Apr 16, 2008 7:23 pm US/Eastern
2 NYC Council Workers Indicted In Slush Fund Case
NEW YORK (AP) ―
Two aides to a City Council member were indicted Wednesday on charges that they stole taxpayer money meant for charity, and federal prosecutors warned that the case is just the beginning of a criminal probe into shady City Council budget schemes.
Prosecutors unsealed an indictment accusing the former chief of staff to Councilman Kendall Stewart of skimming at least $145,000 from a charity, the Donna Reid Memorial Education Fund, that had received council funds. Another Stewart staffer was accused of assisting in the theft.
The indictment said money was diverted through what are known in the City Council as "discretionary funds," which are intended for city nonprofit groups and handed out by each council member, typically to organizations in their districts.
In some cases, council members make up fake charities, list them in the budget and then quietly distribute that money to pet projects and groups later in the year. The practice is known in the council as a "reserve fund."
Federal prosecutors on Wednesday did not say that the bogus charity practice, which dates back many years but was just brought to light in recent weeks, constitutes criminal activity. But U.S. Attorney Michael Garcia said his office and the city Department of Investigation were taking a "hard look" at the scheme.
"Without transparency and accountability in the budget process, discretionary items are ripe for abuse," Garcia said. "Taxpayer money allocated to fake nonprofit entities, organizations that do not even exist, is even more difficult to trace and more easily diverted for personal gain."
Garcia and DOI Commissioner Rose Gill Hearn would not say who else is under investigation, but Gill Hearn said city employees at every step of the fake funding process are being scrutinized in the criminal probe.
City Council Speaker Christine Quinn, widely considered a likely mayoral candidate in next year's race, has struggled to explain the budget scheme since news of it surfaced recently.
Earlier this month, the speaker and her office said the council had appropriated some $17.4 million since 2001 to groups that did not exist. Last year, $4.5 million was hidden this way in a budget of more than $50 billion. Quinn said the practice of setting aside reserve funds dates back at least 20 years.
She recently hired a criminal lawyer to represent her in the investigations.
At a press conference Wednesday before a routine City Council meeting, Quinn said she was "saddened" by the news of the indictments but said she had no comment about the alleged criminal activity of the two aides.
In the indictment, Stewart's chief of staff, Asquith Reid, was charged with conspiracy to commit mail fraud, money laundering conspiracy and two counts of witness tampering. Prosecutors said he directed two grand jury witnesses to lie about working for the Donna Reid fund and its related financial transactions.
The organization was supposed to provide educational assistance to schoolchildren. In reality, the indictment said, it "primarily served as a conduit to provide cash and other personal benefits" to Reid.
The indictment said some of the money received by the Donna Reid fund, at least $31,000, was wired to Reid's friends and relatives in Jamaica. Another $21,000 was spent on political events or campaign literature for Stewart.
Also charged was Joycinth Anderson, who also worked on Stewart's staff. The indictment said she aided Reid in the scheme; she cashed thousands of dollars in Donna Reid fund checks and gave the money to Asquith Reid, it said. Stewart was not named in the indictment.
Reid and Anderson were arraigned before a magistrate and released on bond. They did not immediately return calls seeking comment. Garcia said Reid faces a maximum of 80 years in prison and Anderson faces up to 40 years.
Stewart, a Brooklyn Democrat who took office in 2002, issued a statement in which he said he did nothing wrong.
"While I believe in the presumption of innocent until proven guilty I must say that I'm deeply disappointed over the allegations leveled at Mr. Reid and the embarrassment that his actions -- right or wrong -- have caused me, my hardworking staff and the people of my district," Stewart said.
According to the indictment, the Donna Reid fund was not one of the fake organizations, but a real entity, registered with the state, which had received about $365,000 in council funds since 2005.
All of that money, about a third of the fund's total revenue, was granted by Stewart's office. However, before the Donna Reid fund could obtain any money, it had to apply for it through a city agency. The fund was named after a daughter of Reid who died of cancer at a young age.
The indictment said employees in the New York City Department for the Aging initially rejected the group's application for city money in 2004 after noticing that its office address was identical to Asquith Reid's home address. Prosecutors would not say whether the Department for the Aging took any action after catching the problem.
The group then reapplied for city funds through the New York City Department of Youth and Community Development. That request was granted. Some of the money passed through the fictitious groups created by the city council before being awarded to the fund.
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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