission. That day, according to the records, Edwards’ presidential campaign paid the PAC $14,034.61 for what is listed as a “furniture purchase.” Willfully converting money from a political action committee for personal use is a federal crime. The furniture money was one of just five contributions to the political action committee between April 1 to June 30, 2007. The other four were on June 30, the last day of the reporting period, including a $3,000 contribution from the wife of Edwards’ finance chairman, Fred Baron.
Baron, Edwards’ national finance chairman and a wealthy Dallas-based trial attorney, said last year that he quietly began sending money to Hunter to resettle in California. He said no campaign funds were used and that Hunter was not working for the campaign when he started giving her money. Edwards has said he was unaware of the payments. Baron died of cancer in October.

U.S. Attorney George Holding has declined to comment and said he won’t confirm or deny an investigation. Kate Michelman, a former head of the abortion-rights group NARAL who advised the Edwards campaign, said she hopes there was no wrongdoing.

“All of us remain very saddened by what has happened to John, because he was right on the policies,” Michelman said Sunday. “It remains a very sad occurrence for all of us. It’s sad for John and Elizabeth, and this is just one more problem for them to deal with.”
Edwards, 55, powered onto the national scene in 1998, when he won a seat for the U.S. Senate in his first political campaign. With smooth speech and good looks, the former trial lawyer ran for the White House in 2004 and was tapped as Sen. John Kerry’s running mate. He returned to the campaign trail in a 2008 presidential bid but was largely overshadowed by a duel between Hillary Clinton, vying to be the first female president, and Barack Obama, who did become the first black president. Since announcing the affair, Edwards has remained largely secluded, and he canceled all his public appearances before the November election because he said he didn’t want to be a distraction for Obama.

His wife, Elizabeth, who is terminally ill with cancer, will soon be releasing a book talking about the affair. In it, she writes that news of the affair made her vomit. She also describes Hunter as “pathetic.”

14 February 2008
It will take more than one dramatic bust to clean up New York’s mob-plagued building industry. Federal and local prosecutors were quick to brand last week’s massive bust of 62 alleged Gambino crime family members, union officials, and construction executives as “historic,” “extraordinary,” and “a milestone toward eradicating” mob influence in New York’s building industry. But the real message of the indictments is that even after decades of intensive investigation by law enforcement, organized crime remains a powerful force within the city’s construction industry and in related businesses—like trucking—that are particularly susceptible to mob corruption. Even spectacular busts won’t end mob influence unless government presses for reforms that transform the very nature of the construction business—something that politicians have long refused to do. The construction industry operates like few other businesses today, especially in New York, because of outdated labor practices. In most unionized industries, a firm hires workers who then join the union; in construction, by contrast, labor law permits contracts between builders and unions in which unions effectively have power over hiring. They enlist workers in their organizations first and then send them out on jobs.

Mobsters have used control of hiring to dominate construction in New York. “Wise guys” can place friends or “associates” in key positions, sending them to oversee construction sites, where they shake down contractors and enforce mob discipline among union members. And they can demand payoffs from people trying to get into the business, providing a lucrative source of cash. Indeed, last week’s indictment contained a number of counts charging that Gambino associates accepted bribes so that “unqualified” individuals could gain union cards. Control of hiring also gives mob-connected union bosses access to pension and health benefits funds, which they regularly fleece. The latest indictments, for instance, charge Gambino associates with underreporting the hours worked by some Teamsters’ union members who drive trucks that service construction sites, and pocketing money that was supposed to fund benefits and pensions. Such schemes are a reminder that mobbed-up construction unions haven’t represented their workers’ best interests.

New York State’s laws and policies add to the industry’s problems by snuffing out competition. The state decrees that on all public construction projects—representing a huge chunk of the industry’s revenue pie—government must pay even nonunionized workers a “prevailing” wage that in most cases is equal to the highest union worker’s wage. The law sharply reduces the ability of non-union contractors to get government work, since they lose any pricing advantage that lower wages would give them. Thus, many don’t even bother to bid on government contracts, which the construction unions inevitable win. That’s the kind of monopoly that mobsters love. One of the rare circumstances when the “prevailing wage” doesn’t prevail on public jobs in New York State is when mobbed-up unions solicit bribes from contractors so that they can use nonunion workers. The mob, in other words, plays both sides of the fence.

The state’s Wicks Law further aids the wise guys by requiring government to carve up public construction projects into at least four separate bidding packages, multiplying the number of contractors and subcontractors involved in any project and adding layers of complexity that encourage fraud, bribery, and bid rigging. For decades, organized crime experts have urged the state to repeal or modify the law because it’s so hard for local officials to police. But the unions’ political allies in the state legislature have refused to do so—the unions love the bureaucracy, inefficiency, and extra work (and workers) that Wicks requires. Governor Eliot Spitzer is the latest to propose amending Wicks, but his reform efforts are stuck in the state legislature.

Using control of construction unions as leverage, the mob has also extended its tendrils to the many contractors and subcontractors that do business in New York, effectively creating cartels that reduce legitimate competition and drive up prices. Over the years, mob-owned or controlled companies in the city have monopolized everything from supplying concrete for construction projects to contracts for painting and drywall installation. The price of this mob control—what prosecutors last week branded the “corrosive influence” of organized crime on the construction industry—adds hundreds of millions of dollars to the cost of building in the city. In one infamous and representative case from the early 1980s, New York State was overcharged some $12 million for the concrete used to build the Jacob Javits Convention Center because a mob cartel led by Anthony “Fat Tony” Salerno controlled the business, and no legitimate firms would bid against it.

The current state of the local construction industry contrasts unfavorably with the city’s carting industry, in which the mob’s influence was dramatically suppressed in the 1990s by aggressive prosecutions and structural reforms. Prompted by threats against a major national competitor, BFI, that tried to pry its way into New York, local authorities began a vigorous investigation of the carting industry and followed up successful indictments and prosecutions by seizing mobbed-up companies and urging landlords to do business with BFI and other “clean” shops. The city, meanwhile, set up a commission to investigate and oversee new companies entering the industry. The eventual result: a significant decline in carting prices for local businesses and an end to mob violence that had plagued the industry for years.

In the aftermath of these moves, then-Mayor Rudolph Giuliani proposed a similar commission to oversee the construction industry. But the Giuliani-led effort died in the face of fierce opposition from the industry and its city council friends, who complained that a commission would make the construction business too bureaucratic and cumbersome. Not surprisingly, neither the industry nor its political friends proposed any alternate solutions to the problem, leaving the status quo unchanged—and that was just fine with the mob. Even as prosecutors make strides with indictments against members of the so-called five Mafia families in New York, investigators warn that new groups representing Asian and Eastern European mobsters are making headway in labor racketeering in New York City. Without better oversight and structural changes to the construction industry, a new generation of mobsters lies waiting to take over.
Steven Malanga is senior editor of City Journal and a senior fellow at the Manhattan Institute. He is a coauthor of The Immigration Solution.

NY Times – April 2009
The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves. “We knew this was not going to be a case we could handle ourselves in Albany County,” recalled P. David Soares, the Albany County district attorney. In 2007, Attorney General Andrew M. Cuomo’s office and then the Securities and Exchange Commission took over the inquiry, which has ballooned into a sprawling investigation involving some of the most prominent players in New York’s political and financial worlds.

Hundreds of investment firms have been subpoenaed. Three people have been criminally charged and another has pleaded guilty to a felony. And the scandal has grabbed the attention of Wall Street, as members of the investment establishment’s top tier now face scrutiny. The Carlyle Group, the politically connected private equity firm, is among the companies whose transactions are being examined. Steven Rattner, just appointed to serve as the Obama administration’s point man in the bailout of the auto industry, has emerged as a significant figure. And an investment firm that manages money for the Hunts, the prominent Texas oil family that owns the Kansas City Chiefs football team, has already settled with the S.E.C., and one of its former executives has pleaded guilty to a felony and is cooperating with investigators.

In an interview Friday, Robert Khuzami, the S.E.C.’s enforcement director, would not discuss the specifics of the investigation but said it was a top priority of his agency to aggressively pursue “those who violate their trust to safeguard public pension funds.”
At the heart of the case are the fees paid by investment firms to associates of Mr. Hevesi as the firms sought business from the pension fund. Such fees are legal, unless they are used, either directly or indirectly, to bribe public officials. The two associates of Mr. Hevesi who have been indicted — Hank Morris, once a nationally prominent political consultant, and David Loglisci, the pension fund’s chief investment officer — are accused of encouraging investment firms to direct money to friends and allies set up as “sham” intermediaries, according to court filings.
Mr. Cuomo emphasized this week that more developments were to come. “We do expect additional charges because we have other cases that are being worked up as we speak,” he said. “The investigation is continuing.” On Friday, a White House spokesman said President Obama had full confidence in Mr. Rattner, a former New York Times reporter and a founder of the Quadrangle Group, a private equity firm. Mr. Rattner arranged to have Quadrangle pay a company that employed Mr. Morris more than $1 million as it sought business from the pension fund, a person with knowledge of the inquiry said this week. According to S.E.C. filings, the Carlyle Group and another firm paid $10 million to the company that employed Mr. Morris. Both Quadrangle and the Carlyle Group said this week that they were fully cooperating with the investigation. The inquiry has put a spotlight on not only the well-known investment bankers and firms, but more high-profile figures and unconventional business transactions. One top aide to Mr. Hevesi, Jack Chartier, was said to be so infatuated with Peggy Lipton, the former “Mod Squad” actress, that he pressured investment firms to confer benefits on her, including help with her rent. Another aide, Mr. Loglisci, had investment executives plow hundreds of thousands of dollars into “Chooch,” a low-budget movie he and his brother were producing about a lovable loser from Queens; the film also featured Mexican prostitutes and a nine-pound dachshund named Kiwi Limone. Mr. Hevesi’s aides are also accused in court filings of directing more than $800,000 in pension fees to Raymond B. Harding, a former leader of New York State’s Liberal Party, for helping to arrange for an Assembly seat in Queens to be vacated so Mr. Hevesi’s son could run for it.

Mr. Morris, once a top national political consultant, has been accused of setting himself up as the pension fund’s gatekeeper for high-flying investments — hedge funds, private equity firms and the like — while Mr. Hevesi was convincing the Legislature that the pension fund should be allowed to put ever greater amounts of money into these loosely regulated investments.
All the while, investment firms were pouring money into Mr. Hevesi’s campaign coffers.

“It goes to the heart of public integrity,” Mr. Cuomo said this week of the investigations, adding, “The more the scheme goes on, the more brazen, the more confident they become.” To be sure, Mr. Cuomo is chipping away at a mountain-size problem afflicting public pension funds across the country. Most of them outsource the work of investing their assets to professional money managers, who compete zealously for the work. The fees paid to the money managers can be very lucrative, even when there are losses, and the fees tend to be higher for riskier strategies like hedge funds.

The problems usually begin when a pension fund’s board is deciding which money managers to award its business to. Many members of these boards are elected officials, like local comptrollers and treasurers, or the appointees of mayors and governors, who also need to raise campaign cash. Money managers have repeatedly tainted the selection process by making campaign contributions to these board members, then walking away with the pension fund’s business.
Mr. Cuomo’s office is already considering proposing systemic reforms, at least in the state and possibly federally, most likely in conjunction with the S.E.C. Those reforms could include a ban on the use of intermediaries in pension transactions and stricter limits on campaign contributions made by investment firms, or their executives, to public officials overseeing public pensions. Certainly, the scandal itself is familiar.

In Connecticut, the former state treasurer Paul J. Silvester went to prison in 1999 after pleading guilty to charges of racketeering and money laundering in connection with the state pension fund. In a bid for leniency, Mr. Silvester provided detailed testimony on how he had taken money and favors in exchange for the placement of more than $500 million in state pension money with various investment firms. Connecticut, like New York, places all pension decision-making authority in the hands of a sole trustee, rather than spreading it among the members of a board. Many governance experts think the use of a sole pension trustee does not build enough checks and balances into the system. But decision-making by boards is not perfect either. California’s big public pension fund, known as Calpers, has suffered so many pay-to-play allegations that in 1997, the State Legislature passed a law barring such payments. But a member of the Calpers board, Kathleen Connell, took the matter to court and won. She argued that the law made it harder for incumbents than their challengers to raise campaign money. The law was thrown out.

April 16, 2009 — NY Post

YESTERDAY’S wide ranging indictment against former Liberal Party boss Raymond B. Harding paints a vivid portrait of ballot lines for sale in New York. The indictment alleges that, in exchange for numerous Liberal endorsements over the years, officials in the office of disgraced ex-Comptroller Alan Hevesi rewarded Harding with secret assignments on transactions in the state’s pension fund that garnered the ex-party boss hundreds of thousands of dollars in fees. The indictment is a reminder that New York’s unusual election law, which lets candidates run on multiple party lines, is an invitation to corruption and political patronage. With the growing disgust of business-as-usual in Albany, now is the time for reforms that would give New York a genuine third-party system — in which minor parties run their own candidates and compete in the marketplace of ideas for votes.

Minor parties are common in US politics, but few states afford them such an easy path to power as New York: In the Empire State a minor party can cross-endorse candidates who are also appearing on the Democratic and Republican lines. This third-party backing has become an object of intense desire among Republicans and Democrats, because it can cut down on competition and ensure that an independent candidate doesn’t siphon votes away from major-party candidates. New York law also gives minor parties incentives to cross-endorse popular candidates rather than run their own party members as contenders. For starters, a party that garners at least 50,000 votes in a gubernatorial election earns an automatic spot on the ballot for the next four years. And cross-endorsing also gives minor parties influence over the votes of Democratic or Republican office-holders whose views they normally couldn’t sway. All this electoral complexity leads to political horse-trading that gives third-parties disproportionate power without actually increasing choices for voters. In 1998, for instance, the new Working Families Party had only about 100 enrolled voters in the state. But the party endorsed Democratic gubernatorial candidate Peter Vallone, a fiscal conservative whose platform didn’t reflect the far-left WFP agenda. Vallone was desperate for a third-party line in his battle against George Pataki, who wielded both the Republican and Conservative lines; the WFP, a creature of the state’s unions, was desperate for votes. New York law allowed tens of thousands of voters, many of them union members who are enrolled Democrats, to vote for Vallone on the WFP line — giving the party a place on future ballots and hence enormous influence despite its paltry enrollments.

Harding was a master at using the power of the third-party cross-endorsement. He cross-endorsed Rudy Giuliani for mayor, thereby giving Giuliani an extra line where Democrats who wanted to vote for him could do so without pulling the Republican lever. In a city with only only about 33,000 voters enrolled as Liberals, Giuliani pulled nearly 62,000 votes on the Liberal line in his 1993 defeat of David Dinkins. With his party helping provide the margin of victory in a tight race, Harding became a powerful force in the Giuliani administration, where two of his sons and other Liberal officials gained appointments. But Harding worked with members of both major parties. He frequently cross-endorsed Alan Hevesi in the Queens Democrat’s campaigns for the state Assembly, for mayor and for state comptroller. It was in exchange for this longtime support, the indictment alleges, that officials in Hevesi’s office conspired to reward Harding by making him a party to transactions that they tried to conceal from public view. Harding, the indictment alleges, showed his gratitude and continued support by helping to find a private-sector job for then-Assemblyman Michael Cohen, clearing the way for Hevesi’s son Andrew to replace him in the Legislature.

As these examples suggest, the potential for abuse of this sort in such a system is so great that most states made the process of cross-endorsing an electoral relic in the 19th century. Only seven states still allow it, and nowhere is its practice as widespread and influential as here. New York needs to reform its election law to end the so-called “fusion politics” of cross-endorsing. This would ensure that third-parties offer voters a real choice — not just a duplication of names on other party lines. And it would force minor parties to engage in real organization building, rather than allowing groups with little membership to earn their way onto ballots on the coattails of major-party candidates, ala the Working Families Party in 1998. That practice awards too much power to narrow, special interest parties. Albany owes voters a reform that most states embraced more than a century ago.