Kendall Stewart

Two Council Aides Face Federal Charges
New York Times, By William K. Rashbaum, 4/16/08

A former top aide to City Councilman Kendall Stewart of Brooklyn and another former Council staff member were indicted today on federal fraud and money-laundering charges that accused the aide of stealing more than $145,000 from a nonprofit program that was supposed to tutor public school children.

The indictment, unsealed this morning, charged that Mr. Stewart’s former chief of staff, Asquith Reid, used much of the money for personal expenses, including sending $31,000 in the nonprofit’s money to family members and friends in Jamaica via Western Union.

Mr. Reid, according to the indictment, was Mr. Stewart’s contact person for his requests for discretionary Council monies, a fund of millions of taxpayer dollars allocated annually by the Council to nonprofit organizations “purportedly for the public benefit.” Council members have broad discretion to choose how to spend the money.

The charges were announced today by Michael J. Garcia, the United States attorney in Manhattan, and Rose Gill Hearn, commissioner of the city’s Department of Investigation.

“Without transparency and accountability in a budget process, discretionary items are ripe for abuse,” Mr. Garcia said. “Taxpayer money allocated to fake non-profit entities–organizations that do not even exist–is even more difficult to trace and more easily diverted for personal gain. This investigation will continue to take a hard look at this process, scrutinizing those allocations most vulnerable to abuse by those in position of public trust.”

Ms. Gill Hearn said a new unit set up by her office to examine nonprofits receiving city funds now has over thirty active cases.

She said the cases, “demonstrated corruption vulnerabilities that were thriving because of obscure processes and lax and non existent oversight.” She added, “Along with our colleagues at the U.S. Attorney’s Office, last year we decided to do a proactive comprehensive look at the award, allocation and tracking of council discretionary funding. In short order we discovered that our concerns were well founded. We found the council’s use of fictitious organization as a place to park millions of dollars worth of discretionary funding creating obscurity with respect to the origin, destination, purpose and benefactors of that funding.”

The charges come just days after disclosures that the office of the City Council speaker, Christine C. Quinn, had appropriated millions of dollars to nonexistent organizations, instead of routing the money to organizations favored by individual council members. The accounting sleight-of-hand allowed Council members to later tap the funds for projects without getting approval from the mayor, but no allegations have yet been brought forward that it was used to misappropriate funds. Mr. Garcia would not answer questions about whether allocation the money to fictitious organizations was a crime. Neither would he say whether Ms. Quinn was a target of the ongoing inquiry.

No accusations have been leveled against Ms. Quinn, and has said she is not a target of the investigation by Manhattan federal prosecutors and the city Department of Investigation, which were expected to announce the indictment this afternoon.

Ms. Gill Hearn praised the speaker’s proposed reforms, announced on Friday. “I think the fact that the Speaker is taking a look at the fictional organizations is the right thing and is commendable, though reforms that she laid out last Friday are, I gather, being analyzed and debated over at the Council,” she said at her agency will also have recommendations coming out of the investigations.

Mr. Reid faces a maximum of 80 years in prison, Mr. Garcia said, and Ms. Anderson faces a maximum of 40 years.

Mr. Reid and the other former staffer charged, Joycinth Anderson, were expected to be arraigned later this afternoon. Neither they nor their lawyers could be reached for comment.

Mr. Stewart, a licensed podiatrist who represents Flatbush, East Flatbush, Midwood and Flatlands, said in a brief telephone interview that he had known that the Donna Reid Memorial Education Fund was operated by Mr. Reid and was in fact named after his daughter, who died from an illness at a young age. Mr. Stewart said he had not yet seen the indictment and could not comment on it.

His lawyer, Howard H. Weiswasser, said he had no reason to believe that the councilman had done anything improper or illegal. “To my knowledge he is not a target of the investigation,” Mr. Weiswasser said.

The Donna Reid Memorial Educational Fund initially applied for discretionary Council funds through the city Department for the Aging, the indictment said. But the agency rejected the application because the address reported for the fund was Mr. Reid’s home.

The group later sought discretionary funds though the city Department for Youth and Community Development, which approved the application and since November 2004, provided approximately $356,000, more than three quarters of the group’s total income during that time period, the indictment said.

Among those monies were approximately $14,000 of funds allocated to the fictitious nonprofits, the indictment said.

The charges also accused Mr. Reid of spending $18,000 of the Donna Reid group‘s money on a campaign function for a political club controlled by Mr. Stewart and $3,000 on campaign literature for him.

The indictment charges Mr. Reid and Ms. Anderson with conspiracy to commit mail fraud, money-laundering conspiracy and two counts of witness tampering.

According to a statement that Representative Major R. Owens made in the House of Representatives in 1997, Mr. Reid was born in Hanover, Jamaica. He graduated from Kingston Technical High School and served in the Air Force from 1963 to 1967. He graduated from Kingston Technical College with a degree in electrical engineering. He and his wife, Dean, had two daughters, Michelle and Sharon.

Among the politicians Mr. Reid has aided over the years are Assemblyman N. Nick Perry, State Senator John L. Sampson, former Councilwoman Una S. T. Clarke, and Mr. Owens, who retired from Congress at the end of 2006.

Oliver Koppell

CITY HAUL POLS WANT YOU TO PAY LAW BILLS

New York Post, By DAVID SEIFMAN City Hall Bureau Chief, April 19, 2008

The City Council is examining whether it can provide taxpayer-funded lawyers to individual legislators who might be questioned in the phantom funds mess, The Post has learned.

Councilman Oliver Koppell (D-Bronx) said he suggested that Speaker Christine Quinn develop a policy on legal representation because so many council members aren't sure what to do if they're summoned.

"It's very intimidating to think you might be called by the US attorney or DOI," Koppell said, referring to the city Department of Investigation.

"It's my understanding, if in fact someone is called in to testify and wants to be represented, the council would be providing a separate lawyer."

Quinn's office is studying the issue and drafting a memo that will be distributed to the 50 other council members next week.

An aide said he didn't know what the memo would say or whether the city would actually end up picking up the tab for private attorneys.

Quinn has already hired two taxpayer-funded sets of lawyers, Sullivan & Cromwell, to represent the entire council and Lee Richards III to represent her in dealings with the US attorney and the Department of Investigation.

Sullivan & Cromwell signed a one-year contract last October for about $95,000. Richards will be paid $600 an hour, less than his usual rate, sources said.

Law-enforcement agencies are scrutinizing millions of dollars distributed each year by council members to local community groups, including $17 million that was reserved in fictitious accounts since 2002 so it could be handed out to genuine organizations after the budget was adopted each June.

On Wednesday, Asquith Reid, chief of staff to Councilman Kendall Stewart (D-Brooklyn), and another Stewart aide were indicted for allegedly stealing $145,000 from a nonprofit that Reid led, the Donna Reid Memorial Education Fund.

In another development, The Post has learned that some nonprofit and community groups have received council grants that were then passed through to second groups.

Officials said the longstanding practice was designed to help tiny nonprofit groups that don't have the capacity to file the paperwork needed to get city funding.

But one council member said that also opens the door to potential conflicts of interest.

"If my uncle runs Group B and I don't want to give them money directly, I give it to Group A which gives it Group B," explained the council member.

Under current city rules, no subcontract can exceed $100,000.

Sources said Quinn, for the sake of transparency, might end the entire practice.

"That's an area of reform the speaker is looking at," a source said.

Council staff also have been reminded of a previous directive not to destroy any records related to discretionary funds.

The city and federal investigation of the council is sending jitters through city nonprofit organizations, which receive more than $60 million a year in so-called "member items."

Sources said one some nonprofits have already been notified by the Department of Youth and Community Development to expect delays in this year's funding allotments because of the continuing probes.

"People are on pins and needles," said one council staffer.