Fundraisers linked to corruption cases

WASHINGTON -- Democrat Barack Obama and Republican John McCain have made government ethics a centerpiece of their campaigns, and each has sought to distance himself from Washington's influence business.

Yet Obama and McCain have relied on key fundraisers whose names surfaced in separate federal corruption cases relating to lobbying for government contracts.

In 2003, James Reynolds, a Chicago investment banker who is a member of Obama's national finance committee, was recorded on FBI wiretaps arranging what prosecutors said was a "sham" consulting contract with a woman they called the "paramour" of a mayoral adviser in Philadelphia. His firm later won $300,000 worth of city contracts.

In 2004, Fred Malek, a co-chairman of McCain's fundraising committee, and his investment firm, Thayer Capital Partners, were censured by the Securities and Exchange Commission for not disclosing payments to a friend of former Connecticut treasurer Paul Silvester.

Silvester, who pleaded guilty in 1999 to racketeering charges, admitted in his plea agreement that he persuaded Malek and his company to pay a "finder's fee" on a state investment to the friend, who didn't do any work.

Malek and his company settled the administrative case without admitting or denying wrongdoing by paying the SEC $250,000.

Neither Reynolds nor Malek was charged with a crime.

However, both campaigns have pledged to break ties with staffers, advisers and fundraisers for actions that, although legal, raised the appearance of a conflict of interest or other ethical questions. Both candidates have said campaign activists are being held to a strict ethical standard.

In a statement, Reynolds said, "After a thorough examination, no charges were ever brought against me … I can assure you, if the U.S. attorney's office believed that (my company) or I had violated any law, they would have brought charges." He would not answer questions.

The Obama campaign released a statement that said: "Jim Reynolds has admitted that he made mistakes, but he has not been charged with any wrongdoing."

Malek said in a statement: "I was pleased to have assisted the SEC in reaching a satisfactory conclusion to what is now a 10-year-old event."

McCain campaign spokesman Brian Rogers declined to comment on Malek.

'Broken' system

Both Obama and McCain have said they want to reduce the role of lobbyists and special interests in Washington.

"We're going to drain the swamp in Washington, D.C., and we're going to take on the special interests, and we're going to reform government," McCain said at a Sept. 8 rally in Missouri.

Obama echoed that sentiment during a forum on national service on Sept. 11, declaring that "Washington is broken." Obama said "the domination of special interests, the domination of lobbyists, the loss of a civic culture in Washington" led to disasters such as the bungled response to Hurricane Katrina in 2005.

Partly as a result of that rhetoric, major fundraisers and advisers to the candidates frequently have been subjects of attention in the campaign:

•Obama has acknowledged mistakes in dealing with fundraiser Antoin "Tony" Rezko, who was convicted in June in Chicago on charges of fraud, money laundering and aiding and abetting bribery. Obama has said it was "boneheaded" of him to get involved in a real estate deal with Rezko's wife, and he donated to charity about $150,000 in contributions raised by Rezko.

•James Johnson, a former CEO of Fannie Mae, stepped down as the head of Obama's vice presidential search committee in June after news accounts about below-market-rate home loans he received while sitting on the board of a subprime lender. He said in a statement that he did not want to be a distraction to the campaign.

•Tom Loeffler, a lobbyist whose clients include defense contractors and foreign interests, stepped down as McCain's national finance co-chairman in May. He was one of six McCain campaign workers, fundraisers or advisers who resigned in the wake of a new campaign policy that forbids paid staffers from working as lobbyists and bans volunteers from working for independent groups seeking to influence the presidential race.

"Bottom line: These are perfect examples of why it is so difficult to change the culture," Sheila Krumholz, head of the non-partisan Center for Responsive Politics, said. "It's not just the candidates, it's everyone they surround themselves with, and many of those people learn the business of political persuasion under a different set of rules."

Examinations of the past actions of Obama's finance committee member, Reynolds, and McCain's fundraiser, Malek, underscore the difficulties Obama and McCain face in promising to clean up Washington while raising tens of millions of dollars with the help of people with a keen interest in government decisions.

'Very close friends'

James Reynolds, who has raised more than $200,000 for the Obama campaign, is chief executive of Loop Capital Markets, a Chicago investment banking firm that specializes in municipal finance.

He began raising money for Obama more than a decade ago, and opened his Hyde Park home for one of Obama's first fundraisers during the 2004 Senate race, according to Hermene Hartman, a mutual friend.

"Jim and Barack are very close friends and have been for a long time," said Leslie Bond, a Chicago money manager and Obama fundraiser.

In 2003, Loop Capital Markets was seeking municipal bond business in Philadelphia when Reynolds began dealing with lawyer Ronald White, a confidant of then-mayor John Street. The FBI was tapping White's phone.

Municipal finance contracts — fees to lawyers, bankers and accountants who help cities borrow money by floating bonds — are frequently awarded without competitive bidding.

In Philadelphia, many were handed out with political considerations in mind, the wiretaps revealed.

Loop was awarded two no-bid contracts worth nearly $300,000, according to a later indictment of Philadelphia City Treasurer Corey Kemp.

Reynolds agreed to pay $30,000 to a shell company controlled by White's paramour, Janice Knight, according to court records. "I'll keep you out of it," Reynolds told White in an April 2003 conversation recorded by the FBI.

Municipal bond brokers are required by the Municipal Securities Rulemaking Board to disclose consulting relationships. Philadelphia Assistant U.S. Attorney Robert Zausmer said during the trial that White didn't want to be publicly linked with Loop because he didn't want his lobbying scrutinized.

Kemp got 10 years in prison for fraud and conspiracy.

Knight was convicted of lying to the FBI about the consulting contract with Reynold's firm and was sentenced to 5½ months in prison. White died of cancer in 2004 before going to trial.

"Reynolds bent the rules to help Ron White," Zausmer said at Kemp's trial.

'No meaningful work'

In the fall of 1998, Paul Silvester, a GOP appointee, was facing election to a full term as Connecticut state treasurer. He also was soliciting companies to manage investments for the state's pension fund.

Shortly after his election loss, Silvester invested $75 million with Malek's investment firm, Thayer Capital Partners, the SEC said in its ruling on Malek's case.

Silvester testified to a federal grand jury in 2000 that he suggested Malek's firm pay a percentage of the investment as a "finder's fee" to William DiBella, a friend and former Connecticut state senator. The firm paid DiBella $374,500 although DiBella "did no meaningful work" on the investment deal, the SEC ruling says.

The SEC found that Malek and Thayer Capital violated securities laws by not disclosing the arrangement to the pension fund. Malek and Thayer "also should have taken further steps to consider" whether DiBella's fee "may have been part of a corrupt agreement," the SEC concluded.

In March, a federal judge ordered DiBella to pay more than $790,000 after he lost a civil lawsuit filed by the SEC. DiBella has asked a federal appeals court to overturn that judgment.

'Influenced and rewarded'

As part of his 1999 plea agreement, Silvester also said that as Connecticut's treasurer, he had dealings with Washington lobbyist Wayne Berman, another McCain fundraiser. Silvester said he accepted a job from Berman "intending to be influenced and rewarded" for investing millions in state pension money with a Berman client.

Berman is managing director of the lobbying firm Ogilvy Government Relations and a longtime Washington power player.

He was a major fundraiser for both of President Bush's campaigns and has raised more than $500,000 for McCain as a co-chairman of the candidate's finance committee.

In 1999, Berman represented the Carlyle Group, a Washington-based investment house. Silvester directed a $50 million investment with Carlyle Asia in December 1998, the month before he left the treasurer's office and joined Park Strategies, a Washington consulting firm Berman founded.

Silvester testified at a 2003 trial that before leaving office, he had discussions with Berman about a job at Park Strategies.

Silvester told the FBI Silvester's salary was to be $200,000 per year. Berman is no longer associated with Park Strategies.

"My problem in that regard was that I was answering to Wayne Berman before he was my boss. I was still treasurer," Silvester testified.

Berman and the McCain campaign declined to comment.

Gregory Craig, a lawyer for Ogilvy Government Relations, said in an e-mail to USA TODAY: "Wayne Berman was never interviewed by the Department of Justice or the FBI and was never a target or a subject of a grand jury — or even a witness in this case. Most importantly, he was never charged by law enforcement agencies — state or federal — with any wrongdoing."

In an interview, Silvester said he is certain Berman did nothing wrong, although he stands by his testimony.

"He's never been convicted, tried, accused of anything. And so, to come out and say he's a bad guy because he once did business with me, I think is a huge leap," said Silvester, who worked at Park Strategies from January to June 1999 and served four years, three months in prison on racketeering and conspiracy charges.

"The Price of Power" is an ongoing series tracking the role of money and business interests in the political process.