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State Comptroller Thomas P. DiNapoli, center, has taken large donations from firms representing the state pension fund in securities lawsuits.<\/p>\n
Will Waldron\/Times Union<\/p>\n
ALBANY\u00a0\u2014 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 \u201cpay-to-play\u201d scheme that had engulfed his predecessor<\/a>.<\/p>\n 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\u00a0pension fund<\/a> managers from doing work for the massive investment account if they had made a campaign contribution to a candidate for comptroller.<\/p>\n Article continues below this ad<\/p>\n Nearly two decades later, another arguable loophole remains untouched: Law firms retained by DiNapoli\u2019s 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.<\/p>\n Joseph Hernandez, a Republican who is among several candidates vying to unseat<\/a> the incumbent Democrat, contends the donations demonstrate that Albany\u2019s notorious pay-to-play culture\u00a0has not fundamentally changed since the scandal that resulted in DiNapoli\u2019s predecessor, Alan Hevesi, pleading guilty to felony charges that would send him to prison.<\/p>\n In 2010,\u00a0Hevesi, 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\u00a0fund that is used to pay pension benefits to hundreds of thousands of retired government workers.\u00a0<\/p>\n Make the Times Union a Preferred Source on Google to see more of our journalism when you search.<\/p>\n <\/p>\n Add Preferred Source<\/p>\n <\/a><\/p>\n But law firms were not included in the rules\u00a0DiNapoli had implemented to head off the type of scheme that led to\u00a0Hevesi\u2019s downfall.<\/p>\n Article continues below this ad<\/p>\n Five of the 18 securities and corporate governance firms used by the state comptroller\u2019s office in pension litigation have collectively donated roughly $500,000 to his campaign, according to a Times Union review of campaign finance records.\u00a0<\/p>\n The donations from the law firms stretch back years, and were also being made to New York comptrollers before DiNapoli, including Hevesi.<\/p>\n Joseph Hernandez, a Republican candidate running for state comptroller, said the donations show Albany\u2019s pay-to-play culture has not changed since the pension corruption scandal that led to the conviction of\u00a0DiNapoli\u2019s predecessor, Alan Hevesi.\u00a0<\/p>\n Will Waldron\/Times Union<\/p>\n Officials with\u00a0DiNapoli\u2019s 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\u2019t stopped large donations from being made within months of the restriction being lifted, records show.\u00a0<\/p>\n Article continues below this ad<\/p>\n \u201cEven if everything is technically legal, it\u2019s exactly why people have lost faith in government,\u201d\u00a0Hernandez said.\u00a0\u201cThe appearance alone undermines confidence that decisions are being made in the best interest of retirees and taxpayers.\u201d\u00a0<\/p>\n Good government groups say current protections don\u2019t go far enough.\u00a0<\/p>\n \u201cGiven the large contributions to the comptroller from law firms doing business with the pension funds, the existing policy is clearly inadequate,\u201d said John Kaehny, executive director of the nonprofit good government group Reinvent Albany.\u00a0<\/p>\n Officials with DiNapoli\u2019s office rejected any suggestion that donations influence which law firms are retained to work with the state comptroller\u2019s office or what cases get litigated. Outside firms are selected through a competitive, staff-driven procurement process insulated from politics, they said.<\/p>\n Article continues below this ad<\/p>\n \u201cClaims that campaign contributions influence the fund\u2019s litigation decisions are baseless,\u201d said Matt Sweeney, a comptroller\u2019s office spokesman.<\/p>\n Whether a law firm doing business with the state\u00a0chooses to make a campaign contribution is not a factor in any litigation decision, Sweeney added.\u00a0<\/p>\n \nTop donors\u00a0\n<\/p>\n The comptroller is an influential position in the state and controls one of the largest state pension funds in the country.\u00a0<\/p>\n Article continues below this ad<\/p>\n 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\u00a0Bayer, National City and CrowdStrike. The fund was co-lead plaintiff in cases involving Cendant, Chubb, Countrywide and BP.\u00a0<\/p>\n Oversight of securities litigation is handled by the comptroller\u2019s 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.\u00a0<\/p>\n These firms are used to supplement the comptroller\u2019s 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.<\/p>\n Sweeney said that the pool of law firms that work with the fund is selected by members of the comptroller\u2019s fiscal and legal staff every four years through a competitive procurement process. The same multi-layered review applies to individual case decisions.\u00a0<\/p>\n Article continues below this ad<\/p>\n The comptroller isn\u2019t involved in making decisions in either of those matters, he said.\u00a0<\/p>\n 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\u00a0DiNapoli. The comptroller approves the cases after committee members make the final recommendation.<\/p>\n The latest contracts were executed in November.<\/p>\n 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\u2019s campaign in March.\u00a0<\/p>\n Article continues below this ad<\/p>\n Bernstein\u00a0Litowitz Berger and Grossmann, which has donated the most to DiNapoli\u2019s campaigns, also donated $25,000 in March.<\/p>\n Since 2007, the firm has contributed $191,500 to\u00a0DiNapoli. The state comptroller has also taken $18,500 from founding partner Max Berger, according to campaign finance data. Partner Gerald\u00a0H. Silk has also donated to DiNapoli.\u00a0<\/p>\n The firm played a leading role in litigation tied to a class-action lawsuit against San Francisco-based McKesson\u00a0HBOC. The case resulted in more than $1 billion in recoveries for investors. Berger was the case leader<\/a>.\u00a0<\/p>\n 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.<\/p>\n Article continues below this ad<\/p>\n The Manhattan firm was used in a securities fraud case<\/a> 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.\u00a0<\/p>\n Representatives from the firm did not respond to a request for comment.\u00a0<\/p>\n Since 2009, Kaplan Fox and Kilsheimer, another Manhattan law firm, donated $55,757 to DiNapoli\u2019s campaign, most recently giving $10,000 in 2023.<\/p>\n Another Manhattan law firm operated by Mark\u00a0F. Pomerantz made a donation of $10,000 in 2024, bringing its total contributions to DiNapoli\u2019s campaign to more than $83,661. \u00a0Entwistle and Cappucci, a national firm with offices in New York and Texas, gave $40,000 to DiNapoli\u2019s campaign from 2013 to 2015.\u00a0<\/p>\n Article continues below this ad<\/p>\n Labaton Keller, a firm headquartered on Broadway in Manhattan, hasn\u2019t contributed to DiNapoli\u2019s campaigns. However, its chairman, Eric J. Belfi, and partner Thomas A. Dubbs contributed a combined $8,200 in 2008.\u00a0<\/p>\n State Comptroller Thomas DiNapoli during a budget presentation earlier this year.\u00a0<\/p>\n Will Waldron\/Times Union<\/p>\n The firm Grant & Eisenhofer also has not donated to DiNapoli\u2019s 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<\/a> against BJ\u2019s Wholesale Club, Inc. The case concluded last month.\u00a0<\/p>\n 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.\u00a0<\/p>\n Article continues below this ad<\/p>\n 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.<\/p>\n The pension fund has prenegotiated fee agreements with law firms that cap attorneys\u2019 fees well below the traditional 33% contingency model often seen in class actions.<\/p>\n Under the fund\u2019s system, legal fees rise as cases become more difficult \u2014 for example, if cases survive motions to dismiss or are successful through appeals \u2014 but they decline as settlements get larger. The structure is designed to avoid what the comptroller\u2019s office called \u201cwindfall\u201d awards in massive cases.<\/p>\n In the U.S. Steel litigation, the pension fund argued that the plaintiffs\u2019 lawyers should receive about 12% of the settlement, or roughly $4.8 million, instead of the approximately $13 million they sought.\u00a0<\/p>\n Article continues below this ad<\/p>\n 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.<\/p>\n Many of the firms doing business with the comptroller\u2019s office have had a hand in some of its major cases.\u00a0<\/p>\n Lieff Cabraser Heimann and Bernstein, another Manhattan firm, were the attorneys<\/a> in a lawsuit against Boeing Co., which was settled in 2022 for $237.5 million. The state sued the company\u2019s 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.\u00a0<\/p>\n The firm has given $105,000 to DiNapoli\u2019s 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\u2019s campaign from 2018 to 2020.\u00a0<\/p>\n Article continues below this ad<\/p>\n Other firms contracted with the state to represent the fund have not donated to DiNapoli\u2019s campaign.\u00a0<\/p>\n<\/p>\n
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