Kickback Scheme

US SEC recently charged a former New York state political party leader and a former hedge fund manager in connection with a multi-million dollar kickback scheme involving New York's largest pension fund.

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

The payments to Morris, Wissman, Harding and certain others were kickbacks that resulted from quid pro quo arrangements or that were otherwise fraudulently induced by the defendants. Loglisci ensured that investment managers that made the requisite payments - to Morris, Wissman, Harding, and certain other recipients designated by Morris and Loglisci - were rewarded with lucrative investment management contracts, while investment managers who declined to make such payments were denied fund business. Morris, Wissman, Harding and the others who received the payments at issue did not perform bona fide placement or finder services for the investment management firms that made the payments.

SEC additionally charged three entities through which Wissman perpetrated the fraud - Flandana Holdings, Tuscany Enterprises and W Investment Strategies — as well as two investment management firms with which he was affiliated at the time, HFV Management and HFV Asset Management. 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 and HFV Asset Management to pay sham finder fees to Morris in one New York State Common Retirement Fund transaction.

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 US$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.

Greed is everywhere. In Hong Kong, I guess ICAC is also actively investigating into those kickback schemes prevailing in the securities market.