State Comptroller Thomas P. DiNapoli, center, has taken large donations from firms representing the state pension fund in securities lawsuits.
Will Waldron/Times Union
ALBANY — When he was sworn into office in 2007, state Comptroller Thomas P. DiNapoli took the reins of a New York retirement fund tainted by a sprawling “pay-to-play” scheme that had engulfed his predecessor.
DiNapoli responded halfway into his inaugural term by taking formal steps to clamp down on the improper influence, including instituting a two-year ban on pension fund managers from doing work for the massive investment account if they had made a campaign contribution to a candidate for comptroller.
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Nearly two decades later, another arguable loophole remains untouched: Law firms retained by DiNapoli’s office to represent the state retirement system in various litigation matters have donated hundreds of thousands of dollars to his political campaign funds over the years.
Joseph Hernandez, a Republican who is among several candidates vying to unseat the incumbent Democrat, contends the donations demonstrate that Albany’s notorious pay-to-play culture has not fundamentally changed since the scandal that resulted in DiNapoli’s predecessor, Alan Hevesi, pleading guilty to felony charges that would send him to prison.
In 2010, Hevesi, who had been state comptroller from 2003 to 2006, admitted he had accepted about $1 million in illicit benefits, including trips abroad and campaign donations, to steer investments for the multihundred-billion-dollar fund that is used to pay pension benefits to hundreds of thousands of retired government workers.
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But law firms were not included in the rules DiNapoli had implemented to head off the type of scheme that led to Hevesi’s downfall.
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Five of the 18 securities and corporate governance firms used by the state comptroller’s office in pension litigation have collectively donated roughly $500,000 to his campaign, according to a Times Union review of campaign finance records.
The donations from the law firms stretch back years, and were also being made to New York comptrollers before DiNapoli, including Hevesi.
Joseph Hernandez, a Republican candidate running for state comptroller, said the donations show Albany’s pay-to-play culture has not changed since the pension corruption scandal that led to the conviction of DiNapoli’s predecessor, Alan Hevesi.
Will Waldron/Times Union
Officials with DiNapoli’s office said the comptroller self-imposes a 90-day blackout period for donations around the time law firms can bid to work with the state office. However, that hasn’t stopped large donations from being made within months of the restriction being lifted, records show.
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“Even if everything is technically legal, it’s exactly why people have lost faith in government,” Hernandez said. “The appearance alone undermines confidence that decisions are being made in the best interest of retirees and taxpayers.”
Good government groups say current protections don’t go far enough.
“Given the large contributions to the comptroller from law firms doing business with the pension funds, the existing policy is clearly inadequate,” said John Kaehny, executive director of the nonprofit good government group Reinvent Albany.
Officials with DiNapoli’s office rejected any suggestion that donations influence which law firms are retained to work with the state comptroller’s office or what cases get litigated. Outside firms are selected through a competitive, staff-driven procurement process insulated from politics, they said.
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“Claims that campaign contributions influence the fund’s litigation decisions are baseless,” said Matt Sweeney, a comptroller’s office spokesman.
Whether a law firm doing business with the state chooses to make a campaign contribution is not a factor in any litigation decision, Sweeney added.
Top donors
The comptroller is an influential position in the state and controls one of the largest state pension funds in the country.
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The $297 billion fund has been heavily involved in scores of high-profile securities and shareholder litigation over the years, serving as lead plaintiff in major securities class-action cases, including Bayer, National City and CrowdStrike. The fund was co-lead plaintiff in cases involving Cendant, Chubb, Countrywide and BP.
Oversight of securities litigation is handled by the comptroller’s legal services division, which evaluates potential cases and works with a group of about 20 outside law firms specializing in securities and corporate governance matters.
These firms are used to supplement the comptroller’s in-house legal team, particularly in complex or high-profile shareholder and securities cases where specialized expertise is needed. The state comptroller also employs pool firms, which are compensated for reviewing shareholder proposals.
Sweeney said that the pool of law firms that work with the fund is selected by members of the comptroller’s fiscal and legal staff every four years through a competitive procurement process. The same multi-layered review applies to individual case decisions.
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The comptroller isn’t involved in making decisions in either of those matters, he said.
When pool firms pitch cases, they are approved by the counsel to the comptroller and then reviewed by a committee of top executives appointed by DiNapoli. The comptroller approves the cases after committee members make the final recommendation.
The latest contracts were executed in November.
The most recent campaign filings show that New York City-based securities firm Kirby McInerney has given $111,454 in political contributions to DiNapoli since 2018. It donated $15,000 to DiNapoli’s campaign in March.
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Bernstein Litowitz Berger and Grossmann, which has donated the most to DiNapoli’s campaigns, also donated $25,000 in March.
Since 2007, the firm has contributed $191,500 to DiNapoli. The state comptroller has also taken $18,500 from founding partner Max Berger, according to campaign finance data. Partner Gerald H. Silk has also donated to DiNapoli.
The firm played a leading role in litigation tied to a class-action lawsuit against San Francisco-based McKesson HBOC. The case resulted in more than $1 billion in recoveries for investors. Berger was the case leader.
By 2016, Bernstein Litowitz Berger and Grossmann, which is headquartered on Sixth Avenue in Manhattan, had donated $90,000. It contributed an additional $35,000 in 2022, and $25,000 last year.
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The Manhattan firm was used in a securities fraud case against a 2024 global cybersecurity company, CrowdStrike Holdings Inc. The firm was appointed lead counsel in the class-action lawsuit, but the case was later dismissed.
Representatives from the firm did not respond to a request for comment.
Since 2009, Kaplan Fox and Kilsheimer, another Manhattan law firm, donated $55,757 to DiNapoli’s campaign, most recently giving $10,000 in 2023.
Another Manhattan law firm operated by Mark F. Pomerantz made a donation of $10,000 in 2024, bringing its total contributions to DiNapoli’s campaign to more than $83,661. Entwistle and Cappucci, a national firm with offices in New York and Texas, gave $40,000 to DiNapoli’s campaign from 2013 to 2015.
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Labaton Keller, a firm headquartered on Broadway in Manhattan, hasn’t contributed to DiNapoli’s campaigns. However, its chairman, Eric J. Belfi, and partner Thomas A. Dubbs contributed a combined $8,200 in 2008.
State Comptroller Thomas DiNapoli during a budget presentation earlier this year.
Will Waldron/Times Union
The firm Grant & Eisenhofer also has not donated to DiNapoli’s campaign. However, Jay Eisenhofer, the co-founder and managing director, gave $22,500 in 2009 and 2010. The firm was tapped by the comptroller in its successful shareholder rights lawsuit against BJ’s Wholesale Club, Inc. The case concluded last month.
Firms only get paid for litigation if the fund is appointed lead plaintiff and wins. Out of the firms that have been selected for the work, seven have brought cases since 2017. Of those cases, only four received compensation after either a settlement or other type of action.
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In a February 2023 letter to a federal judge in Pittsburgh, lawyers for the New York State Common Retirement Fund said the firm Levi & Korsinsky was seeking one-third of a $40 million U.S. Steel settlement and were asking for far more than sophisticated institutional investors typically pay.
The pension fund has prenegotiated fee agreements with law firms that cap attorneys’ fees well below the traditional 33% contingency model often seen in class actions.
Under the fund’s system, legal fees rise as cases become more difficult — for example, if cases survive motions to dismiss or are successful through appeals — but they decline as settlements get larger. The structure is designed to avoid what the comptroller’s office called “windfall” awards in massive cases.
In the U.S. Steel litigation, the pension fund argued that the plaintiffs’ lawyers should receive about 12% of the settlement, or roughly $4.8 million, instead of the approximately $13 million they sought.
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Small cases can range between 8% to 14% of the recovery in settlements of up to $100 million. Depending on the size of the settlement, law firms can receive anywhere from $8 million, plus 7% of any amount in the range of $81 million in settlements over $1 billion.
Many of the firms doing business with the comptroller’s office have had a hand in some of its major cases.
Lieff Cabraser Heimann and Bernstein, another Manhattan firm, were the attorneys in a lawsuit against Boeing Co., which was settled in 2022 for $237.5 million. The state sued the company’s board of directors, alleging that the board breached its fiduciary duties following two mass casualty 737 MAX crashes and the subsequent grounding of the aircraft.
The firm has given $105,000 to DiNapoli’s campaign since 2008, records show. Its most recent donation of $15,000 was in October 2022, eight months after Boeing reached a settlement agreement. Before that, the firm had given a combined $45,000 to DiNapoli’s campaign from 2018 to 2020.
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Other firms contracted with the state to represent the fund have not donated to DiNapoli’s campaign.
Cohen Milstein Sellers and Toll, which won a settlement in 2019 against Wynn Resorts Ltd. in a lawsuit claiming it failed to protect the company and employees from former CEO Steve Wynn’s alleged abusive behavior, did not contribute to DiNapoli’s campaign.
Many of the law firms that donated to DiNapoli have also donated to Hevesi.
Kirby McInerney donated $50,000 in 2004. Pomerantz, formerly Pomerantz, Haudek, Block, Grossman & Gross, contributed $30,000 from 2002 to 2005. Entwistle and Cappucci gave Hevesi $26,000.
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‘Too many examples of corruption’
DiNapoli, who was reelected four times and is among the longest-serving comptrollers in New York, took over a pension fund that was under scrutiny.
The criminal investigation of Hevesi revealed political advisers and investment intermediaries had steered pension business in exchange for fees, campaign contributions and favors.
Politically connected intermediaries were profiting from investments made by the then-$100 billion Common Retirement Fund under Hevesi.
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Investigators uncovered a “pay-to-play” system in which investment firms seeking state pension business were pressured to use placement agents tied to Hevesi’s political network, pay large fees, or make campaign contributions in exchange for access to pension investments.
Former New York Comptroller Alan Hevesi stands with his attorney in 2007. Hevesi was later convicted of accepting bribes to steer pension fund investments.
SKIP DICKSTEIN/AP
A state attorney general’s investigation eventually produced multiple indictments, guilty pleas, and settlements involving political adviser Hank Morris, former pension chief investment officer David Loglisci, as well as investment managers, lobbyists, and political figures.
Prosecutors alleged that millions of dollars in fees and political favors were involved in the scheme while firms received hundreds of millions in pension allocations. Hevesi, who had previously been the New York City comptroller, later admitted to steering investments in exchange for benefits and political support.
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After taking office, DiNapoli imposed restrictions on the use of placement agents, required disclosure of fees, and cut off business relationships with firms involved in questionable practices.
He also supported broader reforms, including limits on political contributions tied to pension business and supported legislation to revoke pensions for public officials convicted of corruption.
Kaehny, the executive director of Reinvent Albany, said the campaign contributions from outside legal firms reveal a blind spot.
He said his organization would support regulations treating law firms that provide or seek to provide legal services to the state pension the same as pension fund managers, and to ban contributions from them to candidates for comptroller.
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Other states have more strict rules on political donations than New York.
Connecticut forbids state contractors and other vendors or principals from contributing to candidates for all levels of government, including the comptroller. The ban extends to those companies’ employees and subcontractors. Violations can carry penalties of up to $2,000 or twice the amount of the prohibited contribution.
Thomas P. DiNapoli, then an assemblyman, after the Legislature voted to make him the new state comptroller.
PHILIP KAMRASS/DG
Reinvent Albany suggests New York should adopt restrictions similar to those implemented by New York City.
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Under the city’s campaign finance system, contributors with a contract or seeking a contract with the city can donate $400 per election to citywide officials and $800 per cycle. The business restrictions apply to family members and none of their contributions are matchable with public funds.
“We’d hope Comptroller DiNapoli would support such legislation,” Kaehny said.
When asked whether DiNapoli would support the legislation, a spokesman for the comptroller’s office said it would review the proposal. He also pointed to efforts DiNapoli previously made to eliminate “pay-to-play” practices.
That includes a bill introduced last year that would prohibit vendors from contributing to candidates for statewide office or their political committees during active government procurement actions. The bill passed the state Senate but died in the Assembly.
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“Could the comptroller do more to restrict campaign contributions with people who do business before his office? Yes,” said Blair Horner, a senior policy adviser for the New York Public Interest Research Group. “Is what he’s doing now inadequate? I don’t know the answer to that. But he’s certainly doing more than anybody else ever did. And he’s doing more, as far as I can tell, than the governor does.”
Horner said that the cleanest way to deal with the problem is to have pay-to-play legislation that applies to anyone who controls any kind of contract in state government.
“If it were up to us, it would essentially be a blanket restriction for anyone who wanted a government contract in the state of New York, in terms of campaign contributions. There are way too many examples of corruption,” Horner said.
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