CHICAGO - Former Illinois Gov. Rod Blagojevich pleaded not guilty yesterday to federal corruption charges alleging his drive for financial gain influenced state legislation, jobs, and contracts - including the selection of Bear, Stearns & Co. to lead the state's $10 billion pension bond sale in 2003.

Blagojevich and his brother Robert Blagojevich both entered not guilty pleas during their arraignments before U.S. District Court Judge James B. Zagel in the federal court for the Northern District of Illinois in Chicago. Four others - former chiefs of staff Alonzo Monk and John Harris, fundraiser Chris Kelly, and businessman William F. Cellini Sr. - were also charged in the 19-count indictment announced by U.S. attorney Patrick Fitzgerald earlier this month. Arraignments of the four are scheduled for later this week and next week.

Blagojevich remains free on bond.

Blagojevich did not make a formal statement during the hearing, but told reporters before entering the courthouse he was "innocent of every single accusation" and expected to be vindicated. The former governor faces 16 counts of fraud and racketeering conspiracy.

The indictment included charges, first revealed last December in a criminal complaint, that Blagojevich allegedly sought to use his power to appoint President Obama's Senate replacement for personal gain and that he threatened to withhold financial assistance to the Tribune Co. involving its sale of the Wrigley Field ballpark if a critical editorial board writer was not fired.

The indictment also revealed a new allegation that kickbacks were sought in connection with the state's pension bond issue. Members of the indicted group, along with unnamed co-schemers, directed the pension deal to "a company whose lobbyist agreed to provide hundreds of thousands of dollars" to former Blagojevich fundraiser Antoin Rezko "out of the fee the lobbyist was to collect."

Bear Stearns, which is not identified in the indictment, was chosen as the senior book-running manager on the taxable general obligation issue that sold in June 2003, pocketing $8 million in fees for its work on the transaction. The former underwriter, which has since been absorbed by JPMorgan Chase, paid $809,000 to its lobbyist, Robert Kjellander.

In federal documents released as part of Rezko's trial last year, the government alleged that Rezko directed Kjellander to transfer $600,000 of the fee to an individual identified as Joseph Aramanda, whom prosecutors allege was used by Rezko as a "vehicle to move money."

Aramanda paid out about $450,000 of those funds to four individuals prosecutors allege were Rezko "assignees." Kjellander has not been charged with wrongdoing and he has said the money was transferred as a loan that has since been repaid.

The state Office of Management and Budget led then by John Filan, who is now executive director of the Illinois Finance Authority, compiled the list of firms qualified to serve in a book-running senior manager position on the pension deal. Filan said yesterday he ultimately selected the team after consultations with his staff, advisers and aides to the governor, including Monk.

"I took everyone's thoughts and made the final decisions on the team," he said.

Bear Stearns was lead book-runner and UBS Financial Services was co-book-runner. Filan noted that originally the state did not plan to do all of its $10 billion authorization in one deal, instead breaking it up into several tranches with other firms in the book-running spot. The decision to sell all $10 billion was made on the day of pricing due to strong market demand.

IFA board chairman William Brandt said he and Filan were interviewed once earlier this year by federal authorities relating to the Tribune financing plan. Brandt and authority officials were in discussions prior to Blagojevich's arrest over a possible taxable financing, in the range of $275 million, that could have led to the state taking ownership of Tribune-owned Wrigley Field - home of the Chicago Cubs - as part of the company's efforts to sell the team.

The plan has been stalled as the Cubs sale is still pending and the Tribune Co. has filed for Chapter 11 bankruptcy protection. Brandt said the federal allegations came as surprise to him when they were revealed last December.

"We stand ready to sit down and work through" a potential deal that would not involve tax subsidies, Brandt said, citing the significant economic benefits provided by Wrigley Field to Chicago and the state.

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