Melting slush?

Despite speculation that New York City Council President Christine Quinn was about to be indicted by the U.S. Attorney in connection with so-called slush-fund accounts, the April 16 indictment named two staffers to Councilman Kendall Stewart, Asquith Reid and Joycinth “Sue” Anderson, who were charged with conspiracy to commit mail fraud, money laundering, and witness tampering in connection with the embezzlement of $145,000 from a not-for-profit children’s program that is alleged to have served primarily as “a conduit to provide cash and other personal benefits” to Reid and “his criminal associates.”

The indictment does, however, provide insight into the ongoing federal investigation regarding allegations that the City Council was involved in creating accounts for improper and fraudulent purposes. The indictment states that since 2003, not only has each City Council member controlled discretionary funds for designation to nonprofit organizations, but millions of dollars of additional funds were placed in the names of fictitious nonprofits under what the indictment terms “holding codes.”

The indictment goes on to allege a fairly detailed process under which a nonprofit group makes an application for funds, complete with rigorous review and the ultimate grant of funds. Indeed, the indictment concedes that a portion of the money that has been termed “slush” was used for legitimate purposes. On the other hand, Reid and Anderson are alleged to have wired money to Jamaica for the benefit of family and friends.

U.S. v. Reid and Anderson demonstrates the depth and focus of the current investigation that besieges the City Council and Speaker Quinn. While hotwiring money back home (if it is proven beyond a reasonable doubt) would certainly be problematical, the process itself of getting money to nonprofits is not alleged in the indictment to be fraudulent. Given that the prosecution concedes that even in the Reid case money was used legitimately, all Council members and their staffs may have perfectly valid explanations and defenses to claims of fraud, kickback, and slush.

At least one local paper has taken Quinn to task for considering having the City pay for attorneys to represent individual Council members being questioned in the investigation. To the contrary; what Quinn is doing is laudable and praiseworthy. It is critical that individuals – here probably entirely innocent individuals – be separately represented by experienced and capable lawyers. CR

Forecast – Slushy?

New York City Council President (and presumptive 2009 mayoral candidate) Christine Quinn has retained criminal defense attorney Lee Richards III to represent her in connection with the Council’s budget scandal. The U.S. Attorney for the Southern District of New York claims that the Council set up phony groups to hold and hide money – more than $17 million over the past six years – in so-called slush fund accounts that were later used to cover shortfalls in the city budget.

In an article in Sunday’s New York Post, which broke the story on April 3, a “law enforcement source familiar with the probe” is quoted as saying: “If you pick up a phone and tell someone to do something illegal, that’s wire fraud. If you send a check, that’s mail fraud.”

Not quite. There’s more to making a wire and mail fraud case than a phone call and a check. There must be proof beyond a reasonable doubt that a misrepresentation was made to a person or entity and that an overall scheme to defraud existed. If the purpose of the accounts was to take care of periodic shortfalls in the budget, there was no such scheme. Moreover, it sounds as though everyone on the Council knew about the practice and thought it was perfectly legal. So no one was fooled, and there was no misrepresentation. In fact, there’s an uproar from other Council members that Quinn wants to change things. Quinn may even have sought the advice of counsel before setting up the accounts. This would constitute a complete defense to mail and wire fraud charges, as long as she relied on her lawyer’s advice in good faith.

In any event, Quinn has chosen well by hiring Lee Richards. He is a former federal prosecutor with a reputation for knowing how to negotiate a good result rather than going to war in a courtroom. He will certainly insist that prosecutors produce proper evidence of fraud rather than the kind of flimsy purported elements of offenses that are being leaked to the press. CR