Jibe at Faso May Singe Democrats
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
The attacks that have been unleashed on the Republican candidate for governor are threatening to open a Pandora’s box of issues in Albany that could redound against the Democrats as much as the Republicans.
Questions have arisen over whether John Faso ought to have registered as a lobbyist when the Public Asset Fund, which was responsible for the conversion of New York’s largest health insurer into a for-profit company, hired him as an attorney in 2005.
Mr. Faso, as the New York Times reported on Friday, gave legal advice to Governor Pataki on a proposed bill backed by the fund that would allow it to hire teams of underwriters and lawyers to advise on and administer the stock sale of Empire Blue Cross and Blue Shield without the oversight of the state comptroller.
Among those defending Mr. Faso are Governor Pataki and the Democratic state comptroller, Alan Hevesi, who argue that it was not necessary for Mr. Faso’s firm to register because Mr. Faso, as an agent of the Public Asset Fund, was working on behalf of a state entity. Lobbyists for state entities are not subject to the registration requirements of New York’s lobbying law.
As it turned out, Mr. Hevesi’s office took a different view of the Public Asset Fund as recently as last October, when a $5 million no-bid contract that Mr. Pataki’s office awarded to J.P. Morgan came under scrutiny. J.P. Morgan employs a former top aide to the governor, Michael Finnegan, who profited from the contract. In defending the comptroller’s approval of the contract, a spokesman for Mr. Hevesi described the Public Asset Fund as an independent authority, one with different interests than the state’s.
After it became aware of a pending multibillion-dollar merger between WellChoice, the new for-profit insurance company, and WellPoint, the Pataki administration’s budget office hired J.P. Morgan to advise the state — separately from the Public Asset Fund — on the takeover of WellChoice.
J.P. Morgan, which the fund had already picked as the lead underwriter of the stock sale, now stood to profit from a merger, or, under the scenario that talks between WellChoice and Well-Point collapsed, from the sale of the rest of WellChoice’s assets. The two insurance companies completed a $6.5 billion merger in September 2005.
Questions have surfaced about the role that a former counsel to Mr. Pataki, Michael Finnegan, who is also a longtime friend of the governor, played in the hiring of J.P. Morgan.
The New York Times reported in October 2005 that the state’s budget director, John Cape, spoke to Mr. Finnegan, who left the Pataki administration in 1997 to become a managing director at J.P. Morgan Securities, after learning of the potential merger.
The contract was awarded without the recommendation of the Public Asset Fund board, which had already hired two other financial firms as advisers during the merger talks. Some members of the board were privately critical of the contract, which they viewed as unnecessary. The chairman of the five-member, volunteer board at the time was a Republican national fund-raiser, Mallory Factor, who was appointed by Mr. Pataki and has since stepped down.
It’s unclear whether J.P. Morgan had first tried to get involved in the merger by advising the Public Asset Fund but was turned down.
Officials in the Pataki administration told the Times that although it trusted that the leaders of the Public Asset Fund would get a good deal for the acquisition, it deemed it prudent to hire a separate firm to advise the state on the potential impact of the merger.
The contract was approved by Mr. Hevesi without a bidding process. A spokesman for Mr. Hevesi, David Neustadt, defended the deal, telling the Times last October: “Given the importance of the deal, the amount of money involved and that it was being handled by an independent public authority, we think it was prudent and entirely appropriate for D.O.B. to hire an adviser to help protect the state’s interests.”
The spokesman’s justification of the contract appears to contradict the comptroller’s office’s response to the flare-up involving Mr. Faso. Mr. Hevesi, addressing the dispute over Mr. Faso, maintains that the fund is not an independent public authority but an arm of the state.
Asked about his statement to the Times, Mr. Neustadt told The New York Sun yesterday that he was “not thinking about the specific legal status of the Public Asset Fund, so I may have described it not perfectly accurately.”
He added: “It’s been our position consistently that it’s an arm of the state. It doesn’t follow from that that they couldn’t act independently.”
The Pataki administration has also argued that the Public Asset Fund is a state entity, albeit one whose interests didn’t necessarily match the administration’s.
A spokesman for Mr. Pataki, Michael Marr, said yesterday, “Given that the pending transaction was due to have a multibillion dollar impact on future state budgets, the division of budget felt it prudent to hire its own financial experts to ensure that the state’s broader financial interests were protected.”
The state lobbying commission is investigating whether Mr. Faso broke lobbying laws by failing to register. If he’s found to have violated the law, Mr. Faso could face a fine of up to $25,000. The director of the commission, David Grandeau, said he couldn’t comment on a pending investigation.
Mr. Faso’s campaign has argued that his firm, Manatt, Phelps & Phillips, did not engage in lobbying activities regardless of how the Public Asset Fund is classified. The campaign said the firm provided comment on the legislation eliminating comptroller oversight and such an action is not covered under the lobbying law.
The Times reported that Mr. Faso was in daily contact with officials in Mr. Pataki’s office leading up to the passage of the bill and that he received an e-mail from an aide after the Legislature approved the measure that said: “Thanks for your help!”