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United States v. Rezko

October 2, 2007

UNITED STATES OF AMERICA
v.
ANTOIN REZKO



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Defendant Antoin Rezko has moved to dismiss or strike portions of the Indictment. For the reasons discussed below, Defendant's Motion to Dismiss or Strike Portions of the Fraud Allegations is granted in part and denied in part, and Defendant's Motion to Dismiss Count 17 and Allegations Related Thereto is denied.

BACKGROUND

I. The Indictment

On October 5, 2006, a federal grand jury returned a superseding indictment ("the Indictment") charging Defendants Antoin Rezko and Stuart Levine*fn1 with mail and wire fraud, in violation of 18 U.S.C. §§ 1341, 1343, 1346, and 2; attempted extortion, in violation of 18 U.S.C. §§ 1951 and 2; and money laundering, in violation of 18 U.S.C. §§ 1956(a)(B)(I) and 2. (R. 96-1, Sup. Indict.) The Indictment also charges Defendant Rezko with aiding and abetting Defendant Levine in the solicitation of funds from various individuals and investment firms, in violation of 18 U.S.C. §§ 666(a)(1)(B) and 2. (Id.)

A. TRS Board

The Indictment alleges that the Teachers' Retirement System ("TRS") was a public pension plan created by Illinois law for the purpose of providing pension, survivor, and disability benefits for teachers and administrators employed in Illinois public schools, excluding the City of Chicago. (Id. ¶ 1(a).) TRS served approximately 325,000 members and annuitants, and had assets in excess of approximately $30 billion. (Id.) TRS was funded by annual contributions from teachers, their employers, and the State of Illinois, as well as investment income. (Id.) In addition, TRS received federal funds in excess of $10,000 during each calendar year from 2001 through 2004. (Id. ¶ 1(d).)

The Indictment further alleges that an eleven member Board of Trustees directed the activities of TRS. (Id. ¶ 1(b).) The Board, among other responsibilities, reviewed and voted to approve or reject proposals by private investment management companies to manage funds on behalf of TRS. (Id.) TRS compensated these companies for their activities, typically through fees calculated as a percentage of the TRS assets they managed. (Id.)

Defendant Levine was a member of the TRS Board of Trustees. (Id. ¶ 1(j).) In that role, the Indictment alleges that he owed a fiduciary duty and a duty of honest services to TRS and its beneficiaries. (Id. ¶ 1(c).) The Indictment refers to the criminal laws of the State of Illinois relating to bribery (720 ILCS 5/33-1(d)) and official misconduct (720 ILCS 5/33-3), and to the State Officials and Employees Ethics Act (5 ILCS 430/5-50) to define the scope of Levine's fiduciary duties. (Id. ¶¶ 1(q), (r), (s).)

The Indictment alleges that Antoin Rezko -- a businessman who owned and operated fast food restaurants and a real estate firm -- participated in a scheme to defraud the TRS beneficiaries of Mr. Levine's honest services. (Id. ¶¶ 1(i), 2.) As part of the alleged scheme, Rezko and others fraudulently used and sought to use Levine's position and influence as a member of the TRS Board of Trustees to obtain financial benefits for Rezko, Levine and their nominees and associates. (Id. ¶ 3.) Rezko allegedly used his relationship with certain Illinois State officials to ensure that Levine and other allies were in positions of influence on the TRS board. (Id. ¶ 3(a), 4, 4(a)-(c).) During the scheme, Rezko allegedly solicited, demanded, and received hundreds of thousands of dollars in undisclosed kickbacks and payments from seven investment firms (identified in the Indictment as, for example, "Investment Firm 1") seeking to do business with TRS. (Id. ¶¶ 3, 3(a)-(c), 5, 6, 6(a)-(t), 7, 7(a)-(l), 8, 8(a)-(h), 9, 9(a)-(f), 10, 10(a)-(h).)

As further part of the alleged scheme, Rezko attempted to establish a company to serve as an asset manager for TRS in order for Levine, Rezko, and their nominees to participate and financially benefit in the asset management operation without disclosing their positions to TRS. (Id. ¶¶ 3(c), 11, 11(a)-(d).)

B. The Planning Board

The Indictment further alleges that Levine and Rezko took steps to use their influence and Levine's position on another board, the Illinois Health Facilities Planning Board ("Planning Board"), in a scheme to receive kickbacks in exchange for the Planning Board's approval of an application to build a new hospital. (Id. ¶¶ 1(e), 1(j), 12, 12(a)-(e).) The Indictment refers to the Planning Board's Ethical Guidelines to define the scope of Levine's fiduciary duties. (Id. ¶1(t).)

II. The Honest Services Statute, 18 U.S.C. § 1346

The mail fraud and wire fraud statutes prohibit devising a "scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," and executing that scheme by use of the mails, 18 U.S.C. § 1341, or by use of wire, radio, or television communication in interstate commerce. 18 U.S.C. § 1346. "Until 1987, federal courts read both statutes to criminalize not only schemes for obtaining money or property, but also schemes to deprive another of 'the intangible right of honest services'"-- a "doctrine [] applicable to [various] categories of defendants, [including] . . . private actors who abuse fiduciary duties by, for example, taking bribes." United States v. Rybicki, 354 F.3d 124, 133 (2d Cir. 2003). In 1987, the Supreme Court, in McNally v. United States, 483 U.S. 350 (1987), held that, contrary to the courts' common reading, the language of the mail fraud statute, 18 U.S.C. § 1341, "clearly protects property rights," id. at 356, but does not criminalize schemes "designed to deprive individuals, the people, or the government of intangible rights, such as the right to have public officials perform their duties honestly." Id. at 358. "Under McNally, all schemes or artifices to defraud relating to intangible rights to . . . honest services . . . [were] therefore beyond the mail-fraud proscriptions." Rybicki, 354 F.3d at 134. "By necessary implication, the wire-fraud proscriptions were similarly limited." Id. In the following year, Congress enacted 18 U.S.C. § 1346 specifically to supersede McNally, and to define "scheme or artifice to defraud" to include a scheme or artifice to deprive another of the intangible right of honest services. See United States v. Segal, 495 F.3d 826, 834 (7th Cir. 2007); accord United States v. Bloom, 149 F.3d 649, 655 (7th Cir. 1998) ("In McNally the Supreme Court described the intangible rights theory this way: 'a public official owes a fiduciary duty to the public, and misuse of his office for private gain is a fraud.').

Breaching a fiduciary duty may constitute a deprivation of honest services under § 1346. See Segal, 495 F.3d at 834; United States v. Thompson, 484 F.3d 877, 882 (7th Cir. 2007); Bloom, 149 F.3d at 654-57 (citing cases); see also Rybicki, 354 F.3d at 138 n.13; United States v. Black, 469 F. Supp. 2d 513, 532 (N.D. Ill. 2006). Yet "[n]ot every breach of every fiduciary duty works a criminal fraud." Bloom, 149 F.3d at 654 (quoting United States v. George, 477 F.2d 508, 512 (7th Cir. 1973)); see also Segal, 495 F.3d at 834 ("Bloom remains the law in this circuit."). Rather, "[m]isuse of office (more broadly, misuse of position) for private gain is the line that separates run ...


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