New York's former deputy comptroller and a top political advisor were charged Thursday by the Securities and Exchange Commission with extracting millions in kickbacks from investment management firms seeking to manage the assets of New York's largest pension fund.

The SEC's complaint alleges that Henry "Hank" Morris, the top political advisor and chief fundraiser for former New York State Comptroller Alan Hevesi, and David Loglisci, former deputy comptroller and chief investment officer of the New York State Common Retirement Fund, orchestrated a fraudulent scheme from 2003 through late 2006 that corrupted the integrity of the New York State Common Retirement Fund in order to enrich Morris and others with ties to Morris and Loglisci.

The SEC alleges that private equity firms and hedge fund managers paid millions of dollars in sham "finder" or "placement agent" fees to get lucrative investment management contracts, while investment managers who declined to pay were denied pension fund business. The SEC maintains that Loglisci caused the pension fund to invest with managers who paid up and that Morris made more than $15 million in placement and finder fees.

"Investments should be based on sound decisions not shady deals," said SEC Chairman Mary Schapiro. "We will continue this investigation and will pursue anyone who unlawfully profited from their privileged access to the hard-earned contributions of public employees."

James Clarkson, acting regional director of the SEC's New York Regional Office, said, "Kickback schemes corrupt the integrity of the investment decision-making processes. These defendants enriched themselves and their associates at the expense of the fund."

According to the SEC's complaint, filed in federal District Court in Manhattan, the payments to Morris and others were kickbacks that resulted from quid pro quo arrangements or that were otherwise fraudulently induced by the defendants. As laid out in the complaint, Loglisci ensured that investment managers who made the requisite payments to Morris-and other recipients designated by Morris and Loglisci-were rewarded with investment management contracts.

The SEC alleges that Loglisci repeatedly directed investment managers, who solicited him for investment business, to Morris or certain other individuals and signaled to the investment managers that they first needed to "hire" Morris as a finder or placement agent. Neither Morris nor anyone else who received the payments at issue allegedly performed legitimate placement or finder services for the investment management firms who made the payments.

According to the SEC's complaint, the investment managers in some instances had already allegedly hired a finder or placement agent of their own and were already negotiating an investment with Loglisci when they were told that they also needed to "hire" Morris or another individual. Once the sham finder fee was agreed upon, Loglisci approved the proposed deal with the investment management firm.

The SEC further asserts that Loglisci and Morris took steps to conceal these improper payments and quid pro quo arrangements from relevant members of the comptroller's investment staff and the fund's investment advisory committee. In some instances, the two men even arranged for investment managers to make payments to another individual who would then covertly funnel a portion of these sham fees to Morris, sometimes even without the knowledge of the investment managers. In addition, Morris allegedly paid the girlfriend of a high-ranking member of the comptroller's staff nearly $100,000 in cash to ensure that the staff member would not ask questions or otherwise reveal the scheme to others.

According to the evidence, Loglisci also personally benefited from his role in the scheme. In addition to receiving Morris's support for promotion to deputy comptroller, Loglisci obtained funding from Morris and the principal of a private equity firm for a low-budget film that Loglisci and his brothers produced.

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