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Investment firm's payments to Republican fundraiser under scrutiny

MIKE ROBINSON

Associated Press

CHICAGO - Federal prosecutors investigating corruption at a state pension fund have subpoenaed records concerning $4.5 million in fees a Washington-based investment firm is paying the new treasurer of the Republican National Committee, government sources confirmed Tuesday.

The subpoena calls for documents related to the fund, the Carlyle Group and Robert Kjellander, said sources familiar with the investigation who spoke only on condition of anonymity, saying prosecutors want details of the probe kept secret.

Kjellander, a Springfield-based lobbyist who headed President Bush's re-election campaign in three states, was named the RNC's treasurer over the weekend.

Illinois Teachers Retirement System officials expressed concern about the amount of finders fees Carlyle offered Kjellander for helping to land business with the pension fund - $3.1 million paid and $1.4 million due.

"I believe that we were all taken aback when we learned of the size of his compensation for services to the Carlyle Group," said Jon Bauman, executive director of the pension fund.

He said the amount would not be unusual if paid to a major firm that places such business, such as Merrill Lynch or Goldman Sachs, but is extraordinary for payment to a small operation.

Neither the Carlyle Group nor Kjellander and his Springfield Consulting Group have been accused of any wrongdoing in connection with the investigation. Kjellander did not immediately return calls to his Springfield office Tuesday.

Carlyle officials have been summoned to a pension board meeting in Chicago on Thursday to answer questions about the investment firm's relationship with Kjellander and the finders fees it is paying him.

The subpoena was part of an ongoing federal investigation of corruption involving the fund, which pays the pensions of retired downstate and suburban teachers. A former fund trustee and two Chicago attorneys already are under indictment. One of the two lawyers, Joseph Cari Jr., is a former finance chairman of the Democratic National Committee.

Carlyle spokesman Christopher Ullman said Kjellander's fees are in line with what such private equity firms usually pay to placement agents, and the pension fund's investment in Carlyle is simply smart business.

"The average return on these funds is 45 percent per year," he said. "You're not going to get that out of an S&P fund. The pensioners and board are doing very well investing in Carlyle."

He said Kjellander represents Carlyle before eight other public bodies in Illinois but declined to name them or say whether they have committed to investing with the firm.

Cari was indicted one week ago along with Chicago attorney Steven Loren and millionaire political contributor Stuart P. Levine on charges of shaking down firms that sought to provide investments to the $30 billion teachers pension fund. Levine was a trustee for the fund.

All three men were to be arraigned Wednesday and were expected to plead not guilty, although Loren's attorney has said he is cooperating with the federal investigation.

Bauman said teachers pension fund workers have found a January 2002 memo from Levine to a fund staff member, saying, "Call me about this."

Attached was a letter to Levine from a Carlyle official that said: "At the request of Bob Kjellander, I enclose for your consideration four items concerning the Carlyle Group and more specifically Carlyle Venture Partners II."

Kjellander was quoted in Tuesday editions of the Chicago Tribune as saying he might have sent the board "a background thing about Carlyle" that indicated he would appreciate consideration of the investment firm.

"That's part of my job," he said. "My job was to say, 'Give these guys an opportunity to present their case.'"

Kjellander - pronounced shuh-LAN-dur - is a member of the RNC and friend of presidential adviser Karl Rove. He also was patronage chief under former Illinois Gov. James R. Thompson.

RNC spokesman Danny Diaz said the Republican group was aware of news reports concerning Kjellander and considers him an effective leader who can help advance the agenda of President Bush.

"The RNC is privileged to have such an accomplished and experienced individual in the treasurer's position," Diaz said.

Kjellander raised eyebrows in 2003 when he received an $809,000 consulting fee from Bear, Stearns Inc. after Democratic Gov. Rod Blagojevich picked that investment house to handle $10 billion in pension fund bonds. The firm received $8 million for handling the bond issue.

Kjellander has not said what his role in the placement was.

Nicholas Hurtgen, who was managing director of the Chicago office of Bear, Stearns is now under indictment along with Levine in a separate alleged extortion plot targeting a Naperville hospital.

[Associated Press Writer Dennis Conrad contributed to this report from Washington]