Detroit — Two city pension fund officials were indicted Wednesday and accused of participating in a widening bribery scandal involving kickbacks, former Mayor Kwame Kilpatrick, free trips and a Christmas basket stuffed with cash.
Pension fund lawyer Ronald Zajac allegedly paid bribes and kickbacks to Kilpatrick, indicted former Detroit Treasurer Jeffrey Beasley and others, according to a grand jury indictment filed Wednesday in federal court. Zajac maintained a lucrative job as the lawyer for the city's pension funds and received a pay hike, earning more than $400,000 a year.
Zajac was indicted alongside former Detroit Police and Fire pension trustee Paul Stewart and both were accused of participating in a bribery and kickback conspiracy involving more than $200 million in pension fund investments.
"They both got indicted?" Detroit Police and Fire Pension Fund trustee George Orzech said Wednesday when he heard the news. "That's sad. The feds are closing in, I guess."
Zajac and Stewart are the fourth and fifth people charged in connection with a years-long criminal probe of the city's pension funds. The probe coincided with a City Hall corruption investigation that ended last week with guilty verdicts against Kilpatrick, his father Bernard Kilpatrick and contractor Bobby Ferguson.
Zajac was indicted more than one year after being accused of soliciting large cash gifts for Beasley and other pension officials.
Stewart worked for 30 years as a Detroit police officer and was vice president of the Detroit Police Officers Association, the union representing most of the city's police force.
"Public officials entrusted with billions of dollars in employees' pension money cannot take bribes and kickbacks to influence their investment decisions," U.S. Attorney Barbara McQuade said in a statement.
Zajac's attorney on Wednesday said his client is innocent.
"I just found out about the charges and am taken aback by the news," Christopher Andreoff said. "My client has indicated he is innocent of these charges."
Upon hearing about the indictments, Mayor Dave Bing said one of his top priorities is restoring trust and integrity to city government.
"Detroiters deserve to be represented by those who adhere to the highest ethical standards, and when the public trust is betrayed, justice must prevail," Bing said in a statement.
According to the indictment, between 2006 and 2009 Stewart allegedly accepted thousands of dollars in cash, trips, entertainment and other items from people seeking investments from the Police and Fire pension fund.
Among other things, Stewart allegedly received a $5,000 casino chip, a Christmas basket stuffed with cash, $2,500 during a trip to New York City and $2,500 during a trip to Florida. He also allegedly received trips to the Bahamas and Naples, Fla., with his mistress, according to the indictment.
Stewart also allegedly received a $5,000 "birthday present" during a party at the Atheneum Suite Hotel, according to the indictment.
The party allegedly was organized by Zajac.
Stewart's lawyer could not be reached for comment.
Zajac was a powerful force during a decades-long run as the top lawyer for the city's two pension funds before being linked to the Beasley indictment last year.
Zajac allegedly tried to curry favor with Beasley and Kilpatrick by raising more than $70,000 for the ex-mayor's nonprofit group, the Kilpatrick Civic Fund, according to the indictment.
The nonprofit played a central role in the City Hall corruption case against Kilpatrick.
Kilpatrick treated the civic fund like his personal piggy bank, using contributions to bankroll a lavish lifestyle, prosecutors charged in the trial.
Zajac also allegedly forced pension fund businessmen to spend thousands of dollars entertaining pension trustees, according to prosecutors. Trustees allegedly were lavished with free drinks, meals and tickets to shows and sporting events.
Zajac is alleged to have directed pension fund adviser Chauncey Mayfield to spend more than $10,000 on limousines for trustees during a pension conference in New York City in 2006, according to the indictment.
Mayfield, a Detroit businessman, pleaded guilty in February to conspiring with Beasley and paying the former Detroit treasurer bribes, becoming the first person to plead guilty in the pension probe. He is cooperating with prosecutors.
Mayfield faces up to five years in prison and a fine of up to $250,000. No sentencing date has been set.
Georgia businessman Roy Dixon was charged in December with embezzling approximately $3 million from Detroit and Pontiac public pension funds.
Dixon and Beasley are awaiting a July trial.
The conspiracy alleged by prosecutors involved funneling cash and other perks to Zajac and Stewart.
Zajac allegedly solicited large cash gifts for Beasley and other pension fund members.
The lawyer helped organize birthday parties at the Atheneum Suite Hotel for Beasley in January 2007 and for Stewart and another pension board trustee in August 2007, according to the indictment.
Many guests were people with financial ties to the pension funds.
"To attend the party, these people were asked to donate large sums of cash for a birthday present," prosecutors allege.
Beasley allegedly received $10,000 at the January party.
At the August party, Zajac solicited cash from attendees, according to the indictment.
During the party, Zajac and Stewart met in a back room where Zajac allegedly gave him $5,000, prosecutors said.
An unnamed trustee got an identical gift.
According to the indictment, months later trustees gave Zajac a substantial raise after he was said to have solicited cash gifts for Beasley and Stewart.
With the raise, Zajac was paid more than $400,000 per year from both pension funds.
Zajac and Stewart face up to 20 years in prison and $250,000 in fines, if convicted.
Zajac was fired by the Detroit Police and Fire Pension Fund board in November.
He had been suspended eight months earlier following the Beasley indictment.
Zajac is still employed as general counsel for the city's other pension fund serving general city retirees.
"The board is reviewing the appropriateness of Mr. Zajac continuing to serve as the General Retirement System's attorney," said Tom Sheehan, the board's chairman.
A spokeswoman for the city's general retirement fund said she could not comment on Zajac's job status.
During a years-long FBI probe, the city's pension funds have paid legal fees for Zajac and Stewart.
Mark Diaz, a trustee on the Police and Fire pension fund and president of the Detroit Police Officers Association union, said the payments should stop.
"I don't see any reason to keep paying," he said.