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SEC accuses former Detroit mayor, treasurer of influence-peddling

By Tresa Baldas, Detroit Free Press –

DETROIT — Ex-Mayor Kwame Kilpatrick and his longtime friend and fraternity brother Jeffrey Beasley are facing fresh allegations of wrongdoing in federal court, where the pair are accused of accepting lavish gifts in an influence-peddling scheme involving pension funds.

In a civil complaint filed Wednesday by the U.S. Securities and Exchange Commission, Kilpatrick and Beasley — the former city treasurer — are accused of accepting gifts, including private jet travel and golf outings, from an investment adviser to the city’s pension funds in exchange for favoritism. The adviser, MayfieldGentry Realty Advisors, which was fired by a city pension fund last week, also was charged in the alleged scheme.

In the SEC case, which is a civil lawsuit, Kilpatrick and Beasley are not facing criminal charges, or any possible prison time. Instead, the SEC is seeking unspecified monetary penalties from the defendants, and, wants them to forfeit all of their alleged ill-gotten gains. The agency also is seeking a permanent injunction barring Kilpatrick and Beasley from ever participating in any decisions involving investments in securities by public pensions.

“We look at this as a betrayal of trust that is twofold,” said John Sikora Jr., an assistant director with the SEC’s Chicago regional office. “On the one hand, the mayor and the treasurer broke trust with the public workers who benefit from the pension funds. On the other hand, you have this investment adviser who broke trust with his clients, being the public pension funds.”

Kilpatrick’s lawyer James Thomas declined comment.

The Detroit Police and Fire Retirement System applauded the SEC’s actions.

“As the SEC acknowledges, at all relevant times the system trustees ‘acted without knowledge’ of the alleged misconduct as such conduct was not disclosed,” the DPFRS said in a statement “ In this respect, the system’s trust, like that of the overall public, was betrayed.”

The retirement system also vowed to “pursue economic recovery from the wrongdoers to the fullest extent possible.”

The SEC says that Kilpatrick and Beasley, who were trustees to the pension funds, solicited and received $125,000 worth of private jet travel and other from MayfieldGentry. At the time, per the complaint, the firm’s CEO Chauncey Mayfield was recommending the pension funds invest roughly $117 million in a real estate investment.

Kilpatrick, Beasley and Mayfield, however, never disclosed the trips and perks to anyone. The funds ultimately voted to approve the investment, with MayfieldGentry raking in millions of dollars in management fees, the complaint said.

“You’ve got a board that was making a decision of $100-million-plus-dollars, while at least two of the members were potentially influenced by things like Vegas trips, a Prince concert and massages,” Peter Chen, another SEC official who works on a public pension unit, told the Detroit Free Press.

An employee at Detroit-based MayfieldGentry declined comment, and referred all calls to the firm’s California-based public relations firm Gallen Neilly & Associates. Officials there were unavailable for comment.

MayfieldGentry’s lawyer Peter Zeidenberg also could not be reached for comment.

According to the SEC’s complaint, members of Kilpatrick’s administration, including former Deputy Mayor Anthony Adams, started pressuring Mayfield in early 2006 after the company executive supported Kilpatrick’s opponent, Freman Hendrix, in his 2005 re-election bid, and, hired Hendrix’s daughter.

The complaint says that in January 2006, then-Deputy Mayor Anthony Adams tried to get Mayfield to fire Erin Hendrix. Two months earlier, her father, Freman, nearly beat Kilpatrick in the 2005 mayoral election.

According to the complaint, Adams invited Mayfield to dinner and told him he was “on the outs with the Kilpatrick administration,” adding that they needed to figure out a way to “get this cleared up.” He then suggested firing Erin Hendrix

Mayfield declined to fire Erin Hendrix, the complaint said.

Adams said that he had never spoken with the SEC and didn’t know where they got those comments.

He declined to speak about the matter beyond saying: “This is an unfortunate situation for Mayfield Gentry and I don’t wish to be drawn into their issues with the SEC.”

The complaint also accused Beasley of pressuring Mayfield, alleging Beasley met with Mayfield in February 2006 and told him he was “in the doghouse” with Kilpatrick and offered to help him “clear the air.”

Throughout 2007, Mayfield appeared before the boards of trustees for Detroit’s public pension funds, recommending the $117 million real estate investment, the complaint said.

Meanwhile, the SEC alleges, MayfieldGentry began footing the bills for trips taken by Kilpatrick, Beasley and others that extended beyond business. In January 2007, for example, Beasley demanded and Mayfield agreed to pay more than $3,000 for hotel rooms in Charlotte, N.C., for Beasley, Kilpatrick and others, according to the SEC.

Beasley told Mayfield that the reason for the trip was to inspect a building recently acquired by one of the pension funds, but in fact Beasley and Kilpatrick never inspected the building, the SEC said. Mayfield knew that Beasley and Kilpatrick never inspected the building, but did not ask any further questions about the matter.

According to the SEC complaint, the non-business travel by Kilpatrick and Beasley continued:

—In April 2007, MayfieldGentry paid for Kilpatrick, Beasley and their associates to travel by private jet to Las Vegas and stay in a luxury hotel. The $60,000 Las Vegas trip also included concert tickets, three rounds of golf, meals and massages.

—In July 2007, Mayfield Gentry paid more than $24,000 for a private jet to take Kilpatrick, Beasley’s son and others to Tallahassee, Fla, where Kilpatrick had a second home.

—In October 2007, MayfieldGentry paid more than $34,000 for a private jet to fly Kilpatrick and his wife to and from Bermuda, and Kilpatrick’s father and his girlfriend back from Bermuda.

Kilpatrick, Beasley and MayfieldGentry are accused of violating the Securities Exchange Act.

Beasley, meanwhile, is facing federal criminal charges after being indicted in February on charges he took bribes and kickbacks in a scheme that cost two Detroit pension funds $84 million in losses. He is accused of taking bribes in exchange for approving more than $200 million in pension fund investments, the indictment said.

Beasley’s lawyer Wally Piszczatowski was not readily available for comment, but has vowed a vigorous fight.

“Jeffrey has always maintained his innocence, and there will be a number of witnesses who line up with him at trial to prove his innocence,” Piszczatowski said after Beasley’s arraignment.

The new SEC developments come one week after the Detroit police and fire pension board unanimously fired MayfieldGentry for spending $3.1 million of retiree’s money on two mini strip malls in California — without informing the fund’s trustees.

According to the Detroit Police and Fire Pension Retirement System, MayfieldGentry admitted to using pension funds to buy the strip malls in a recent letter.

“I write to advise you that PFRS funds were used by MayfieldGentry to purchase two properties in California, but that title to those properties was not transferred to the benefit of the PFRS,” stated the letter. “The two investments … however, proved to be unprofitable and losses have occurred as a result of these purchases.”

The letter, pension officials said, triggered the May 3 vote to sever ties with the firm.

This latest development follows a yearlong Free Press investigation of the city’s pension funds that revealed lavish travel by trustees and staff, questionable dealings by secretive middlemen and repeated incidents in which the funds’ investment adviser failed to detect potential problems in the backgrounds of several businessmen pushing deals.

Free Press investigations also have showed $480 million in pension fund losses between February 2008 and late 2010 due to bad investments.

To date, Beasley is the only pension official to face criminal charges involving pension funds.

Kilpatrick’s attorney James Thomas was unavailable for comment.

MayfieldGentry officials also could not be reached for comment.

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