The report that caused a Cuomo-Schneiderman eruption

Cuomo and Schneiderman in happier times. (Governor's Office)
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ALBANY—It was Michael Powell's column this week about an argument between Andrew Cuomo and Eric Schneiderman that brought hostilities out into the open. 

It wasn't what the veteran Times reporter was after, in the beginning; he'd set out to write about how Schneiderman was planning to spend a $613 million pot of mortgage-settlement money he had secured, but learned of an effort by Cuomo to gain control of the money himself and effectively use it to fund tax cuts. 

In the course of his reporting Powell obtained and referenced a memo from Solicitor General Barbara Underwood to Mylan Denerstein, the governor's top counsel. It laid out legal arguments that officials have said came in response to a conversation between the two officials about who should control the money, after Denerstein's formal request for an opinion. The opinion in the memo favored the position of the A.G.

The Cuomo people took Powell's reporting as an insult from Schneiderman, saying about the memo, “We haven’t received a proposal from the attorney general and have heard more from you then from his office. … When we do, we will review the legal and ethical ramifications.”

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On Wednesday morning, two top Schneiderman aides traveled to Cuomo's office for just such a discussion. Micah Lasher, the Democratic attorney general's chief of staff and Janet Sabel, the top deputy for litigation, met with unspecified administration officials about the settlement money, with no immediate resolution to announce.

On Thursday, the Times published a front-page story about the bad and apparently worsening relationship between the men, leading with the snicker-provoking details that Cuomo aides disparagingly wonder if Schneiderman wears eye liner and the Schneiderman camp thinks of Cuomo as a Machiavellian underminer.

Underwood's memo appeared in the Times Union and elsewhere by Thursday, and a Cuomo administration source told Capital that the governor's aides were upset it had leaked in the first place. The source bristled at the fact that any communication between Underwood (the state's top lawyer) and Denerstein (in this case, a client) would ever be shared publicly, and charged the document was provided to Powell before it was even brought to them.

The Cuomo source then provided Capital with emails showing that Underwood sent her note at 3:34 p.m. on Monday, while Powell first called Cuomo's press office at 2:24 p.m.

“If Mylan was the first recipient of that memo, then the attorney general must have a great magician on his staff,” the Cuomo administration source said. (This is an apparent reference to Lasher, who at age 14 published, “The Magic of Micah Lasher: More than 50 Tricks That Will Amaze And Delight Everyone – Including You.”)

Schneiderman's spokesman Damien LaVera said the memo was provided to Powell "shortly after" Underwood sent it to Denerstein. I checked with Powell, and he said he hadn't read the memo when he initially called Cuomo's office, and that he first raised it with the Cuomo people around 4:30 or 5. 

The legal disagreement remains unresolved as Cuomo crafts his latest budget proposal, in which he'll seek to fund a suite of tax cuts, increase spending on education and health care, and bridge a $1.7 billion deficit.

Underwood wrote that "the settlement is entirely consistent with the types of relief that could have been ordered by a court if the case had been adjudicated instead of settled. ... [T]he settlement funds at issue here are not money received for or on behalf of the state. Instead, they are held by the Attorney General for the benefit of others, namely the people who were or will be harmed, directly and indirectly, by the fraud, or by similar frauds.”

Underwood's letter says special discretion is granted to the office because it won the settlement using the Martin Act, and that similar discretion has been afforded in 18 cases since 1999 where the amount involved has exceeded over $1 million, including several handled by Cuomo when he was attorney general.

Cuomo, as A.G., directed money to a nonprofit group he helped create with Syracuse University that would replace Ingenix, a health care consortium that dissolved when Cuomo aides discovered it was leading to collusion. In another instance, Cuomo sent money to the New York Public Interest Research Group when he settled with student lending companies.

Cuomo administration officials said that these cases involved far less money, and had far more specificity than the JPMorgan settlement which says “permissible purposes for allocation of the funds include, but are not limited to, providing funding for housing counselors, state and local foreclosure assistance hotlines, state and local foreclosure mediation programs, legal assistance, housing remediation and anti-blight projects, and for the training and staffing of, and capital expenditures required by, financial fraud and consumer protection efforts.”

Schneiderman previously allocated settlement money to help fund land banks around the state in their efforts to tackle vacant properties, and said in November that he wanted it directed "to help the people who were hurt."

This occurred through a public bidding process. But no constraints about bidding or transparency are specifically detailed in the settlement, prompting a Cuomo administration official to liken Schneiderman's plan to Albany's much-maligned process of legislative earmarks.

“The way they're doing this make it essentially the biggest member item of all time,” the administration official said.

Officially, both sides say they're hopeful something will be worked out.

“Our ongoing conversations with the Attorney General’s office are productive and all sides believe we will reach an agreement that will be in the best interest of all New Yorkers,” said Cuomo spokesman Matt Wing.

"We are having constructive conversations with the governor’s office on how we can work together to provide much needed relief to New Yorkers,” said LaVera.

You can read the Underwood memo here.