And you thought Alan Hevesi was corrupt?

The New York Times


January 13, 2007
Bruno Bought Stock With Campaign Funds
By MIKE McINTIRE

Over the past six years, State Senator Joseph L. Bruno, the majority leader, has invested hundreds of thousands of dollars from two campaign accounts that he controls in at least four Albany-area companies, which have all had personal business dealings with him, a review of state campaign finance records shows.

The investments, though legal, were unusual even for New York, whose election laws are considered relatively lax. While some campaign committees have reported earning interest or dividends from mutual funds, Mr. Bruno, a Republican, appears to be one of only a few lawmakers to use excess campaign funds to make loans to private companies or to buy individual stocks, according to a review of state records.

Mr. Bruno’s purchase of stock in a start-up company with volatile prices led him to lose money contributed by supporters. And campaign finance experts say such investments pose the potential for abuse, because it is hard to monitor whether candidates are receiving beneficial treatment from companies.

State campaign finance rules are vague about which details candidates must disclose about investments by their campaign committees. The State Board of Elections does not include investment records in the reports it makes public.

Complicating Mr. Bruno’s case is the fact that he had personally invested in two of the companies that his campaign accounts bought stock in, and he had financial dealings with the chairman of two others. The accounts Mr. Bruno used in the investments were held by his re-election committee and the State Senate Republicans’ campaign committee.

Last year, the senator’s re-election committee reported losing almost $99,000 on an investment in 2000 in Plug Power Inc., a maker of fuel cells based in Latham, N.Y., in which he also personally owned stock, his financial disclosure reports show. In July 2001, a year after he and his committee bought their shares in Plug Power, Mr. Bruno helped secure $500,000 in state money for a research project involving Plug Power, which has also received state contracts and other government aid.

Also in 2001, Mr. Bruno’s two committees loaned roughly $200,000 to the Capital Center Credit Corporation, a privately held financial services company in Albany whose chairman, Timothy M. McGinn, was a client of Mr. Bruno’s consulting business, according to published reports. Mr. McGinn’s firm repaid the loan at an interest rate of 9 percent to 10 percent over about three years.

Mr. Bruno has acknowledged that his consulting business has been under investigation by the Federal Bureau of Investigation since at least early last year. Mr. McGinn said in a recent interview that his firm is cooperating with investigators in that inquiry.

Mr. Bruno’s use of campaign money as an investment tool adds a new dimension to a spate of recent reports that he and other lawmakers steered millions in public money to pet causes, including several profit-making companies. Mr. Bruno and other lawmakers have said the grants were economic development incentives intended to help small firms expand.

John McArdle, a spokesman for Mr. Bruno, offered a more pragmatic rationale for the campaign committees’ investments, saying they were an attempt to get a better rate of return than what banks were offering. He said the fact that they lost money on some of the investments shows that no favoritism was involved, and he defended the unconventional investments as legitimate and “not uncommon.”

But some campaign finance analysts say the practice is problematic. Because the law permits virtually all manner of investments and does not specify what information about them must be disclosed, they say, there is little to prevent a company from setting an exorbitant rate of return and using it to funnel cash into a campaign.

“You would have no way of knowing that unless there was a regulatory action, like an audit, because it’s not required to be disclosed to the public,” said Lawrence A. Mandelker, an election lawyer who was a campaign treasurer for former Mayor Edward I. Koch. “That’s a shortcoming in the law.”

Revelations about Mr. Bruno’s campaign investments come as other aspects of his financial dealings are under investigation by a federal grand jury in Albany. The senator has said that federal authorities are examining his business relationships over the past five or six years.

Some of those relationships straddled his personal and public lives. The senator, for example, has held personal investments in, or did business with, companies and businessmen who have also received state assistance, sometimes with Mr. Bruno’s help.

The two campaign accounts Mr. Bruno controls together had about $3 million on hand at the end of 2006, but the totals have fluctuated widely over the years. Mr. Bruno, who has been in office for 30 years, has not faced a serious opponent since the early 1990s. He has not spent heavily on his re-election campaigns in many years and has often had large amounts of campaign cash on hand.

Many state legislators, who face re-election every two years, keep their cash in bank accounts where it is readily accessible. It is less common for candidates to invest in mutual funds, and rarer still for them to become equity investors in companies by making loans or direct purchases of stock, according to an analysis of state campaign records. Interest income, dividends and losses are the only data about campaign committee investments that the State Board of Elections makes available to the public.

Lee Daghlian, a spokesman for the elections board, said that committees must also file a document explicitly identifying the investments they make, but that those documents are kept in paper files and are not included in the data available on the board’s Web site. He said it was not possible yesterday to determine whether other candidates had made investments similar to Mr. Bruno’s.

Mr. McArdle said Mr. Bruno decided in 2000 to have his re-election committee buy $107,000 of stock in Plug Power and $24,000 of stock in a related firm, Mechanical Technology Inc. That was about the same time Mr. Bruno made personal investments in both companies, according to his legislative financial disclosure statements.

After Plug Power went public in 1999 its stock skyrocketed, reaching $150 a share before beginning a long decline in 2000; today it trades at less than $4. Mechanical Technology’s stock suffered a similarly steep decline in those years. Mr. Bruno personally lost $36,700 and his committee lost $117,800 in the two stocks when the shares were sold in 2005, Mr. McArdle said. Despite the dismal outcome, he asserted that the investments were viewed at the time as smart alternatives to the meager returns being offered by banks.

“Back then, there was a thought that these types of investments were worth making because the analysts were saying these would be good in the long run,” he said. “Everybody was investing in them.”

The $500,000 in public money that Mr. Bruno helped win in 2001 was for a fuel cell research project involving Plug Power and Rensselaer Polytechnic Institute in Troy, which is in Mr. Bruno’s district. In an interview last month, Cynthia Mahoney White, a spokeswoman for Plug Power, said Mr. Bruno “has been very supportive of us,” although she said the company knew nothing about his investments in Plug Power.

In 2001, Mr. Bruno arranged for both campaign committees to lend money to Capital Center Credit, which specialized in providing financing for the installation of security equipment sold by the Integrated Alarm Services Group, another company run by Mr. McGinn. Mr. McArdle said the loans were repaid on a monthly basis, at an interest rate of slightly more than 9 percent, until 2003, when Capital Center’s debt was assumed by Integrated Alarm and was repaid at a new interest rate of 10 percent. The loans were paid in full in late 2004.

Mr. McGinn is a principal in McGinn, Smith & Company, an investment firm that recently received a subpoena from the grand jury investigating Mr. Bruno’s business activities. The Village Voice reported in 1997 that McGinn, Smith was once a client of Mr. Bruno’s private consulting business. In 1999, Mr. Bruno disclosed making a profit from the sale of stock he owned in the Pointe Financial Corporation, a Florida-based bank holding company for which Mr. McGinn was vice chairman and an investor.

Mr. McGinn did not return a call to his office seeking comment. Mr. McArdle said Mr. Bruno directed the investment in Mr. McGinn’s company not out of any favoritism, but because “interest rates at that time were around 1 or 2 percent, and this promised a much better rate of return.”