NEW YORK (AP) — A Republican operative was indicted Monday on charges he exploited his political reputation to swindle $1.1 million from Mayor Michael Bloomberg, claiming he would use funds to help guard against election fraud but instead buying a house, prosecutors said.

John Haggerty duped Bloomberg and his political advisers into giving the money to the state Independence Party to help with ballot security during the mayor's campaign for a third term, District Attorney Cyrus R. Vance Jr. said. Haggerty then laundered the money and used it for personal expenses in the months after the election, Vance said.

Haggerty now works for Carl Paladino, the Buffalo businessman running for governor. He was indicted by a grand jury on charges of grand larceny, money laundering and falsifying business records. He pleaded not guilty at his arraignment Monday afternoon and was released on his own recognizance.

Defense attorney Raymond Castello said his client spent hundreds of hours doing the job he was paid to do and cooperated fully with prosecutors.

"The mayor knew where the money was. He hasn't asked us for it back," Castello said.

Failing to adhere dollar-to-cent to the ballot-security budget he created was not illegal, Castello said.

"He has not spent any money on any illegal activity," he said.

Haggerty's company, Special Elections Operations, formed shortly after the election last year, also was indicted.

Bloomberg said the DA asked him not to discuss the case and declined to comment. The mayor has been cooperating with investigators, Vance said.

"You may be asking yourselves how John Haggerty managed to dupe Mayor Michael Bloomberg, his staff and his advisers, a group of highly educated, sophisticated people," Vance said. "To put it simply: They trusted him."

Haggerty worked on Bloomberg's election campaign in 2005, for former Gov. George Pataki and for former Westchester District Attorney Jeanine Pirro.

The money — two wire transfers for $600,000 each — came from Bloomberg's personal fortune, not campaign contributions, and went to the Independence Party, the state's third-largest political party. Vance said the bulk of the money was then transferred either to Haggerty himself or his corporation, which was a sham.

Haggerty used none of the money for the polling operation, the DA said. The house he bought was his late father's home in Forest Hills, an upscale section of New York City's Queens borough, prosecutors said. He also spent money on JetBlue tickets and lawyer's fees, prosecutors said.

Haggerty was hired to do ballot security for Bloomberg's re-election campaign last year. A term-limit law had barred Bloomberg from seeking a third, consecutive term, but he orchestrated a last-minute law change that let him run again in 2009.

Bloomberg wired money in October and November to the party, which turned most of it over to Haggerty for several tasks, including setting up an office to encourage Queens residents to vote for the mayor. It contributed to more than 36,000 Independence votes for Bloomberg.

In an effort to show he had used the money legitimately, Haggerty wrote three phony checks from his company to political workers, Vance said. The checks were not cashed, and the workers were not charged.

Some of Bloomberg's money is still with the party. Prosecutors have asked for it to be returned. The mayor included in the funds a $100,000 donation, which was not part of the investigation.

The party has not been charged in the case, but the investigation was continuing and the DA's office said the party has not been cooperative.

Independence Party Chairman Frank MacKay said Monday that he had not seen the indictment and therefore had no immediate comment.

Paladino, who is attempting to petition his way to a Republican primary for governor, said Haggerty will continue to be a strategist for his campaign.

"Like all Americans, John Haggerty enters this investigation with the presumption of innocence," said a statement issued by Paladino's spokesman, Michael Caputo.

"Unlike a typical career politician, Carl Paladino doesn't throw his friends under the bus," it said. "John joined our campaign just 45 days ago and he quickly became a part of our family. He's a loyal and straightforward man of character."


Associated Press writers Sara Kugler Frazier and Beth Fouhy in New York and Michael Gormley in Albany contributed to this report.