Ill. Governor Implicated in Pension Probe

Published October 1, 2005

As the federal corruption trial of Illinois’ immediate past governor was about to begin, the state’s current governor apparently was implicated in a massive fraud, extortion, and kickback scheme involving the government employee pension system.

On September 15, Chicago attorney Joseph Cari pled guilty to attempting to extort $850,000 from a Virginia investment firm that was seeking business from the state’s Teacher’s Retirement System (TRS). In his 17-page plea agreement, Cari said the attempted extortion was part of a scheme orchestrated by Stuart Levine, a former TRS board member who was indicted on August 3 with Cari and Steven Loren, former outside counsel to the pension fund.

Governor Denied Involvement

Cari’s plea agreement states Levine told him a “high-ranking Illinois public official (‘Public Official A’), acting through two close associates, was selecting consultants for the private equity funds that appeared before the State Pension Funds.” Levine allegedly cooperated with the two associates to steer sham consulting contracts with the investment firms to individuals who would funnel the money to various places, including Public Official A, according to Cari.

Several news organizations, including the Chicago Sun-Times, ABC-TV News in Chicago, and Chicago’s public radio station, WBEZ Radio, reported sources had confirmed Public Official A is Gov. Rod Blagojevich (D). They further reported the two close associates are Antoin “Tony” Rezko and Christopher G. Kelly, both of whom have been top fundraisers and advisors to Blagojevich.

The governor’s press spokesmen did not return calls requesting comment. At a September 16 news conference on how the state plans to get heat to the poor, print, radio, and television reporters peppered Blagojevich with questions about the allegations. He adamantly denied any role in pension fund corruption.

“I have on my side the most powerful ally that exists, and that is the truth,” Blagojevich told reporters. “And the truth is that we do things legally. We do things ethically. And we do things right.”

Two Principals Pled Guilty

Cari’s plea came within minutes of Loren’s guilty plea to charges of impeding an Internal Revenue Service investigation related to the alleged kickback and extortion scheme. Cari and Loren are cooperating with federal investigators. Levine’s attorney has announced his client will plead not guilty to all charges.

The guilty pleas of Cari and Loren came just two work days before the start of jury selection in the corruption trial of former Republican Gov. George Ryan, who faces a 22-count federal felony indictment for a variety of crimes he allegedly committed while governor from 1999 to 2003 and before then during his two terms as Illinois’ secretary of state. Seventy-three of Ryan’s former associates and state employees in his administration, including his chief of staff, have pleaded guilty or have been convicted of federal felonies, including bribery, kickbacks, and perjury. There have been no acquittals in the Ryan administration investigations.

Cari allegedly told officials at JER Partners, a Virginia real estate investment firm, “This is how things are done in Illinois,” in explaining his attempt to extort the $850,000–one percent of the $85 million pension fund investment the firm was seeking, according to the August 3 indictment. The indictment further states Cari and Loren helped Levine use his position on the pension board to receive “hundreds of thousands of dollars in undisclosed kickbacks and payments for himself, his nominees, and his associates from investment firms seeking to do business with TRS.”

This is the second federal felony indictment against Levine. Last year he was indicted for allegedly orchestrating a kickback and extortion scheme while a member of the Illinois Health Facilities Planning Board. Levine has pleaded not guilty to those charges.

Pension Problems Rampant

The indictments and guilty pleas are among a string of events that have kept the Illinois government employee pension system in the news the past two years. This year alone, in addition to the recent indictments, the pension system has:

  • been raided of $2.3 billion allocated over the next two years, to balance the state budget, despite having the worst unfunded liability of any state pension system. The unfunded liability is about $35 billion and was more than $43 billion before a $10.1 billion pension bond deal in 2003. Those bonds must be repaid until 2033 at an annual interest rate of 5.05 percent;
  • been involved in a federal investigation of $4.5 million in “finder’s fees” paid to Robert Kjellander, the National Republican Party treasurer, Illinois Republican National Committeeman, and long-time friend of White House advisor Karl Rove. Kjellander has not been charged with wrongdoing;
  • turned over to federal investigators records related to investments in Hopewell Ventures, a venture capital firm run by former Democratic National Committee Chairman David Wilhelm, a close advisor to Blagojevich. Wilhelm has not been charged with wrongdoing; and
  • placed $120 million in funds with a firm founded by and still in the family of William Cellini, a Republican Party powerbroker who owes Illinois $27.5 million for a state loan he received in the 1980s and never repaid. Cellini has not been charged with wrongdoing.

Individuals Are Target

“Headline writers have called this an investigation of TRS. It is not! It is an investigation of persons who allegedly misused their position of trust and fiduciary duty to the system for their own purposes and for their own personal gain,” said TRS Board Vice President Molly Phalen and Board President Randy Dunn in a joint statement at meetings of the board August 11 and 12.

Pension system spokesmen did not return calls for comment.

Randall Samborn, a spokesman with the U.S. Attorney’s office in Chicago, said he could not comment on the scope of the investigation or whether the pension fund itself is a target.

Top Republican Aided Democrats

Illinois’ government employee pension system has been making headlines since 2003, when the Democrat-controlled General Assembly and Blagojevich sold $10.1 billion in pension obligation bonds to shore up the pension system’s woeful underfunding.

They accomplished that with the aid of Kjellander, who helped broker the bond deal even though state Republican lawmakers overwhelmingly opposed it. In the process, Kjellander earned $809,000 in fees and infuriated many fellow Republicans.

Despite Kjellander’s recent elevation to treasurer of the national Republican Party, several prominent Illinois Republicans, including House Leader Tom Cross (R-Oswego) and Sen. Steve Rauschenberger (R-Elgin), a candidate for the Republican nomination for governor, have called for him to resign his post as Republican National Committeeman.

Cross said the indictments, investigations, diversion of pension payments, and pension bond deal all raise serious questions about the state’s employee pension system.

“I think this is only the surface,” Cross said of the indictments and investigations. “I don’t know everything that’s going on, but as we speak it doesn’t look good.”

State Senator Bill Brady (R-Bloomington), who also is running for the Republican nomination for governor, served on last year’s Governor’s Pension Commission, which issued a report with recommendations on how to improve the state’s pension system. Most of the recommendations went unheeded.

‘People are Offended’

“People are personally offended by all this,” Brady said. “I can tell, from talking to people in my area and around the state, people care about what’s happening. It looks like people are enriching themselves through the pension system.”

Jay Stewart, executive director of the Better Government Association in Chicago, said, “This has caught people’s attention because everyone in Illinois had a sense there was lots of petty corruption. The pension system puts a focus on pinstripe patronage. Instead of playing with $30,000 jobs, we’re talking $100 million contracts.

“What’s been shown is that rather than being treated with care and regard for employees and taxpayers, these billions of dollars of pension funds were viewed as an opportunity for politics and power to trump policy,” Stewart said.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.