WASHINGTON — In an audit of $57.5 million of variable demand revenue bonds issued by the Illinois Health Facilities Authority in 2003, the Internal Revenue Service is focusing on the actions of two former members of the Rosalind Franklin University’s board of trustees who have pleaded guilty to defrauding the university and orchestrating kickback schemes.

The audit, which the IRS began on Jan. 9, was disclosed in a material event notice filed with the nationally recognized municipal securities information repositories yesterday by the Illinois Finance Authority. The IFA replaced the IHFA in 2004. The bonds were issued through the conduit. The university was the borrower.

According to the notice, the IRS told the authority that the bonds were selected “because of information that we received from external sources or developed internally that causes a concern that the debt issuance may fail one or more provisions” of the tax code.

The notice said that “the initial information requested by the IRS appears to have been focused on issues arising out of the conduct of certain individuals who were not employees of [the university] who have been prosecuted by the Department of Justice for their actions, which victimized the university.”

Although the notice does not name individuals, former university board members Stuart Levine and Jacob Kiferbaum both pleaded guilty in 2006 after being indicted on a number of federal charges the previous year, including attempts to defraud the university, then known as the Chicago Medical School, through a kickback scheme.

The bonds under IRS scrutiny were issued to finance the construction of student housing on the university’s campus, as well as to refund $30 million of bonds issued in 2001 to finance the construction of an addition to the school. The fact that Kiferbaum sat on the board that awarded both construction contracts to Kiferbaum Construction Corp. may be a driving factor of the IRS audit, sources said.

The indictments alleged that Levine and Kiferbaum agreed that Kiferbaum would charge an extra $1 million to build the $22 million student housing facility. The money would then be diverted to Levine.

Kiferbaum overcharged the school by another $1 million and kicked that back to Levine as well, in connection with the transaction to build the $18 million ­addition to the school. The two men attempted to conceal the kickbacks by steering the funds through North America Capital Opportunities Inc., a consulting firm owned by former public finance banker and financial adviser John Glennon, who pleaded guilty in 2007 for his role in the scheme.

Kiferbaum’s plea agreement covered both transactions, among others. Levine’s plea agreement covered a separate transaction that involved steering the sale of university land to a specific buyer in exchange for a $1.5 million kickback.

Kiferbaum and Levine agreed to cooperate with investigators in other corruption charges as part of their plea agreements. Kiferbaum also agreed to pay the university $7 million in restitution, the amount of his firm’s net profits from the two ­projects.

Although the university is technically the entity under audit, “the important thing to remember is the school was a victim of these individuals’ illicit activities,” James Kimberly, a spokesman for the university, said yesterday.

“The school is cooperating fully with this inquiry,” he added.

Marjorie Halperin, a communications consultant for the IFA, said that given the troubled history it makes sense for the IRS to look into the bonds.

“This is a logical, appropriate follow-up for the IRS to do, and we welcome the audit and appreciate that the university is cooperating,” she said. “More information is always a good thing.”

The IRS told the authority that the audit may not be limited to the kickback scheme.

Even though Kiferbaum and Levine are no longer tied to the university, tax controversy experts said yesterday that if the IRS determines the bonds are noncompliant, the service could declare them taxable or seek an agreement where the university would pay the IRS to keep the bonds tax-exempt

In 2003 and 2004, Levine, an Illinois businessman, was vice chairman of the Illinois Health Facilities Planning Board, which oversees the state’s certificate of need program. In 2005 federal prosecutors charged that he threatened to block approval of a construction project for Edward Hospital in Naperville unless the hospital hired Kiferbaum’s company. In exchange, Kiferbaum planned to kick back money to Levine, prosecutors said. ­Edward Hospital refused to hire Kiferbaum’s firm.

Former Bear, Stearns & Co. public finance banker P. Nicholas Hurtgen, who participated in the scheme involving Edward Hospital with the expectation that Bear Stearns would get hired to underwrite the hospital’s bond deal, pleaded guilty earlier this year for his role. That deal never went forward.

The 2003 bonds under audit were ­underwritten by Bear Stearns, now part of JPMorgan. Jones Day was bond counsel.

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