CHICAGO — Former Illinois Gov. Rod Blagojevich and several associates expected to reap $500,000 from an $809,000 consultant’s fee paid by Bear, Stearns & Co. for its role as book-runner on the state’s $10 billion 2003 pension bond sale, an aide said in testimony this week during the disgraced ex-governor’s federal corruption trial.
The promise of personal financial benefits — not the firm’s abilities — drove the decision to select Bear Stearns, as did Blagojevich’s decision, on the day of pricing in June 2003, to give the go-ahead to issue the full $10 billion authorization, said former Blagojevich chief of staff Alonzo “Lon” Monk, who testified on Wednesday and Thursday.
The selection of Bear was either going “to help with fundraising” or help the group “make money,” Monk said in testimony before U.S. District Court Judge James B. Zagel in Chicago.
The group included Blagojevich, Monk, and advisers and fundraisers Chris Kelly and Antoin Rezko.
Kelly committed suicide last year and Rezko is in federal prison after his conviction in 2008 in connection with corruption schemes tied to state government.
Monk said it was Rezko and Kelly who picked Bear Stearns and that on the day of pricing Blagojevich told his finance team to go ahead with the entire authorization after a private discussion with Kelly. Monk said he was later told by Kelly that he had pushed the governor to make the decision.
Monk said Rezko later told him that $500,000 would be set aside in a consultant’s fee paid by Bear Stearns to Springfield Consulting Group LLC’s Robert Kjellander and held in an account for the four men until after Blagojevich left office.
“I think Kjellander was rewarding Tony for whatever influence he had in getting Rod to sell the $10 billion in bonds,” Monk told jurors, according to published reports. The testimony echoes Monk’s plea agreement filed last year by federal prosecutors in U.S. attorney Patrick Fitzgerald’s office.
Kjellander has denied any wrongdoing and has not been charged with any illegal activities. He has acknowledged making a “loan’’ to a Rezko associate.
The state initially had planned to break the pension bond deal into a series of tranches with other firms serving in the top spot on later series.
Then Illinois budget director John Filan approached the governor on the day of pricing and asked whether he wanted to move forward with the entire transaction because of strong international demand and favorable interest rates.
The state’s decision to use Bear Stearns — which was absorbed by JPMorgan in 2008 — as the book-runner on the first tranche of the taxable pension bonds raised flags in the Chicago public finance community, given that other firms had stronger positions in the taxable market at the time.
The competition among firms for the lucrative top spot, the race to hire politically connected consultants, the influence of Rezko and Kelly, the Kjellander payment, and a subsequent legislative ban on such consultant contingency fees were previously chronicled in The Bond Buyer.
Monk said in his plea agreement that Kelly and Rezko pushed him to choose Bear Stearns. Filan has said in past interviews that he chose the underwriting team but that he had discussions with Monk, who served as liaison between Blagojevich and the state’s Office of Management and Budget on the deal.
Blagojevich faces 24 criminal counts alleging mail fraud, racketeering, racketeering conspiracy, attempted extortion, extortion conspiracy, bribery, bribery conspiracy, and lying to Federal Bureau of Investigation agents.
The pension obligation bond 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 and to benefit Blagojevich’s campaign coffers.
The governor was arrested by federal authorities in December 2008 on public corruption charges, including the allegation that he sought to personally profit from his power to appoint President Obama’s Senate replacement after Obama, then the junior senator from Illinois, was elected president.
The General Assembly removed Blagojevich from office in early 2009.