CHICAGO - A federal judge has denied a request from prosecutors to introduce evidence at the upcoming corruption trial of Antoin Rezko - a former fundraiser to Illinois Gov. Rod Blagojevich - alleging that Rezko steered to his associates portions of an $809,000 payment Bear, Stearns & Co. made to an Illinois lobbyist after the firm was chosen to senior manage a $10 billion pension bond issue.

The ruling from U.S. District Judge Amy St. Eve is the first time such an allegation involving the controversial payment to prominent Republican consultant Robert Kjellander of Springfield Consulting Group has surfaced in the ongoing corruption probe of state government known as Operation Board Games.

The now former Bear Stearns' public finance banker who hired Kjellander and worked to win the top spot on the state deal for Bear Stearns was P. Nicholas Hurtgen. Hurtgen is facing separate extortion charges in Operation Board Games stemming from his alleged participation in the shakedown of a suburban hospital.

The nine-page ruling from St. Eve on various evidentiary requests submitted by federal prosecutors also for the first time formally identifies the governor as the individual prosecutors have so far identified only as "Public Official A" in court filings. The governor has not been charged with any wrongdoing and has denied he is that official, although the local press has long identified him as such.

Rezko, once a top fundraiser and adviser to the governor, held great sway over appointments to various state positions and board slots. Rezko's influence, along with that of another close Blagojevich adviser, Christopher Kelly, was widely speculated by the press, lawmakers, and political insiders in 2003 and 2004. Numerous municipal market participants said it was Rezko and Kelly who directed bankers as to which consultants they should hire back in 2003 to lobby for a role in the state's $10 billion pension bond sale.

The allegations that Rezko held such sway became official in 2006 when he was indicted on fraud and influence-peddling charges for allegedly seeking kickbacks for state business and board appointments for his own benefit or to funnel into campaign coffers. The charges have focused on Rezko's role in appointments to a state pension fund investment board and the Illinois Health Facilities Planning Board.

The latest court document comes as Rezko's trial is set to begin early next month. St. Eve reveals in her ruling that federal prosecutors wanted to submit evidence at Rezko's trial that he "purportedly directed to Robert Kjellander" the $809,000 money transfer from Bear Stearns and in turn transferred $600,000 of the funds to an individual identified as Joseph Aramanda. Prosecutors allege Aramanda 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 in a phone interview yesterday said Rezko had no role in "directing" the payment he received from Bear Stearns. He also said that he used a portion of the funds to finance a loan to Aramanda, whom he described as a Wisconsin entrepreneur, and that the loan's terms were spelled out in a document.

"The loan was repaid early at a very nice interest rate," he said.

Bear Stearns declined to comment. The firm has not been alleged to have engaged in any misconduct.

Prosecutors wanted to introduce the charge involving the payment to boost their argument that Rezko was motivated to engage in the fraud schemes he is charged with because he was under financial strain. St. Eve agreed with Rezko's attorneys that the information could confuse or mislead the jury and delay the trial.

The payment, representing 10% of Bear Stearns' fees for the deal, stirred controversy when it was first disclosed, leading lawmakers to adopt new laws regarding consultant fees and contributing to the Municipal Securities Rulemaking Board's eventual ban on private consultants.

Federal authorities also sought to introduce evidence alleging that Rezko sought to use his influence to win the appointment of the now former executive director of the Illinois Finance Authority Ali Ata and used Ata's position "to benefit himself." Ata has previously been charged with aiding and abetting one of Rezko's fraudulent business schemes.

The key witness against Rezko is Stuart Levine, who sat on several governmental boards, and has acknowledged using his position to obtain illegal kickbacks and payments in schemes involving Rezko. Levine, who sat on the state agency that regulates hospital construction projects, allegedly orchestrated the scheme to shake down Edward Hospital, attempting to force the hospital to use a construction firm that in turn was to funnel payments to Levine. Hurtgen, the former Bear Stearns banker, is charged with extortion for allegedly participating in that scheme so that his firm would win the hospital's bond business.

Both Hurtgen and Ata have pleaded not guilty.

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