Illinois Pension Plot Thickens As Two Plead Guilty –

The corruption scandal that has dogged the Illinois Teachers Retirement System (TRS) created fresh speculation earlier this month as a defendant entered a guilty plea and implicated an unnamed public official in the illicit practice of exchanging pension consulting fees for political donations.

Attorney Joseph Cari pleaded guilty to one count of attempting to commit extortion, agreeing with government claims that he acted as a liaison for Stuart Levine, the former TRS trustee at the center of the controversy. Levine has pleaded not guilty to multiple charges related to soliciting kickbacks from private equity firms.

In his plea agreement with the United States Attorney’s office, Cari claims that Levine told him that a “high ranking Illinois public official” was selecting consultants for private equity funds that would appear before state pension boards and that this was a part of that official’s political fundraising strategy. According to the plea agreement, Levine told Cari that Levine, the public official, and two associates of the public official agreed that they would block private equity funds from being considered for investment unless they hired associates connected to Levine or his associates. They would then require those that were hired by the private equity firms “to make certain political or charitable contributions as directed by Levine and those associates,” the plea agreement says.

The Associated Press and Chicago Daily Herald cited two anonymous sources as saying that the high ranking public official is Illinois Gov. Rod Blagojevich and that one of the two associates mentioned is a political fund raiser for the Democratic governor. A Blagojevich spokeswoman says that the governor denies doing any of the activities described in the plea agreement and points out that the accusations are based on second-hand information provided by an indicted co-conspirator. “The activities that are described in the plea agreement are not things that would happen under this administration,” says spokeswoman Abby Ottenhoff.

The U.S. Attorney for the Northern District of Illinois alleges that Levine attempted to extort $850,000 last year from a Virginia-based real estate and asset management firm that sought $85 million from the TRS. The funds were to be transferred to Levine associates using a bogus consulting service. Cari admitted that he served as Levine’s liaison to the firm. The firm ultimately balked at the scheme and Levine tried to pull the firm’s proposal from consideration, but the investment was approved anyway.

Another defendant in the case, Steven Loren, also pleaded guilty to attempting to obstruct the Internal Revenue Service. Loren served as an outside counsel to Illinois TRS when he served as a partner with the law firm of Gardner Carton & Douglas. He admitted to drafting legal agreements designed to mask kickbacks involving Levine and a placement agent.

Earlier this month Gov. Blagojevich announced reforms that would eliminate contingency fees paid to placement agents and require board of trustee members to disclose more financial information. The proposal would make Illinois the first state to enact several of these initiatives, according to the governor’s office. The changes would also increase fines and prison terms for ethical violations and fraud, require all public pension boards to use competitive solicitation processes and expand existing disclosure requirements and force public pension systems to adhere to the same 2003 state ethics laws as their governmental counterparts.

Illinois TRS announced last month that it had made several changes to its investment policy. The retirement system’s board of trustees approved a new policy banning certain third-party payments and mandating that all partnership documents receive legal approval before submission to the board.

Despite the governor’s possible implication in the scandal, the reforms he proposed have merit and stand a good chance to have an impact, according to J. Fred Giertz, a professor at the University of Illinois’ Institute of Government and Public Affairs and a member of the board of trustees for the State Universities Retirement System of Illinois (SURS).