CHICAGO — Prosecutors in the federal corruption trial of former Illinois Gov. Rod Blagojevich sought in testimony this week to link a loan to businessman Joseph Aramanda from consultant Robert Kjellander to an alleged scheme by Blagojevich and three associates to personally profit from the state’s $10 billion pension bond sale.
Kjellander’s firm, Springfield Consulting Group LLC, received an $809,000 payment for serving as consultant to Bear Stearns & Co., boork-runner on the taxable bond sale. Former Blagojevich chief of staff Alonzo “Lon” Monk testified last week that the promise of personal financial benefits 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 of bonds that the Legislature had authorized.
Monk has testified that former Blagojevich adviser and fundraiser Antoin “Tony” Rezko told him that $500,000 of the fee would be set aside to be divvied up between himself, Monk, Blagojevich and another fundraiser and adviser, the late Christopher Kelly, after Blagojevich left office. Monk said the former governor made the decision to sell all $10 billion of the pension bonds after talking privately with Kelly.
In testimony on Tuesday and Wednesday, Aramanda, who was a business associate of Rezko, said Rezko set up a conference call with Kjellander in September 2003 and that Kjellander was very receptive to making a $600,000 loan and did not require financial records or collateral. Aramanda said he planned to use the funds for his pizza business, but Rezko pushed him instead to make good on debts he owed by funneling $460,000 to various individuals owed money by Rezko.
Kjellander is not charged with any wrongdoing.
Aramanda said he did not know the loan funds came from the pension bond consultant fee. He repaid the loan in June 2004 after Rezko lined up another $600,000 loan from a developer who was a contributor to Blagojevich and had a contract to operate rest areas on the state tollway.
Prosecutors also called former state debt manager Dave Abel, now a public finance banker at William Blair & Co., who said Bear Stearns was among the 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, then budget director John Filan, who later told him of Bear Stearns selection to serve in the top banking spot. In supporting Monk’s testimony that Kelly was present at meetings at the time it was decided to go forward with the entire bond sale, Abel said he briefly attended a meeting with Filan, Blagojevich, Kelly and Monk during which he said the state could “go either way” and sell all $10 billion or divide the transaction into several tranches. Filan later told him the decision was to go with the full authorization.
A cost of issuance sheet, included in documents submitted by prosecutors, shows that Bear Stearns was credited with 23% of the transaction and made $8 million in fees. Other co-lead managers UBS, ABN AMRO, Citi, and Goldman, Sachs & Co. each was credited with 15% and made between $5.4 million and $5.5 billion. The state paid a total of $76.3 million in cost of issuance fees, including $35 million in underwriting fees.
Federal documents on the case are available at http://www.justice.gov/usao/iln/hot/us_v_blagojevich.html.
The pension obligation 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 for personal profit and to benefit Blagojevich’s campaign coffers, according to prosecutors.