Monday, January 18, 2010
GOP Tries To Tie Denish To Scandal
By Mike Gallagher
Copyright © 2010 Albuquerque Journal
Journal Investigative Reporter
Leo Hindery Jr. is a cable television and communications mogul based in New York and a big-name Democratic Party activist.
He's also at the center of the latest political dust-up involving the New Mexico's beleaguered State Investment Council and the state's forthcoming elections.
Hindery and Lt. Gov. Diane Denish, the presumptive Democratic nominee for governor in November, have known each other for more than 10 years, and Hindery contributed $50,000 to her campaigns in 2006 and 2007.
Hindery also contributed more than $25,000 to Gov. Bill Richardson in December 2005 and another $25,000 in September 2006..
But Hindery had interests here beyond financial support of the two prominent Democrats.
His InterMedia VII fund landed a $30 million deal from the State Investment Council in May 2006 for a fund that buys media companies, consolidates assets, then sells the companies when they begin to grow.
On its face, those facts don't present an obvious political opportunity for Republicans to use in their relentless campaign to tie Denish to Richardson and the ongoing state investment scandals.
The lieutenant governor has no official role in SIC operations, and council staff members told the Journal they don't recall Denish attending a meeting even as a guest.
The political problem for Democrats in this case, if there is one, comes in the form of Saul Meyer.
Meyer was a founding partner in Aldus Equity Partners, which was a Dallas-based private equity adviser to the State Investment Council and the Educational Retirement Board. He has pleaded guilty to securities fraud in New York and agreed to cooperate with federal investigators probing investment practices in New Mexico.
Meyer, who was paid $1.7 million a year by the state for supposedly arm's-length advice on private equity deals, recommended the InterMedia VII investment after reviewing it at the request of the SIC staff.
That was three years before he dropped this New Mexico bombshell as part of his New York plea:
"On numerous occasions ... contrary to my fiduciary duty, I ensured that Aldus recommended certain proposed investments that were pushed on me by politically connected individuals in New Mexico," Meyer said in court documents.
"I did this knowing that these politically connected individuals or their associates stood to benefit financially or politically from the investments and that the investments were not necessarily in the best economic interest of New Mexico."
State Republican Party Chairman Harvey Yates Jr. recently took Denish to task in a widely disseminated opinion piece dealing with Hindery's campaign contributions and his deal with the State Investment Council.
Yates said in an interview last week that he wasn't accusing Denish of corruption, but said it was "evidence of a lapse in ethical judgment."
"She took $50,000 in donations from a man who secured a $30 million investment from the state of New Mexico," Yates said.
Denish's deputy campaign manager, Chris Cervini, said, "Lieutenant Governor Denish has no role or jurisdiction in the State Investment Council process, so these attacks are clearly frivolous and desperate."
Under state statute, the lieutenant governor neither sits on the State Investment Council, nor does she appoint any of its members.
Denish's campaign also pointed out that she has supported a wide range of ethics reforms, including the formation of a state Ethics Commission.
The corruption of a gatekeeper like Meyer is important, because his company controlled which investments were recommended and how long-term investment decisions were shaped.
He admitted as much in his New York guilty plea.
"Aldus analyzed proposed investments, conducted due diligence, and advised public pension funds on the merit, suitability and integrity of proposed investments. A public pension fund adviser such as Aldus is meant to protect public money by safeguarding the integrity of the public pension fund investment process."
Then, he admitted he violated that trust.
"However, with respect to certain investments relating to the New York State Common Retirement Fund and New Mexico public pension funds, to generate business and fees for Aldus, I violated my fiduciary obligations and succumbed to pressures exerted upon me by pension fund officials and other politically connected individuals who I understood were motivated for personal financial and political gain."
Yates says that not only do the contributions bring into question the State Investment Council's investment in InterMedia VII Fund, but the recommendation of Aldus Equity raises issues about the $30 million investment.
Whether the InterMedia VII investment by New Mexico is one of those under scrutiny is known only to investigators, but the fund has not come up publicly in the New York pension fund scandal.
Denish's campaign staff said she has no recollection or record of ever having met Meyer.
Her campaign brushes Yates' complaints aside, calling them "frivolous and desperate."
Yates concedes he has no evidence to support including Denish in the "politically connected" circle referenced by Meyer.
The key figures have been former State Investment Officer Gary Bland, a Richardson appointee who resigned under pressure from some council members, and Marc Correra, the son of a close Richardson friend and supporter.
The scandal blew up when it was learned that Correra had shared in up to $22 million in so-called third-party placement fees paid by companies that had landed deals with the State Investment Council and the ERB.
InterMedia VII, according to state records, didn't use Correra as a placement agent, but court records show the third-party placement agent InterMedia did use had contact with Correra.
In a court affidavit, William R. Howell said he didn't meet with any state officials concerning investments in InterMedia VII, but had dinner with Correra in Santa Fe to discuss his clientele and potential for working together. He also said he worked through a Correra-affiliated company on a separate deal with New Mexico investment funds.
The State Investment Council has been served with federal grand jury subpoenas connected to the investigation. The Governor's Office refuses to say whether it has received a subpoena.
A subsequent outside review of SIC practices has recommended sharply curtailing the governor's powers over the SIC, including the ability to appoint the investment officer.
According to State Investment Council minutes, Aldus recommended the InterMedia fund investment based on a number of factors, including InterMedia's track record and the size of the personal financial commitment Hindery and his partners were making to the fund.
The six prior funds InterMedia ran, although not as large, had returned more than 2.3 times the capital invested in them.
The 2006 investment in InterMedia VII has not started paying a return but ranks in the middle of the private equity investments in terms of value attributed to its holdings.
Typically, it takes four to seven years for private equity funds to begin paying off.
"The funds have to find the companies that fit into their strategy, buy them and rebuild them," Charles Wollmann, SIC spokesman, said.
The payoff for investors, like the SIC, comes when the companies are sold privately or are taken public on a stock exchange.
The State Investment Council now prohibits the owners of funds it invests in from making political contributions to anyone having any authority over the SIC.
That rule was passed last year when the links between a pension fund scandal in New York and investments by New Mexico agencies emerged.
That would have clearly eliminated Hindery's contributions to Richardson, but not to Denish.
The SIC, by law, is under the control of the governor, who chairs the council and appoints most of its members. The state treasurer and land commissioner also sit on the council.
The lieutenant governor is not mentioned in the statute that defines membership.
But Yates argues the position should be included as one of those with authority over the State Investment Council because the state constitution says the lieutenant governor takes over the duties of the governor when the chief executive is out of the state or indisposed.
It would not be unusual for Diane Denish to be the recipient of big contributions from Leo Hindery Jr.
They were inaugural members of the board of her uncle's charitable foundation, the Daniels Fund, and served together for about eight years.
The Daniels Fund is a charitable foundation that supports programs related to education and youth, aging, substance abuse and homeless people, primarily in the Mountain States, including New Mexico.
It was established by the estate of Denish's uncle, Bill Daniels, who made a fortune in the cable television business. Hindery is the former head of the YES cable network, the cable company ITC and AT&T Broadband.
Hindery's office did not respond to Journal calls seeking comment.
He was an adviser to Sen. John Kerry, D-Mass., during Kerry's 2004 presidential campaign and an adviser to former Sen. John Edwards' campaign for the Democratic presidential nomination in 2008.
Hindery was mentioned as a potential Cabinet secretary in the Obama administration, and he once was in the running to be chairman of the Democratic National Committee.