The former head of New York's Liberal Party and a founding partner of Aldus Equity have pleaded guilty to taking part in a kickback scheme that corrupted how the state pension fund chose investment managers, state Attorney General Andrew Cuomo said on Tuesday.

The two-year probe, joined by the U.S. Securities and Exchange Commission and federal prosecutors, has cast a spotlight on how pension funds in New York and other states may have favored fund managers that hired politically-connected middlemen, called placement agents.

Cuomo told reporters that he has so far collected $70 million from firms that wished to end their involvement in his investigation, a list that includes The Carlyle Group, one of the world's biggest private equity funds. Four of the six individuals charged have now pleaded guilty.

Raymond Harding, a lawyer whose leadership of the Liberal Party made him an influential figure in state politics, admitted to scheming with Hank Morris, the former comptroller's political advisor, and David Loglisci, who was the top investment officer, Cuomo said in a statement.

Both Morris and Loglisci have been indicted and their lawyers say their clients are innocent. Morris was charged with collecting millions of dollars in kickbacks; Loglisci's only tie was a stake in his brother's movie, Chooch, which he disclosed. Some investment mangers invested in the movie.

Morris rewarded Harding for political favors by helping him collect $800,000 in fees for serving as a sham placement agent, Cuomo said.

New York's $116 billion pension fund is run solely by the state comptroller. Cuomo's probe focused on the former state comptroller's tenure though he told reporters on a conference call that the corruption of the system dates back 30 years.

The favors Harding did for Morris included helping to create a vacant seat in the state Assembly so that Daniel Hevesi, the son of the former state comptroller, could run for that office, Cuomo said. Neither Assemblyman Hevesi nor former Comptroller Alan Hevesi, a Democrat, have been charged; their lawyers have denied any wrongdoing.

Loglisci's lawyers, Irving Seidman and Kevin Keating, in a statement said: David Loglisci never even met Ray Harding and was not the chief investment officer of the Common Retirement Fund with respect to what Mr. Harding said in his plea.

Saul Meyer, a founding partner of Dallas-based Aldus Equity, pleaded guilty and admitted that he understood that because of Hank Morris's political connections, Morris had the ability to secure a Common Retirement Fund investment mandate for Aldus, Cuomo said, adding:

These guilty pleas vividly depict the depth and breadth of corruption involving the New York State pension fund.

Commenting on Meyer's plea, the lawyers for Loglisci said: With respect to Mr. Meyer, we believe there is documentary evidence that will establish beyond any doubt that Mr. Meyer's recollection in his statement is factually incorrect.

Several reforms have sprung from the pension probe. The SEC's comment period on a pay to play ban ends on Tuesday, Cuomo said, hoping the anti-graft measure is adopted. Both the current state comptroller, Thomas DiNapoli, a Democrat, and Cuomo have enacted similar prohibitions on their own.

Both Harding and Meyer are cooperating with the investigation and the amount of help they provide will be taken into account in determining what sentencing recommendation the state attorney general recommends to the judge, Cuomo said.

Meyer is also working with the U.S. attorney who is investigating other states, particularly New Mexico.

A Cuomo spokeswoman was not available to comment on Steven Ratner, a founder of Quadrangle, who resigned as head of the U.S. auto task force after Cuomo intensified his probe of the private equity fund's ties with the state pension fund.

After the probe became public this spring, New Mexico Governor Bill Richardson ordered the state investment officer to cut ties to Aldus and told the State Investment Council to suspend alternative investments until it requires placement agents to disclose fees for winning state business.

Gilbert Gallegos, a spokesman for New Mexico's Democratic governor, declined comment on Tuesday as he was unaware of the New York attorney general's comment that Meyer would cooperate with the U.S. attorney general.

(Additional reporting by Jim Christie in San Francisco; Editing by James Dalgleish)

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