Was Citizens Alliance A Victim Or A Perpetrator?
Courtroom Buzz
Beasley News Service
December 18, 2008
It's been a great week for fans of mail & wire fraud and public corruption. Illinois Gov. Rod Blagojevich was indicted for a raft of charges including trying to sell off his appointment for Obama's vacant Senate seat, former NASDAQ chairman Bernard Madoff gave up the ghost on the $50 billion Ponzi investment scheme he's been running for years, and Marc Dreier, sole owner of his eponymous 200-plus-lawyer NYC & LA firm, was arrested for selling millions in fake promissory notes right out of his own clients' offices.
Let's pause for a moment to laugh at their poor lawyers making steak out of scrapple. Madoff's lawyer called his client "a person of integrity." Dreier's lawyer said the charges were "relatively minor."
Blagojevich is at least $500,000 behind in paying his lawyers, so they didn't say anything at all.
Back to Fumo, now comes word about the state's investigation into Citizens' Alliance:
The Pennsylvania attorney general is investigating the charity at the heart of the federal corruption case against former State Sen. Vincent J. Fumo - an inquiry that could force the organization to shut down.
A spokesman for Attorney General Tom Corbett said the conduct of Citizens' Alliance for Better Neighborhoods "raises red flags all over the place."
Citizens' Alliance has spent hundreds of thousands of dollars in ways "that have nothing to do with the operation of a charity," said Kevin Harley, the spokesman.
He cited the nonprofit's heavy buying of tools and other items for Fumo, its luxury cars, and its secret funding of a lawsuit against a Fumo political enemy.
On Tuesday the Inquirer's editorial board called the investigation long overdue:
Citizens Alliance, the South Philly group founded by aides of former state Sen. Vincent J. Fumo, has operated as Fumo's personal piggy bank for years. There is ample evidence coming out of Fumo's federal corruption trial that the nonprofit spent lavishly on purchases that had nothing to do with charity.
Why, for example, did the charity need to purchase power tools for Fumo? Why did it pay for a lawsuit against one of Fumo's political enemies? And why has it shelled out $2 million in legal fees arising from the federal criminal probe?
Everyone "knows" the answer "why," it's part of the salacious story about Vince Fumo that has kept people fascinated, a story which goes something like this:
Vince Fumo, despite already being a multi-millionaire, systematically abused his power as an influential State Senator to send millions of dollars -- some of it directly from the state, others from corporations Fumo leveraged with state power, including titans like PECO and Verizon -- to two non-profits that he used as slush funds, "borrowing" bulldozers, yachts and gardeners, funneling money for political purposes ($50,000 towards building a statue of a dog!), and going on Home Depot shopping sprees.
That is, outrageous public corruption, abuse of political office for personal gain and, because Fumo didn't report the income on his taxes (as his accountant, Steven Kobasa, confirmed on Monday), criminal tax fraud, of the same type that got Al Capone.
That would be a huge case, a complete indictment of Fumo and the dozens of people surrounding him who either benefited themselves or let it happen for their own purposes.
But that's not the case being tried right now.
a breach of public trust and/or abuse of position by federal, state, or local officials and their private sector accomplices. By broad definition, a government official, whether elected, appointed or hired, may violate federal law when he/she asks, demands, solicits, accepts, or agrees to receive anything of value in return for being influenced in the performance of their official duties.
There's a federal statute right on point, the one that Blagojevich has been charged with violating, which provides for fines and up to 10 years in prison for any government official who:
(A) embezzles, steals, obtains by fraud, or otherwise without authority knowingly converts to the use of any person other than the rightful owner or intentionally misapplies, property that—
(i) is valued at $5,000 or more, and
(ii) is owned by, or is under the care, custody, or control of such organization, government, or agency; or(B) corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization, government, or agency involving any thing of value of $5,000 or more;
or
(2) corruptly gives, offers, or agrees to give anything of value to any person, with intent to influence or reward an agent of an organization or of a State, local or Indian tribal government, or any agency thereof, in connection with any business, transaction, or series of transactions of such organization, government, or agency involving anything of value of $5,000 or more;
Fumo was not charged with public corruption. Indeed, a public corruption charge for Fumo's relationship with Citizens Alliance would be incompatible with the crimes for which Fumo has been indicted.
The 141 counts listed in the indictment did not include either public corruption or individual tax fraud. The actual violations alleged are:
18 U.S.C. § 371 (conspiracy to commit mail and wire fraud - 2 counts)
18 U.S.C. § 371 (conspiracy to defraud the United States - 1 count)
18 U.S.C. § 371 (conspiracy to obstruct justice - 1count)
18 U.S.C. § 1341 (mail fraud - 60 counts)
18 U.S.C. § 1343 (wire fraud - 41 counts)
18 U.S.C. § 1512(b)(2)(B) (obstruction of justice - 9 counts)
18 U.S.C. § 1512(c)(1) (obstruction of justice - 2 counts)
18 U.S.C. § 1519 (obstruction of justice - 21 counts)
26 U.S.C. § 7206(1) (false tax return - 2 counts)
26 U.S.C. § 7206(2) (aiding and assisting the filing of a false tax return - 2 counts)
18 U.S.C. § 2 (aiding and abetting)
18 U.S.C. § 981 (criminal forfeiture)
Factually, there are four categories of crimes, as described previously by Judge Yohn:
1) fraud and conspiracy to commit fraud related to the State Senate of Pennsylvania ("Senate");
2) fraud and conspiracy to commit fraud, conspiracy to obstruct the Internal Revenue Service, and aiding and abetting in the filing of false tax returns, related to Citizens Alliance for Better Neighborhoods ("Citizens Alliance");
3) fraud related to the Independence Seaport Museum ("ISM"); and
(4)obstruction of justice and conspiracy to obstruct justice.
Let's focus on (2) and (3). Starting with the Citizens Alliance charges, here's part of the indictment:
4. Defendants VINCENT J. FUMO and RUTH ARNAO used funds and resources of Citizens Alliance for their personal benefit. In addition, FUMO, with ARNAO’s assistance, used funds of Citizens Alliance to support political causes he favored. All of this conduct violated Citizens Alliance’s status as a tax-exempt nonprofit organization, and deprived Citizens Alliance of funds which it could have used to carry out its charitable mission in the City and County of Philadelphia.
5. Consistent with his preference of spending “other people’s money” (“OPM”), FUMO arranged for Citizens Alliance to purchase numerous items for his personal benefit. Among many such purchases, Citizens Alliance paid for a huge number of power and other tools, equipment, and hardware costing more than $75,000, that FUMO (a tool aficionado) personally received and placed at his various residences and other properties; Citizens Alliance purchased and paid for 19 Oreck vacuum cleaners and floor machines, for more than $6,500, which went to every floor of FUMO’s Green Street mansion, his home in Florida, and other places; and it paid for shopping sprees at the Jersey shore, during the summer months, when FUMO and ARNAO went to Sam’s Club, Home Depot, and Lowe’s locations near Atlantic City to stock up on tens of thousands of dollars of goods for their summer residences.
The ISM charges are similar:
5. Consistent with his philosophy of spending “other people’s money,” and his misuse of public and nonprofit resources he controlled, defendant VINCENT J. FUMO took improper advantage of his position as a member of the board of directors of the nonprofit Independence Seaport Museum to obtain numerous, valuable pleasure cruises on the museum’s historic yachts, without paying. In addition, FUMO took other benefits from the museum, including expensive ship models he used as decorations in his offices. FUMO took all of these benefits without disclosing to his fellow directors the material fact that he did not intend to and did not pay for any of them.
The core facts there do not necessarily represent illegal conduct. The American Cancer Society spends a whopping 10% of its expenditures towards "Administration" and another 22% towards "Fundraising."
That is, out of a billion dollars a year, 300 million of it -- including $619,551 to the CEO -- goes to people not actually "eliminating cancer as a major health problem by preventing cancer, saving lives, and diminishing suffering from cancer, through research, education, advocacy, and service." It goes to people buying plenty of power tools and trips to McDonald's.
But none of them are on trial for fraud.
The core difference, as alleged, is here:
From in or about August 1991 to in or about December 2005, at Philadelphia, in the Eastern District of Pennsylvania and elsewhere, defendants VINCENT J. FUMO and RUTH ARNAO conspired and agreed, together with each other, and with others known and unknown to the grand jury, to commit an offense against the United States, that is, to knowingly devise a scheme to defraud Citizens Alliance, and to obtain money and property of Citizens Alliance by means of false and fraudulent pretenses, representations, and promises ...
...
Between on or about January 1, 1996, and on or about April 15, 2004, defendant
VINCENT J. FUMO devised and intended to devise a scheme to defraud the Independence Seaport Museum, and to obtain money and property from the museum by means of knowingly false and fraudulent pretenses, representations, and promises.
That is to say, the trial going on right now isn't about Citizens Alliance being a "piggy bank" for Fumo's corrupt funds, it's about Fumo ripping off two genuine charities.
That's why the Citizens Alliance investigation story is so intringuing, much as the earlier Independence Seaport Museum charges were, and why we'll keep coming back to both in the weeks ahead.
Here's part of the allegations against Blagojevich, who was arrested for public corruption:
53. Capri Capital (“Capri”) was a real estate investment management firm that had
a long-standing relationship with [Teachers' Retirement System, "TRS"]. In February 2004, Capri was expected to receive $220 million from TRS to manage. Levine originally acted to stall the allocation in February 2004. Eventually, however, the $220 million allocation was going to proceed until Levine, Rezko, Kelly, and Cellini conspired to extort Capri and Thomas Rosenberg, one of Capri’s owners. In short, according to Levine, Levine and Rezko agreed that if Rosenberg wanted to get the $220 million for Capri, Rosenberg was either going to have to make a $1.5 million donation to ROD BLAGOJEVICH or pay Levine and Rezko a 1% fee. According to Levine, and as confirmed on recorded conversations, both Kelly and Cellini joined the attempted extortion and played roles in the attempted extortion. As part of the extortion, Cellini informed Rosenberg that, in essence, Capri had not gotten its $220 million allocation because Rosenberg and Capri had not donated to ROD BLAGOJEVICH. Rosenberg, realizing he was being extorted, threatened to expose the extortion to law enforcement. Thereafter, Levine, Rezko, Kelly, and Cellini backed off the extortionate threats, but agreed that after the $220 million allocation, neither Capri nor Rosenberg would get any further State of Illinois business.
And here's the Inquirer's characterization of Fumo's PECO settlement:
In the late 1990s, Fumo struck a deal that extracted millions of dollars from Peco Energy in donations to Citizens' Alliance, run by Arnao and set up to improve the senator's Philadelphia district.
Acting both as a Peco customer and as a senator, Fumo asked state regulators to block Peco's business plans of the time.
But he dropped his legal challenge after Peco agreed to freeze electric rates for a decade and, in a secret side deal, make a whopping donation to Citizens' Alliance. Ultimately, Peco gave the group $17 million.
If Citizens' Alliance really was Fumo's "piggy bank," there'd be no difference between his threats against (and subsequent deal with) PECO and Blagojevich's threats against Capri Capital.
Yet, Fumo was not indicted for public corruption -- that is, enriching the Alliance to enrich himself -- but for defrauding the Alliance the enrich himself.
Now the Alliance itself is alleged to have been corrupt, based on the same facts, a simple question has been raised: how do you defraud an organization that's in on the deal?
