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Report finds ethical misconduct at NYPA under Richard Kessel

Richard Kessel speaks in Uniondale. (July 31, 2007)

Richard Kessel speaks in Uniondale. (July 31, 2007) Credit: Howard Schnapp

A state investigation of New York Power Authority practices under then-chief Richard Kessel found "ethical misconduct, procurement irregularities and financial mismanagement" in 2009 and 2010, according to a newly released report.

For example, Kessel, of Merrick, who resigned as NYPA's chief in 2011, had "apparent conflicts of interest that he failed to reveal" in recommending that NYPA consider a law firm for a "substantial contract for legal services," the probe found. It said Kessel failed to disclose "his own ongoing personal legal relationship with the same firm," Ruskin Moscou Faltischek of Uniondale, according to the state Inspector General's office.

Kessel was appointed president and chief executive of NYPA in 2008, after a long tenure as the public face of the Long Island Power Authority. Ruskin Moscou previously served as counsel for LIPA under Kessel. Senate co-leader Dean Skelos (R-Rockville Centre) serves in an "of counsel" role at the firm, and Arthur "Jerry" Kremer, a former state assemblyman, serves as a Ruskin partner and chief of Ruskin's lobbying arm, Empire Government Strategies.

The findings have been referred to the New York Joint Commission on Public Ethics for review, according the Inspector General's office. William Reynolds, an IG spokesman, said the probe did not find violations of criminal law, but rather "ethics violations and financial controls that needed tightening."

Kessel declined to comment. He has previously denied any wrongdoing.

The probe, which took nearly three years, was initiated in February 2011 by former Inspector General Ellen Biben.

The probe found that NYPA's bidding process for hiring law firms for legal matters beyond the scope of NYPA's internal legal department was "deficient."

Law firms were selected through a "poorly managed procurement process that involved inadequate record keeping and failed to provide sufficient guidance to staff reviewing the proposals," the report said.

The report said Kessel recommended that NYPA consider Ruskin Moscou Faltischek during a bidding process for a "substantial contract for legal services," but failed to disclose "his own ongoing legal relationship with Ruskin Moscou on a personal legal matter."

Kessel's personal use of the firm continued for the duration of the NYPA bidding and selection process and "involved a significant outstanding balance of legal fees that persisted during the course of the Inspector General's investigation." Kessel's legal bill with Ruskin Moscou was more than $25,000 during that time, the reports said. The IG found this an apparent violation of the state Public Officer's Law and NYPA's Code of Conduct.

The investigation found that Ruskin Moscou on March 4, 2009, was given a "courtesy interview" by Kessel with NYPA's legal department, even though the agency wasn't in the market for outside legal counsel at the time. Kessel's retainer with Ruskin Moscou for unspecified personal legal services was dated March 3, 2009, the probe found. Ruskin Moscou would later be awarded NYPA contracts for energy services and general legal services.

A spokeswoman for Ruskin Moscou didn't immediately return a call seeking comment.

The probe also uncovered a $15,000 loan in 2009 that Kessel solicited and accepted from a subordinate, "which neither individual reported as required in their annual financial disclosure statements," the IG found.

The report said the loan allegedly came from NYPA vice president for public and government affairs Thomas DeJesu, who, like Kessel, formerly worked for LIPA. Kessel and DeJesu are longtime friends. The IG report said bank account records and testimony "substantiate two $7,500 withdrawals in November 2009 by DeJesu and two checks from Kessel to DeJesu for those same amounts dated May 15, 2010, and June 12, 2010," the IG found.

Investigators said neither Kessel nor DeJesu reported the loan on state-required annual financial disclosure statements.

The IG's report said Kessel told DeJesu he was having financial difficulties in November 2009 and "he couldn't come to anyone else." DeJesu, who reported to Kessel at NYPA, provided the loan interest-free, according to the report. DeJesu didn't respond to a call to his NYPA office seeking comment.

The IG report concluded, "Kessel's conduct in the solicitation and acceptance of a loan from his subordinate appears to violate NYPA's code of conduct." By requesting and accepting the loan, the report says, "Kessel created an appearance or situation where [he] could be either improperly influenced [or] give or be given preferential treatment."

Under Kessel's tenure, the probe also found that charitable contributions and business-related contributions increased at NYPA, both statewide and "specifically related to the Long Island area where Kessel lived." The report said NYPA's charitable donations to groups on Long Island, where NYPA has a "limited presence," increased 50 percent under Kessel.

Among the donations noted in the report, which were first noted in a Newsday story in 2011, NYPA in 2010 made four contributions to Long Island entities: $2,500 to Hofstra University, $25,000 to the Long Island Pine Barrens Society, $10,000 to Renewable Energy Long Island, and $5,175 to the Research Foundation at SUNY Stony Brook. The $42,675 represented 12 percent of NYPA's $351,395 in contributions that year.

The IG's office noted that while the contributions increased under Kessel, investigators did not find "any undue influence with regard to the contributions made to Long Island organizations."

The probe found that while NYPA's charitable contributions between 2009 and 2010 had been "properly vetted and the agency had effective policies and procedures to monitor its charitable contributions," it nevertheless found that no formal review and approval process existed at NYPA to monitor what the agency termed "business expenses" that were "contributory in nature."

"Rather, NYPA had a deficient policy which lacked provisions for identifying, monitoring, and justifying these purported business-related contributions," the report found.

Kessel, under questioning by investigators, sought to downplay NYPA's classification of certain contributions as business expenses. "In the end, it's all the same money," he is quoted as saying. "It's all fungible . . . And while I know, and I understand that you know, there are different budget codes and all this stuff, I don't really get caught up in that because it's the same money."

The Inspector General's office recommended NYPA enact a series of new controls, among them:

A management audit of its procurement policies, practices, procedures, and organizational structure;

More exacting procurement standards and full documentation and record retention;

Disclosure of "actual, potential, or perceived conflicts of interest" when issuing and reviewing procurement requests for proposals and train officials and employees on disclosure requirements;

Training regarding the prohibition of seeking a loan from a subordinate and loaning money to a superior;

A policy prohibiting active board members from seeking NYPA employment;

A policy for business-related contributions, which includes documentation and justification of each expenditure, as well as disclosure of any ties between a NYPA employee and the funding recipient; and

Monthly reports delineating contributions, sponsorships and business-related contributions for presentation to the NYPA board.

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