The magnet that drew a 23-year-old idealist named Barack Obama to Chicago was Harold Washington, Chicago’s first African-American mayor.
As a young man, Obama idolized the politician who had vanquished the Chicago machine and two of its most powerful players, then-Mayor Jane Byrne and future-mayor Richard M. Daley, after they split the white vote in a three-way race in 1983. The young Obama wrote the new mayor asking for a job, but heard nothing back, so he signed on as a community organizer on Chicago’s South side, arriving in his beat-up blue Honda in June, 1985. (Washington died of a heart attack in office, several months after winning re-election, in November 1987.)
As a newcomer, Obama aligned himself with the reformers. He put down roots in Hyde Park, an integrated neighborhood with a history of electing independent-minded politicians that was home to the late Washington, as well as to Carol Moseley Braun, Jesse Jackson Jr. and the University of Chicago.
More than two decades later, Obama-the-presidential-aspirant had come to have a far more nuanced and pragmatic view of Chicago’s political establishment. In 2007, he endorsed then-Mayor Daley, son of the late party boss of the same name, who returned the favor when Obama declared for the Democratic presidential nomination. By then, Obama had mastered the skill of mixing an idealist’s message with a politician’s tactical approach to alliances.
Powerful mentors guide him
environment without being entangled in some of the traditional
problems of Chicago politics.”
Obama’s education in the bare-knuckled and often tribal politics of Chicago says much about his ambition, as well as his ability to cultivate powerful mentors, from an aging liberal Jewish judge in Chicago named Abner Mikva, who knew all the byways of power, to a gravelly-voiced, black sewer inspector-turned-political-leader in Springfield named Emil Jones Jr., who helped Obama navigate the capitol’s byzantine politics.
Over the years, Obama traded his stiff, Ivy League delivery style for the cadences of a black preacher, and built coalitions by pivoting from his left-leaning Hyde Park base to appeal to more centrist constituencies.
And even as he touted good government causes, he cultivated an insider’s ties to important parts of the establishment, from the power brokers in the powerful Cook County Democratic organization, to the city’s leading black politicians: His wife, Michelle, worked for the Daley administration in the early 1990s. And many of his closest advisers, among them, David Axelrod and Valerie B. Jarrett, are allied with Daley as onetime appointees and advisers.
“I think I have done a good job in rising politically in this environment without being entangled in some of the traditional problems of Chicago politics,” Obama told reporters and editors at a Tribune editorial board meeting.
Not everyone is convinced.
“There are no virgins in politics, let alone in Chicago politics,” asserts Fred Siegel, author of “The Prince of the City: Giuliani, New York and the Genius of American Life,” and a professor at New York’s Cooper Union.
Siegel cites Obama’s endorsements of Daley, as well as of former Chicago alderman Dorothy Tillman, perhaps best known for taking a pistol from her purse and brandishing it at a City Council meeting, and who was ultimately rejected by her district the face of charges of corruption and graft. Reformers were also stunned in 2006, when Obama endorsed Todd Stroger, son of longtime Cook County Board president John Stroger and the ward bosses’ pick to assume his father’s mantle after the elder Stroger suffered a stroke.
“Obama may not have come out of that world of the Chicago machine, but he’s been a functional ally,” Siegel said. “The idea that he’s a reformer is simply bizarre.”
Looking for ways to make the tent as large as possible
Obama’s supporters contend that he has consistently championed good-government and ethics reform even as he built alliances to get things done - without allowing himself to be defined or limited by others’ agendas.
“There are some people who say he’s not strong enough on this or that, that he’s wishy-washy, that he’s trying to have it both ways,” Mikva, a former state legislator, congressman, judge and counsel to President Bill Clinton, told the New York Times. “But he’s not looking for how to exclude the people who don’t agree with him. He’s looking for ways to make the tent as large as possible.”
Obama’s earliest involvements in Chicago gave him entree to both the Establishment and progressive political worlds, which, like almost everything else in Chicago overlap. He married Chicago native Michelle Robinson, a Princeton and Harvard-educated lawyer whose father had volunteered as a Democratic precinct captain on the South Side, and whose childhood friend, Santita, is a daughter of the Rev. Jesse Jackson whose Rainbow/PUSH Coalition, a civil rights group, still operates from the city’s South Side.
After his stint as a community organizer, followed by law school, Obama returned to Chicago in 1992. Admirers say it is testament to his idealism that he delayed going to work for a law firm to direct a voter registration campaign targeting low-income blacks. Illinois Project Vote, as it was called, registered more than 100,000 new voters for the 1992 presidential election, boosting both Bill Clinton’s tallies in Illinois, as well as Moseley Braun’s campaign to become the first black woman elected to the U.S. Senate.
Some of those he enlisted in the vote effort would become long-term allies, among them John R. Schmidt, a former chief of staff to Daley and associate attorney general, and John W. Rogers Jr., a young black money manager and college friend of his brother-in-law’s.
“He really did it, and he let other people take all the credit,” Schmidt told the Washington Post. “The people standing up at the press conferences were Jesse Jackson and Bobby Rush and I don’t know who else. Barack was off to the side, and only the people who were close to it knew he had done all the work.”
Law firm job a political stepping stone
Obama had already turned down offers to work for white-shoe law firms, and after the six-month voters’ drive, he went to Davis Miner Barnhill & Galland, as it was then called, a firm touted in progressive circles for its work on voting rights and housing equality. For Obama, a large part of the appeal was senior partner Judson Miner, a former counsel to Harold Washington.
“During the course of our talking, it came out that people who knew he was having lunch with me were trying to convince him that this was the worst place for him to go,” Miner told the New York Times. “He shared this with me – he was amused. This isn’t where you land if you want to curry favor with the Democratic power structure.”
But the job was the perfect political stepping stone for an aspirant from Hyde Park. Miner introduced him to the key players in the coalition that had elected Washington, many of whom became Obama supporters. When Obama ran for Illinois Senate a few years later, Miner supported him.
But other alliances forged at Miner have come back to haunt him. Besides working on voting rights at Miner’s firm, Obama did work on low-income housing projects involving developer and restaurant chain owner Antoin “Tony” Rezko, who would become one of his first financial contributors. Rezko, who liked to accumulate politicians like fast-food restaurants, is on trial for using his connections to state boards to demand kickbacks from companies that wanted to do business with the state – a case with no connection to Obama.
Entanglement with Rezko
Obama has taken heat, however, for getting help from Rezko to purchase his home. In 2005, he bought a mock-Georgian Chicago mansion for $1.65 million - $300,000 below the original price - on the same day that Rezko’s wife, Rita, purchased the adjoining garden from the same sellers for the full asking price. Later, Rita Rezko sold the Obamas a 10-foot strip of land that expanded their yard. Obama has denied any impropriety, saying the seller insisted on selling the two parcels on the same date. But he acknowledged the deal looked bad and called it a “boneheaded mistake.”
During the same years he worked for Miner’s firm, Obama also taught part-time at the University of Chicago Law School, where he made other political contacts. That’s where he befriended Mikva, the former judge who would ask his longtime golfing partner, Emil Jones Jr., the powerful Democratic leader in the Illinois Senate, to look after Obama after he was elected to the state Senate in 1996.
Jones is described in David Mendell’s biography, “Obama: From Promise to Power,” as “a street-tough African American who had risen from Chicago sewer inspector to enter the corridors of power in Springfield.” After Obama’s election to the Illinois Senate, an unlikely friendship developed between the two, with Jones becoming almost like a surrogate father to the younger man. “I am blessed to be his godfather and he feels like a son to me,” he told Mendell.
Indeed, Jones would become Obama’s kingmaker. For six of the seven years Obama spent in Springfield, the Republicans controlled the General Assembly, and like other Democrats, Obama had only limited success in passing legislation, among other items, a rare ethics law in a state known for government corruption.
But when the Democrats achieved a sweep in 2002, and Jones became majority leader, he anointed Obama as the go-to guy on virtually every high-profile piece of legislation – a record that set him up for his run for U.S Senate.
Ill-fated primary against Bobby Rush
Still, Obama was restless in Springfield. In 2000, he had disregarded the advice of his political friends and mounted a primary challenge to incumbent Congressman Bobby Rush, a former alderman, four-term incumbent and onetime leader of the Illinois Black Panthers with deep roots in the South Side African-American community.
Rush routed him getting 61 percent of the vote to Obama’s 30 percent. Sounding themes later hammered by New York Sen. Hillary Clinton, Rush portrayed him as an elite Ivy Leaguer who was out of touch with those he was seeking to represent. “He went to Harvard and became an educated fool,” Rush told the Chicago Reader.
Analysts said that that trouncing was a humiliating course in political coalition-building 101 for Obama – and that he learned the lesson well. After the debacle, he began to reach out to players from whom he had previously remained aloof, from some key African American leaders to party regulars.
“He didn’t seem to get bitter,” William Daley, the mayor’s brother, told the Washington Post. “He didn’t turn on people. He engaged people more and worked on it.”
Only a few years later, when Obama announced for the U.S. Senate, he had a far more sophisticated game plan. He asked his friend Martin Nesbitt to set up a meeting with businesswoman and billionaire Penny Pritzker, with whom he worked as a vice president of Pritzker Realty Group. Obama and his wife would persuade her to oversee fund-raising for his next campaign.
Expanding his political team
With Pritzker on board, he expanded his base of contributors beyond the wealthy black entrepeneurs and lakefront liberals who had supported him the past to include a much larger pool of influential Democrats and philanthropists. Among them were Newton Minow, senior counsel at Sidley Austin LLP, where Obama had interned and who had advised Sen. Adlai Stevenson and Presidents John F. Kennedy and Lyndon Johnson; James Crown and members of the wealthy Crown family; and John Bryan, then chief executive of the Sara Lee Corporation.
Obama also appealed for help from Axelrod, a well-connected political consultant who had worked for Harold Washington and who was now close to Mayor Daley. Initially, Axelrod discouraged him from making the run, saying that although he was a “terrific talent,” he should wait until Daley retired and then run for mayor, according to Mandell’s book.
Eventually, Axelrod came on board, persuaded in part by Bettylu Saltzman, the daughter of the late developer Philip Lutznick and a liberal stalwart who became close with him while running the Chicago office of the late Sen. Paul Simon.
Speaking out against Iraq War
In October, 2002, Saltzman was organizing an antiwar rally and asked Obama if he would speak. About to announce his bid for the U.S Senate, Obama did not say yes right away. Ultimately, he appeared, giving what was arguably the most important speech of his political career up until that time.
Saying he was not opposed to all wars, only “dumb wars,” Obama warned that a U.S. occupation of Iraq would be of “undetermined length, at undetermined cost, with undetermined consequences.” The speech, which would prove prescient, would help define him not just for the U.S. Senate race, but later in the crowded field of contenders for the Democratic nomination for president.
By the time he announced his candidacy for the U.S. Senate a few months later, Axelrod had committed to work with him. Obama had also gotten a group of about a dozen established Democrats, including Jones, Jesse Jackson Jr. and U.S. Rep. Danny Davis to back him.
In 2007, when he announced his decision to go after the Democratic nomination for president, that same coalition would step up to the plate - this time with Daley and the Cook County Democratic Party added to the mix.
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1 Comments
#1. John Ryskamp 05.23.2008
Make sure you keep an eye on the Rezko story. Obama is probably going to be prosecuted under 18 USC 1346.
Evelyn Pringle has just completed her series on Obama at opednews.com. You should review the articles, and then review the discussion of 18 USC 1346 provided, in order to see for what activities Obama will probably be indicted.
Cheers,
John Ryskamp
Final Chapter - Curtain Time for Barack Obama Evelyn Pringle 05/22/2008 2
Curtain Time for Barack Obama - Part V Evelyn Pringle 05/18/2008 9
Curtain Time for Barack Obama - Part IV Evelyn Pringle 05/16/2008 22
Curtain Time for Barack Obama - Part III Evelyn Pringle 05/15/2008 11
Curtain Time for Barack Obama - Part II Evelyn Pringle 05/13/2008 15
Curtain Time For Barack Obama - Part I Evelyn Pringle 05/12/2008 33
Discussion of 18 USC 1346 from:
http://www.groom.com/_library/downloads/NAPPAArticle-Feb2006.pdf.
This article provides brief guidance as to the manner in which courts have interpreted 18 U.S.C. § 1346, which generally provides that for purposes of federal mail and wire fraud statutes (18 U.S.C. §§ 1341 and 1343, respectively), a “scheme or artifice to defraud” includes a “scheme or artifice to deprive another of the intangible right to honest services.” Specifically, this article examines the manner in which courts have interpreted the broad language of § 1346 in circumstances that do not involve the explicit bribery of public officials.
I.
Background
18 U.S.C. § 1346 was enacted in 1988, for purposes of reversing the Supreme Court’s decision in McNally v. U.S.,483 U.S. 350 (1987). In McNally, the Supreme Court overruled a long line of lower court decisions by holding that the federal mail and wire fraud statutes did not encompass schemes to defraud citizens of an intangible right to honest government service from pubic officers. Id. at 355. By enacting 18 U.S.C. § 1346, Congress restored “honest services” within the ambit of the federal mail and wire fraud statutes, meaning that a scheme to deprive the public of “honest services” by a public official could be punished as mail or wire fraud (assuming, of course, that such an instrumentality was used as part of the scheme or artifice).
II.
Judicial Interpretations of the “Honest Services” Fraud
A.
General Parameters of the Statute
Not surprisingly, the majority of cases that have analyzed the “honest services” fraud set forth in 18 U.S.C. § 1346 have involved the bribery of public officials, where the charge under § 1346 is in addition to other charges. However, there have been numerous prosecutions under § 1346 against public officials (and those who have corrupted public officials) for transactions that do not involve outright bribery, but which nonetheless involve the provision of cash or gifts to a public official in exchange for the public official’s exercise of power on behalf of the individual or entity providing the gratuity.
Courts have recognized that the term “honest services,” as used in § 1346, is incredibly broad, but the statute has survived repeated challenges asserting that it is unconstitutionally vague, with courts resorting to a “common sense” usage of the phrase “honest services.” In rejecting a constitutional void-for-vagueness challenge to the statute’s wording, one court opined that “[c]oncrete parameters outlining the duty of honest services should not be necessary. . . . The concept of the duty of honest services sufficiently conveys warning of the proscribed conduct when measured in terms of common understanding and practice.” U.S. v. ReBrook, 837 F. Supp. 162, 171 (S.D. W. Va. 1993), aff’d. 58 F.3d 961 (4 th Cir. 1995). Another court demonstrated little patience for the defendant’s void-for-vagueness challenge in the context of a kickback scheme, holding that “[i]t should be plain to ordinary people that offering and accepting large sums of money in exchange for a city councilman’s vote is a type of conduct proscribed by the language of § 1346.” U.S. v. Paradies, 98 F.3d 1266, 1283 (11 th Cir. 1996). Nonetheless, courts have refused to allow § 1346 to be used as a “catch-all” that subjects every unethical or illegal act to federal mail and wire fraud prosecution. See, e.g., U.S. v. Bloom, 149 F.3d 649, 654-56 (7 th
Cir. 1998) (noting, inter alia, that “not every breach of fiduciary duty works a criminal fraud”); U.S. v. Welch, 327 F.3d 1081, 1107 (10 th Cir. 2003) (”the right to honest services is not violated by every breach of contract, breach of duty, conflict of interest, or misstatement made in the course of dealing”). Recognizing the difficulty of interpreting the undefined phrase “honest services,” courts have attempted to establish general criteria that must be satisfied to successfully assert an “honest services” fraud claim. One of the leading circuits interpreting the scope of the honest services fraud is the First Circuit Court of Appeals, which held that: First, . . . honest services convictions of public officials typically involve serious corruption, such as embezzlement of public funds, bribery of public officials, or the failure of public decision-makers to disclose conflicts of interest. Second, . . . the broad scope of the mail fraud statute . . . does not encompass every instance of official misconduct that results in the official’s personal gain. Third, and most importantly, . . . the government must not merely indicate wrongdoing by a public official, but must also demonstrate that the wrongdoing at issue is intended to prevent or call into question the proper or impartial performance of the public servant’s official duties. U.S. v. Czubinski, 106 F.3d 1069, 1076 (1 st Cir. 1997) (emphasis added) (internal citations and quotations omitted), (discussing the First Circuit’s prior decision in U.S. v. Sawyer, 85 F.3d 713, 724 (1996). The Seventh Circuit has held that “[m]isuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state law fiduciary duty . . . from federal crime.” U.S. v. Bloom, 149 F.3d 649, 655 (7 th Cir. 1998). The court went on to note that “in almost all of the intangible rights cases decided . . . (before McNally or since § 1346), the defendant used his office for private gain, as by accepting a bribe in exchange for official action[,]” but also noted that “[s]ecret conversion of information received in a fiduciary capacity is a form of fraud against the owner of that information.” Id. Accordingly, the Seventh Circuit summarized its test for an honest services fraud as follows: “[a]n employee deprives his employer of his honest services only if he misuses his position (or the information he obtained in it) for personal gain” (emphasis added). Id. at 656-57.
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The Tenth Circuit has likewise held that cases involving § 1346 “must be read against the backdrop of the mail and wire fraud statutes, thereby requiring fraudulent intent and a showing of materiality.” U.S. v. Welch, 327 F.3d 1081, 1107 (10 th Cir. 2003). However, the Tenth Circuit unequivocally rejected the Seventh Circuit’s position that a public official must seek “personal gain” to violate § 1346, stating that while it was unwilling to “define the exact contours of honest services fraud or the proof necessary to sustain it . . . to require an allegation of intent to personally gain would suggest that [a defendant is] justified in using whatever means necessary to achieve [his or her] goals . . . ,” which the Court was unwilling to do. B. What Constitutes an Honest Services Fraud? As noted above, the language of § 1346 is not helpful in categorizing what specific conduct by a public official is prohibited, and courts have been unwilling to set forth a litany of proscribed acts, instead setting forth general parameters that must be satisfied to successfully assert an honest services fraud. It should be noted, however, that Justice Stevens, in his dissent in McNally (vindicated by Congress’ reversal of McNally), stated the following: In the public sector, judges, State Governors, chairmen of political parties, state cabinet officers, city alderman, Congressmen, and many other state and federal officials have been convicted of defrauding citizens of their right to honest services of their governmental officials. In most of these cases, the officials have secretly made governmental decisions with the objective of benefiting themselves or promoting their own interests, instead of fulfilling their legal commitment to provide the citizens of the State or local government with their loyal service and honest government. McNally, 483 U.S. at 362-63 (emphasis added). The basic concept on an honest services fraud “is that the public is not getting what it expects and deserves: honest, faithful, disinterested service from a public official. This concept
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applies whether the official is bribed or fails to disclose a conflict of interest.” U.S. v. Mangiardi, 962 F. Supp. 49, 51 (M.D. Penn. 1997). Addressing what constitutes an honest services fraud in the context of a union officer’s duty toward his union, a court held that “‘honest services’ contemplates that in rendering some particular service . . ., the defendant was conscious of the fact that his actions were something less than in the best interests of the employer—or that he consciously contemplated or intended such actions. For example, something close to bribery.” U.S. v. Boyd, 309 F. Supp.2d 908, 913 (S.D. Tex. 2004). Underlying § 1346 is the notion that “a public official acts as ‘trustee for the citizens and the State . . . and thus owes the normal fiduciary duties of a trustee, e.g., honesty and loyalty to them. Theft of honest services occurs when a public official strays from this duty.’” U.S. v. Sawyer, 239 F.3d 31, 39 (1 st Cir. 2001).
When a government officer decides how to proceed in an official endeavor—as when a legislator decides how to vote on an issue—his constituents have a right to have their best interests form the basis of that decision. If the official instead secretly makes his decision based on his own personal interests—as when an official accepts a bribe or personally benefits from an undisclosed conflict of interest—the official has defrauded the public of his honest services. U.S. v. Lopez-Lukis, 102 F.3d 1164, 1169 (11 th Cir. 1999). According to the First Circuit, a public official can steal honest services from his public employer in two ways: (1) the official can be influenced or otherwise improperly affected in the performance of his duties, or (2) the official can fail to disclose a conflict of interest, resulting in a personal gain. U.S. v. Woodward, 149 F.3d 46, 57 (1 st Cir. 1998) (relying upon the court’s earlier decision in U.S. v. Sawyer, 85 F.3d 713, 724 (1 st Cir. 1996).
In contrast, an employee’s failure to perform his job adequately, or his failure to adhere to the government’s code of conduct concerning permissible work-related activities, is not sufficient to Specific Instances Where Honest Services Fraud Has Been Found Most of the honest services fraud cases brought pursuant to § 1346 have involved, not surprisingly, clear-cut cases of bribery or the payment of “kickbacks” to public officials who exercised their influence on behalf of the person or entity paying such gratuity. Considering that bribery cases tend to be “clear cut,” in that there is, at a minimum, an exchange of something of value in return for an official action, the matters below involve less certain areas, where honest services fraud has been found (or alleged) notwithstanding the lack of a clear cut exchange of valuable consideration.
Recent—and Well-Publicized—Cases Involving Claims of Honest Services Fraud
(a)
U.S. v. Abramoff
A recent case asserting honest services fraud involves disgraced Washington lobbyist Jack Abramoff. On January 3, 2006, Abramoff pleaded guilty to a three-count information charging him with conspiracy, honest services mail fraud, and tax evasion. The honest services fraud charges to which Abramoff pleaded guilty are extensive—but essentially boil down to his failure to honestly serve his clients, his employer, and his attempts to corrupt public officials. Abramoff’s plea agreement, entered in the U.S. District Court for the District of Columbia, is available at http: //news.findlaw. com/usatoday/docs/abramoff/usabrmff10306plea.pdf (last visited January 16, 2006).
With respect to the honest services fraud against his clients, Abramoff admitted that he used his influence with Native American tribes that he represented on gaming matters to cause them to hire (at above-market prices) “grass roots” and “public relations” firms in which Abramoff had an undisclosed ownership interest, and from which he was being paid 50 percent of net profits, in addition to his lobbying fee from the tribes. Moreover, Abramoff admitted that he provided lobbying services to a Native American tribe in Texas that was seeking to reopen its gaming operations, without revealing that he had been paid millions of dollars by a Louisiana tribe to oppose all gaming legislation under consideration by the Texas legislature. Abramoff avoided disclosing the clear conflict of interest to his law firm by telling the Texas tribe that he was providing his lobbying services free of charge, while he simultaneously engineered the tribe’s retention of a “grass roots” firm in which Abramoff had an undisclosed financial interest, and which paid Abramoff $1.8 million in fees as a result of the Texas tribe’s retention.
ii.
Honest Services Fraud With Respect to Abramoff’s Employer
During the time that Abramoff was employed by a law firm, Abramoff agreed to represent a wireless company in securing a license to install wireless telephone infrastructure in the House of Representatives. Rather than entering into a retainer relationship with Abramoff’s law firm, Ambramoff instructed the wireless company to pay his fee to a non-profit entity that Abramoff founded, and that he used as a vehicle to fund trips and gifts for the politically influential. Abramoff did not disclose this arrangement to his employer, thus depriving his employer of fees to which it was entitled, which Abramoff admitted was an honest services fraud against his employer.
iii.
Honest Services Fraud—Corruption of Public Officials
The lengthiest portion of Abramoff’s plea agreement concerns the allegations that Abramoff engaged in a conspiracy to commit honest services fraud by corrupting public officials by providing “a stream of things of value . . . in exchange for a series of official acts and influence and agreements to provide official actions and influence.” (Abramoff Plea Agreement, ¶ 32). The things of value to which Abramoff pled guilty to providing included “foreign and domestic travel, golf fees, frequent meals, entertainment, election support for candidates for government office, employment for relatives of officials, and campaign contributions.” (Id.). Specifically, Abramoff pled guilty to providing “Representative #1″ (since identified as Representative Bob Ney (R-OH)) and “Staffer #1″ with such lavish items as all-expenses-paid trips to the Northern Marianas Islands, Scotland, and to Tampa, Florida (for the Super Bowl). Other things of value provided by Abramoff to Representative #1 and Staffer #1, however, were not so lavish—such as “comped” meals at Abramoff’s Washington, DC restaurant—and included items that some may consider “normal” business expenses when it comes to politics, such as contributions to Representative #1’s campaign committee and contributions to the Republican National Party. Abramoff’s plea agreement states that he provided such things of value in exchange for public officials’: agreements to support and pass legislation, agreements to place statements in the Congressional Record, agreements to contact personnel in the United States Executive Branch agencies and offices to influence decisions of those agencies and offices, meetings with Abramoff’s . . . clients, and awarding contracts for services with . . . Abramoff’s law firms. Id. at ¶ 33.
(b)
San Diego Pension Fund
Another very recent case involving allegations of honest services fraud in the context of public officials concerns the indictment of the former top executive of the San Diego City Employees Retirement System, the Retirement System’s lawyer, and three former trustees of the Retirement System. The indictment, announced on January 6, 2006, alleges that the Retirement System’s executive, its lawyer, and its former trustees committed honest services fraud by conspiring to approve enhanced retirement benefits for City of San Diego workers—including themselves—in exchange for allowing the City to underfund the Retirement System. According to the indictment, by early 2002, the Retirement System’s funding status was approaching only 82.3 percent, and, at such level, a “funding trigger” would have been tripped, requiring the City of San Diego to make a massive cash infusion to the Retirement System. As the funding trigger was about to tripped, the City negotiated a labor agreement that enhanced
pension benefits for members of the municipal labor unions (including the indicted Retirement System employees), and the City advised the Board of the Retirement System that the increased pension benefits were “contingent upon” obtaining relief from the funding trigger that was about to be tripped. The indictment alleges that the indicted officials agreed to reduce the City’s funding obligations with respect to the Retirement System, and that the vote to approve such relief was linked to the enhanced pension benefits that the officials would receive. According to the indictment, such conduct constitutes a conspiracy to deprive citizens of San Diego with their intangible right to honest services from public officials.
2.
“Pay-to-Play” Schemes Involving Campaign Contributions 3 The indictment is available at: http://www.signonsandiego.com/news/metro/pension/images/060106fedpensionindictment.pdf
In U.S. v. Troutman, 814 F.2d 1428 (10 th Cir. 1987), the Tenth Circuit addressed a “pay- to-play” scheme involving the payment of campaign contributions by a bank for consideration for state business, which the court held to be violative of the Hobbes Act, 18 U.S.C. § 1951 (extortion). (It should be noted that the defendant was not charged with committing an honest services fraud, even though such a claim was viable at the time of the defendant’s arrest and trial). At issue in Troutman was the Investment Officer of New Mexico, who advised a bank bidding for state business that it had to contribute to a fundraiser for the Governor of New Mexico. The United States successfully prosecuted the Investment Officer for extortion, and, on appeal, the Tenth Circuit affirmed the conviction, noting that “[a]n extortion effort made under the color of official right is described as a public official’s attempt to obtain money not due him or his office.” Id. at 1456. The court went on to cite several cases from various circuits, holding, inter alia, that “[t]he coercive solicitation of political contributions is within the realm of actions that are illegal under the Hobbes act.” Id. (quoting U.S. v. Cerilli, 603 F.2d 415, 421 (3d Cir. 1979), and citing U.S. v. Dozier, 672 F.2d 531, 540 (5 th Cir. 1982), and U.S. v. Williams, 621 F.2d 123, 124 (5 th Cir. 1980)). In U.S. v. Kemp, 379 F. Supp. 2d 690, 697 (E.D. Penn. 2005), the court upheld the conviction of the City Treasurer of Philadelphia, who was convicted of extortion and honest services fraud based upon his acceptance of bribes from people doing business with the City. In upholding Kemp’s conviction for honest services fraud, the court noted that “there were specific intercepted communications where [a co-conspirator] and Kemp made agreements that because
certain individuals did—or in some cases did not—make the requested contributions to either political activities or charitable events, they were, or were not, going to receive City business.” Id. Another case asserted an honest services fraud claim in the context of a “pay-to-play” scheme, although the scheme was not characterized as such. In Castro v. U.S., 248 F. Supp. 2d 1170 (S.D. Fla. 2003), the court addressed a “pay-to-play” kickback scheme in which judges serving on the Dade County (Florida) Circuit Court assigned criminal cases to selected defense attorneys who agreed to pay the assigning judges a percentage of the fees earned from each assigned case. The U.S. prosecuted the attorneys who participated in the scheme, alleging that the attorneys attempted to defraud the State of Florida of the judges’ honest services. The court held that the defendants had committed an honest services fraud, noting that public officials have inherent fiduciary duties to the public, and that violations of such inherent fiduciary duty are proper predicates to convictions under § 1346, even if an underlying state law or regulation was not violated. …
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