CHICAGO — The promise of personal financial benefits drove former Illinois Gov. Rod Blagojevich’s decision in 2003 to choose Bear, Stearns & Co. to run the books on the state’s general obligation pension bond sale and to give his go-ahead on the day of pricing to issue the full $10 billion authorization, the governor’s former chief of staff alleged in a plea agreement with federal prosecutors filed yesterday.
The details on the scheme were disclosed yesterday in Alonzo “Lon” Monk’s 31-page agreement with U.S. attorney Patrick Fitzgerald’s office in which he pleaded guilty to one charge of wire fraud. His cooperation — which comes with a recommendation for a 24-month prison sentence — marks a significant advancement as the government builds its public corruption case against Blagojevich, who was stripped of office by the General Assembly in January following his December arrest.
The state’s decision to go with Bear Stearns as the book-runner on the first tranche of the pension bonds raised flags in the Chicago public finance community, given the stronger position of other firms in the taxable market at the time.
The competition among firms for the top lucrative top spot, the race to hire politically connected consultants, the influence of Blagojevich cronies Antoin Rezko and Chris Kelly on the selection process, and the $800,000 payment received by Bear Stearns’ consultant Robert Kjellander of Springfield Consulting Group LLC were chronicled in The Bond Buyer.
Allegations of pay to play involving the POB deal were previously disclosed in various court documents in recent years, including the indictment of Blagojevich in April. However, the Monk plea agreement provides a new level of detail as to how Blagojevich and his closest advisers sought to personally profit from the bond sale.
Monk, who served as liaison with the state’s Office of Management and Budget on the pension deal, alleges that Kelly and Rezko “pushed” him to choose Bear Stearns, which is identified only as “Investment Firm A” in the plea agreement, for the first tranche of bonds.
At the time, the state intended to break up the $10 billion into several sales. Monk understood that Kelly and Rezko were pushing for Bear Stearns because the firm would either make a contribution to Blagojevich or because the governor, Kelly, Rezko, and Monk would “make money.” The firm could not make a direct contribution under regulatory bans on such payments from bond underwriters.
Monk “discussed the decision with Blagojevich and indicated that Kelly and Rezko wanted Investment Firm A to be chosen to be the lead underwriter for the first round of POB sales. After that conversation, Blagojevich decided that Investment Firm A would receive the lead role on the first round of the POB sale,” the agreement alleges.
On the day of pricing in early June 2003, the indictment alleges that “government staff members” recommended that the state issue all $10 billion. State finance officials and their advisers have said they made the recommendation based on the market’s strength and international demand. Monk arranged a meeting that included Blagojevich, Kelly, and other government staff members to discuss what to do.
At one point, the governor and Kelly stepped away and upon returning, Blagojevich made the decision to sell all $10 billion. Monk, who served as the governor’s first chief of staff from early 2003 through 2005, alleges that later in the day, Kelly told him he had told Blagojevich that “letting Investment Firm A sell all $10 billion of the bonds would mean that Investment Firm A would make more money, and that there would be a benefit for Blagojevich, Defendant, Rezko, and Kelly.”
Monk, 51 and a resident of Decatur, alleges in his plea agreement that he later learned that Bear’s consultant — paid $809,000, or 10%, of the firm’s $8 million in fees — would make a $500,000 payment to Rezko and that “the money would later be split between Defendant, Blagojevich, Rezko, and Kelly.” Kjellander has never said what work he did for the payment and he has not been charged with any wrongdoing or been identified in court documents.
The plea agreement was filed Tuesday before U.S. District Court Judge James B. Zagel, who presides in the U.S. District Court for the Northern District of Illinois, Eastern Division. Blagojevich faces a June trial on 16 counts of fraud and racketeering conspiracy.
The POB pay-to-play scheme marks just one in a series of arrangements in which the governor and his advisers sought to use their influence to steer state business and contracts for personal profit.
“Those conversations included a number of specific ideas for making money, such as through operating businesses that would get state money or receiving fees from people who did business with the state,” the Monk agreement alleges. Rezko was responsible for trying to set up the money-making arrangements.
Monk’s participation came with the understanding that he too would profit, though not until after the governor left office. However, beginning in mid-2004 and continuing through 2005, Monk received cash payments of $10,000 on seven to nine occasions.
Blagojevich also sought to leverage his support for a $1.8 billion construction program by the Illinois State Toll Highway Authority in the fall of 2008 and his plans to announce a $5 billion program the next year to shake down contractors to raise $500,000 in campaign contributions. The authority’s swift approval for the $1.8 billion program, ahead of new limits on contributions from contractors that were set to take effect in January, raised eyebrows at the time.
Allegations in the plea agreement also reveal an alleged scheme to shake down a racetrack owner for $100,000 in campaign contributions in exchange for the governor’s support on legislation that benefitted racetracks. The governor’s representatives also sought to shake down Children’s Memorial Hospital for contributions in exchange for state grant support.
Another former chief of staff, John Harris, has also pleaded guilty and is cooperating. Kelly, who was also indicted with Blagojevich, recently died following a suicide attempt and Rezko is in federal prison following his conviction on corruption charges last year.
When the size of Kjellander’s fee was disclosed by Bear Stearns in a regulatory filing in November 2003, it sparked outrage among state lawmakers who later adopted a ban on such contingency fees. Bear Stearns’ lead banker on the deal, P. Nicholas Hurtgen, in February pleaded guilty to aiding in the shakedown of a Chicago-area hospital that was seeking state regulatory approval for a new hospital. He is cooperating with federal prosecutors. After those allegations were disclosed, he was forced to resign in 2004.
Kjellander said in a statement: “I do not know if Mr. Monk’s plea agreement purports to refer to me. Nobody ever has told me that I am a person described or discussed in that plea agreement. I do know that I did not participate in any scheme and I have not committed any crime. I never made any contributions to Mr. Blagojevich’s campaign, and never considered doing so. I never gave money to Chris Kelly. I have met Mr. Monk and I know Mr. Rezko, but I did not involve myself in any conspiracy to give them money. I have nothing to hide, but because this controversy appears to be based on hearsay and supposition, I also have nothing more to say at this time.”