ILNews

State wants detailed audit of corruption money

Michael W. Hoskins
January 1, 2009
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In the first minutes of a federal court hearing Tuesday, U.S. District Senior Judge James Moody told attorneys he wasn't going to order a state-supervised audit of East Chicago's finances, as the Indiana Attorney General's Office was asking. But his stance may have changed.

Following five hours of testimony and arguments in the civil racketeering case, Judge Moody realized the scope of the action being proposed in the suit against former Mayor Robert Pastrick and top aides - mainly six Pastrick political allies now known as the Sidewalk Six - who've been found civilly liable for running a corrupt enterprise.

Arguing on behalf of the Indiana Attorney General's Office, Chicago attorney Patrick M. Collins - who is acting as a special deputy attorney general - tried to convince Judge Moody that Pastrick and James Fife III could be held liable for more than $100 million in the case targeting the years of corruption that lingers in some form today.

Aside from the sidewalks-for-votes money used in the 1999 primary election, the suit also focuses on the Second Century and the Foundations of East Chicago, for-profit and non-profit recipients, respectively, of casino money. Both are embroiled in ongoing state court litigation as the attorney general and current East Chicago mayor fight to get those organizations to publicly disclose what the casino cash was used for during the Pastrick administration.

In a memorandum for injunctive relief filed June 2, the Attorney General's Office proposed that the State Board of Accounts review and report to the court what the full economic damages have been from the Pastrick corruption. The audit would assess the current financial conditions of East Chicago, the amounts and purposes of casino funds disbursed, and any other structural or systematic problems in the city, the brief stated.

As the hearing opened Tuesday, Judge Moody said he'd reviewed the brief and wasn't going to order an audit because he didn't find enough legal justification, that he wasn't convinced the Attorney General's Office could do it on its own accord, and that he didn't see it justified at such a late stage in this case.

But Collins argued that the start of the remedy phase was the only time that part of the remedy could be used, not during the trial preparation, and that any testimony at trial also could be used in the damages and remedy phase.

The state called five witnesses, including the former city controller Ed Maldonado, who's serving 130 months in prison after his conviction in the criminal Sidewalk Six case. He testified that Pastrick and Fife headed a political machine that misguided millions of dollars; while he signed the checks and knew of the activity, they were ultimately the ones leading the corruption. A state Board of Accounts auditor testified that she'd reviewed the city finances before; however, because casino monies were diverted to for-profit and non-profit trusts or organizations, she couldn't fully see the scope of the Pastrick activity. A former Internal Revenue Service agent and two other city officials also testified about how East Chicago is still recovering from the Pastrick legacy.

"The Pastrick political machine essentially took over the city and ruled it for personal and political gain of Mayor Pastrick," attorney Joel Levin said for the state during closings. "The city was the epitome of a political machine, and politics influenced this city in every way, shape, and form. But Your Honor can do something to unwind that legacy."

Notre Dame University Law School professor G. Robert Blakey, a racketeering law expert who helped draft the Racketeer Influenced and Corrupt Organization Act about four decades ago, told the judge that this is a case of first impression nationally. The judge is basically able to do anything he wants as allowed under the expansive RICO statute, Blakey said. He asked the judge to order a forensic audit - one that goes beyond the numbers and includes interviews and extensive research - to determine how the casino money was used under Pastrick's agreement. That could reveal the extent of damages that should be repaid to taxpayers, he said.

Blakey urged the judge to consider all remedial options possible under the RICO statute, including the use of liens, a trustee, constructive trust, or asset forfeiture. Typical antitrust cases have used inspection audits, and that could be ordered here also, he said.

"There's something about a federal court," Blakey said. "People pay a lot of attention to a federal court order. What we're asking is that you do justice ... for the people of East Chicago."

While Pastrick didn't appear Tuesday, his attorney Michael W. Bosch represented him in court and Fife represented himself. Neither presented specific arguments, but they did question specific aspects of the state's case during witness testimony.

Bosch said during closing the state has given the former mayor "a free pass," and that Pastrick should be held responsible for nominal damages.

"You get a buck," he said. "Triple that, you get three bucks."

Attorneys have until June 22 to file their findings of fact and conclusions, and Judge Moody will then consider what happens next.

More coverage about this case can be found in the June 10-23, 2009, issue of Indiana Lawyer.

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  1. File under the Sociology of Hoosier Discipline ... “We will be answering the complaint in due course and defending against the commission’s allegations,” said Indianapolis attorney Don Lundberg, who’s representing Hudson in her disciplinary case. FOR THOSE WHO DO NOT KNOW ... Lundberg ran the statist attorney disciplinary machinery in Indy for decades, and is now the "go to guy" for those who can afford him .... the ultimate insider for the well-to-do and/or connected who find themselves in the crosshairs. It would appear that this former prosecutor knows how the game is played in Circle City ... and is sacrificing accordingly. See more on that here ... http://www.theindianalawyer.com/supreme-court-reprimands-attorney-for-falsifying-hours-worked/PARAMS/article/43757 Legal sociologists could have a field day here ... I wonder why such things are never studied? Is a sacrifice to the well connected former regulators a de facto bribe? Such questions, if probed, could bring about a more just world, a more equal playing field, less Stalinist governance. All of the things that our preambles tell us to value could be advanced if only sunshine reached into such dark worlds. As a great jurist once wrote: "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." Other People's Money—and How Bankers Use It (1914). Ah, but I am certifiable, according to the Indiana authorities, according to the ISC it can be read, for believing such trite things and for advancing such unwanted thoughts. As a great albeit fictional and broken resistance leaders once wrote: "I am the dead." Winston Smith Let us all be dead to the idea of maintaining a patently unjust legal order.

  2. The Department of Education still has over $100 million of ITT Education Services money in the form of $100+ million Letters of Credit. That money was supposed to be used by The DOE to help students. The DOE did nothing to help students. The DOE essentially stole the money from ITT Tech and still has the money. The trustee should be going after the DOE to get the money back for people who are owed that money, including shareholders.

  3. Do you know who the sponsor of the last-minute amendment was?

  4. Law firms of over 50 don't deliver good value, thats what this survey really tells you. Anybody that has seen what they bill for compared to what they deliver knows that already, however.

  5. As one of the many consumers affected by this breach, I found my bank data had been lifted and used to buy over $200 of various merchandise in New York. I did a pretty good job of tracing the purchases to stores around a college campus just from the info on my bank statement. Hm. Mr. Hill, I would like my $200 back! It doesn't belong to the state, in my opinion. Give it back to the consumers affected. I had to freeze my credit and take out data protection, order a new debit card and wait until it arrived. I deserve something for my trouble!

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