I believe we are disclosing a national network of actors who often acted in concert and did this all across the country

TO BE NOTED: From the NY Times:

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"May 1, 2009
Fraud Charge in N.Y. Pension Case

By DANNY HAKIM

An inquiry into corruption at the New York State pension fund continued to broaden nationwide on Thursday when a top consultant to pension funds around the country was charged with a fraud-related felony by the office of Attorney General Andrew M. Cuomo.

The consultant, Saul Meyer of Aldus Equity, a Dallas-based firm, was also charged with violations of securities laws by the Securities and Exchange Commission as part of what the agency called “a multimillion-dollar kickback scheme involving New York’s largest pension fund.” The commission also charged Aldus Equity with multiple securities violations.

Mr. Meyer, 38, is a co-founder of Aldus, which has advised several of the nation’s largest pension funds, including those overseen by the states of New York and Oklahoma as well as the cities of Los Angeles, San Antonio and Fort Worth. Aldus is also among more than a dozen private equity consultants approved by the board of Calpers, the giant California pension fund, though its staff has not used Aldus’s services.

Mr. Meyer surrendered to the authorities in New York and pleaded not guilty to the fraud-related felony, a violation of the Martin Act, a sweeping state securities statute, on Thursday in Manhattan Criminal Court. A judge ordered him released on $200,000 bail.

In a teleconference on Thursday, Mr. Cuomo said his investigation, which is continuing, had uncovered what amounts to a conspiracy involving politicians, professional investors and consultants to defraud public pension funds in New York and other states by paying millions of dollars in kickbacks in exchange for access to the funds. Investment firms reap lucrative fees by managing portions of the funds.

“I believe we are disclosing a national network of actors who often acted in concert and did this all across the country,” Mr. Cuomo said.

James Clarkson, director of the S.E.C.’s New York regional office, said: “Aldus was chosen by the pension plan because of Aldus’s willingness to illegally line the pockets of others. When another investment manager refused to pay kickbacks, that firm was rejected and Aldus cashed in.”

In the wake of the charges, many Aldus clients were scrambling to sever their ties with the firm. Gov. Bill Richardson of New Mexico, caught up in a public investment scandal in his state, ordered the New Mexico State Investment Council, which manages the state’s trusts, to fire Aldus on Wednesday; the comptrollers of New York State and New York City took similar actions on Thursday.

“I learned years ago that it’s far easier for a prosecutor to file a complaint than to prevail at a trial,” said Paul L. Shechtman, Mr. Meyer’s lawyer. “Time and the evidence will show that Saul Meyer did nothing wrong.”

In a statement, a lawyer for Aldus, Matthew D. Orwig, accused the S.E.C. of conducting a “trial by news release” and called its action “appalling and careless.”

Mr. Cuomo’s office and the commission have been investigating Alan G. Hevesi, the former New York State comptroller, since 2007, and the S.E.C. recently began scrutinizing pension transactions in California. Federal investigators have also been looking into public investment funds in New Mexico. The tentacles of the various investigations increasingly appear to lead back to one another.

Aldus is accused of helping Daniel Hevesi, Mr. Hevesi’s son, profit from a deal in New Mexico at the same time that the New York comptroller’s office, then run by his father, agreed to increase by $200 million the amount of pension money overseen by Aldus.

Laura A. Brevetti, a lawyer for Daniel Hevesi, said on Thursday that her client did not have “any knowledge of a so-called quid pro quo arrangement for his benefit.” Bradley D. Simon, a lawyer for Alan Hevesi, said his client did not engage “in a quid pro quo to benefit his son.”

Hank Morris, a former political consultant to Alan Hevesi, also received money as part of deals in New Mexico and California. Mr. Morris was accused last month in an indictment of demanding millions of dollars from investment firms in exchange for access to the New York State pension fund.

He has pleaded not guilty.

“We are purposefully and aggressively looking to cooperate with other enforcement agencies across the country,” Mr. Cuomo said. “This is sort of like when you pull a thread on the sweater and that one thread starts to unravel the entire fabric.”

“We’re pulling threads and it turns out the other end of the thread is in New Mexico or Connecticut or Illinois or in California,” he said.

In court filings, the S.E.C. has described a range of improper transactions undertaken in connection with an investment pool run by Aldus for the New York State pension fund. Among other things, Aldus agreed to split fees with Mr. Morris as part of its advisory deal with the pension fund, the filings said.

Deutsche Bank, which had owned a significant minority interest in Aldus, said on Thursday that it had exercised an option to terminate its stake.

According to the complaint from Mr. Cuomo’s office, Mr. Meyer sought to sever his deal with Mr. Morris in 2006 when Deutsche Bank was considering buying a stake in Aldus. He asked a hedge fund manager to intercede on his behalf and sound out Mr. Morris about ending their arrangement.

The complaint said that Mr. Morris told the hedge fund manager: “Tell that little peanut of a man that I can take the business away as easily as I provided it.”

Mr. Cuomo said on Thursday there was more to come. “It’s an ongoing investigation,” he said, “and I would say, ‘Stay tuned.’ ”

top banking regulators feared a systemic risk if the deal was not completed, and even threatened to remove management if it balked

TO BE NOTED: From the NY Times:

"U.S. Role Questioned on Merrill

By ZACHERY KOUWE

Newly revealed testimony about federal involvement in the Bank of America acquisition of Merrill Lynch is raising questions about whether bank regulators may have overstepped during a period of extreme stress in the financial system.

Kenneth D. Lewis, the chairman of Bank of America, told investigators that he was pressured by the government to complete the acquisition of Merrill Lynch at the end of last year and to withhold material information about government assistance from shareholders, according to a letter released Thursday by Attorney General Andrew Cuomo of New York.

According to Mr. Lewis’s testimony, top banking regulators feared a systemic risk if the deal was not completed, and even threatened to remove management if it balked.

In his letter to Congressional leaders and federal securities regulators questioning the role of the government in the deal, Mr. Cuomo said he was concerned about the lack of transparency into the program to shore up the nation’s banking system. While protecting taxpayers’ interests, “it is equally important that investor interests are protected and respected,” he wrote.

He also raised the possibility that Bank of America broke federal securities regulations by not disclosing Merrill’s staggering fourth-quarter losses to shareholders.

Federal laws require public companies to disclose any “material” event that could affect the company’s value. Whether Mr. Lewis should have disclosed the deterioration at Merrill is the subject of shareholder lawsuits. Though Mr. Cuomo said in his letter that testimony from federal officials largely supported Mr. Lewis’s testimony, a full account of the events is not clear. Mr. Cuomo did not release other testimony.

Representatives for Federal Reserve Chairman Ben S. Bernanke and Henry M. Paulson Jr., who was secretary of the Treasury at the time, denied that they ever advised Mr. Lewis on disclosure issues. A representative for Mr. Paulson said he did not dispute any of the attorney general’s characterizations of his conversations with Mr. Lewis. Mr. Bernanke has invoked the bank examination privilege and declined to testify about the Fed’s role.

According to Mr. Lewis’s testimony, Mr. Paulson and Mr. Bernanke strongly advised the banker to complete the purchase of Merrill even after he learned in mid-December that losses at the brokerage firm were $7 billion more than expected.

Mr. Lewis also testified that Mr. Paulson told him “we do not want public disclosure” about possible government financing for Bank of America to help it complete the Merrill deal. Asked by the attorney general’s office whether he discussed disclosing Merrill’s greater losses to shareholders, Mr. Lewis said the issue never came up.

After learning that Merrill’s financial condition “had seriously deteriorated at an alarming rate,” Mr. Lewis said he sought to back out of the deal. On Dec. 17, he told Mr. Paulson and Mr. Bernanke that he was planning to invoke a clause in the merger agreement that allowed him to walk away from the transaction.

Based on the information he has collected, Mr. Cuomo said Mr. Paulson then told Mr. Lewis that walking away from the takeover of Merrill would create a systemic risk to the financial system and that he had no legal basis for terminating the deal. The two federal officials threatened that they “could or would” seek to remove Mr. Lewis and the company’s board if he refused to complete the merger.

“Lewis admits that Secretary Paulson’s threat changed his mind about invoking the MAC clause and terminating the deal,” Mr. Cuomo said in the letter, noting so-called material adverse change.

Mr. Cuomo’s letter further confirms that his investigation includes whether securities laws were violated and whether government programs to shore up the banks have been transparent.

In a statement, a Bank of America spokesman said, “We believe we acted legally and appropriately with regard to the Merrill Lynch transaction.”

Bank of America agreed to buy Merrill Lynch in a hastily arranged deal in September, as financial markets were seizing up and Lehman Brothers, another big Wall Street firm, was slumping into bankruptcy protection.

“Despite the fact that Bank of America had determined that Merrill Lynch’s financial condition was so grave it justified termination,” Mr. Cuomo wrote, “Bank of America did not publicly disclose Merrill Lynch’s devastating losses.”

Legal experts noted that the testimony would most likely benefit shareholder suits against Bank of America.

“ ‘The government made me do it’ is not really a valid legal defense,” said Randall W. Bonder, a lawyer at the firm Ropes & Gray.

But Mr. Lewis may benefit in the court of public opinion by claiming the government pressured him to do the deal to save the financial system. Mr. Lewis admitted in the testimony that he believed going through with the takeover would hurt shareholders in the short term, but had to be done to “stem a financial disaster in the financial markets.” He defined short term as “two to three years.”

Another issue raised in the testimony is whether Bank of America’s shareholders were being asked to take a loss to save the rest of the financial system.

“We shouldn’t lose sight of the fact that this was an extraordinary time, and every action these men were making had extraordinary ramifications that went well beyond the health and well-being of Bank of America shareholders,” Mr. Bonder said."