CHICAGO — Lawyers for former Illinois Gov. Rod Blagojevich and his older brother Robert launched their defense Monday against allegations the ex-governor sought to use his official powers to personally profit and build his campaign coffers.
The defense is expected to soon call John Filan, Blagojevich’s first budget director when he took office in 2003. Filan steered the state’s $10 billion general obligation pension bond issue through legislative approval to market.
Federal authorities, who finished laying out their case last week, allege that Blagojevich and a close group of advisers and aides expected to pocket $500,000 from an $809,000 consulting fee the book-runner on the deal — the former Bear Stearns & Co. — paid to Robert Kjellander of Springfield Consulting Group LLC.
Former Blagojevich chief of staff Alonzo “Lon” Monk testified for the prosecution that the promise of personal financial benefits drove the selection of Bear Stearns.
He indicated that the same incentive also drove Blagojevich’s decision on the day of pricing in June 2003 to issue the full $10 billion of bonds authorized by the General Assembly.
Monk testified that former Blagojevich adviser and fundraiser Antoin “Tony” Rezko told him that $500,000 of the fee would be set aside and divvied up later among Rezko, Monk, fundraiser and adviser Christopher Kelly, and Blagojevich after the latter exited the executive mansion.
Monk said the former governor made the decision to sell all $10 billion of the pension bonds after talking privately with Kelly.
No evidence was presented that Blagojevich and the others ever received the funds. Kjellander is not charged with any wrongdoing.
Prosecutors with U.S. attorney Patrick J. Fitzgerald’s office called former Illinois debt manager Dave Abel, now a public finance banker at William Blair & Co., who said Bear Stearns was among six firms ranked as highly qualified by the state finance team from proposals submitted by banks seeking to work on the deal.
Abel said it was his boss, Filan, who later told him of Bear Stearns’ selection to serve in the top banking spot.
Abel said he briefly attended a meeting with Filan, Blagojevich, Kelly and Monk during which he recalled telling them Illinois could “go either way” and sell all $10 billion or divide the transaction into several tranches.
Filan has said in past interviews that he chose the underwriting team but discussed the deal with Monk.
Blagojevich named Filan as executive director of the Illinois Finance Authority — the state’s primary conduit agency — in November 2008.
The former governor was arrested by federal authorities a month later. Filan had previously served as chief operating officer since early 2007.
The alleged pension bond pay-to-play scheme marks just one in a series of arrangements in which the former Democratic governor and his advisers sought to use their influence to steer state business and contracts in directions that profited them personally and benefitted Blagojevich’s campaign coffers.
The most prominent charge alleges the former governor sought to personally profit from his power to appoint President Obama’s replacement after the Illinois senator was elected president. Blagojevich faces a total of 24 counts of wrongdoing.
Other portions of the prosecution case touched upon the public finance industry. Ali Ata, the first executive director of the IFA after its creation in 2004, testified that he contributed $25,000 to Blagojevich during the election in 2002 and was told by Rezko that he would be considered for a position in the future administration.
Rezko later mentioned the IFA position and asked for a $50,000 contribution. Ata, who came up with just $25,000 more, testified that Blagojevich subsequently thanked him for his support and said he hoped Ata would receive a position in which he could “make some money.”
Former Blagojevich chief of staff John Harris, who previously served as Chicago’s budget director, testified that Blagojevich sought to strip Citi of future state bond underwriting business because the firm did not hire his wife Patti. Harris was arrested in December 2008.
Harris said Blagojevich asked him to reach out to businesses after Patti Blagojevich received her Series 7 securities license.
One of those contacts was Citi public finance banker Ray Kljajic who knew Harris from his tenure working for Chicago. Harris said he never banned Citi from bond work and kept the governor in the dark when the firm won a spot on a deal for a state-related agency.
The defense led off Monday with testimony from Robert Blagojevich and his wife Julie.
The ex-governor’s brother served as his campaign finance chair between summer 2008 and December 2008.
The elder brother, who faces five counts, denied he attempted to force campaign contributions from state contractors or organizations waiting on state grants.
The trial that began June 3 is taking place before U.S. District Court Judge James B. Zagel in Chicago. Court documents are available at http://www.justice.gov/usao/iln/hot/us_v_blagojevich.html.