Ex-chair of hospital board had dual roles
He was consultant for firm on whose projects he voted
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By David Kidwell, Tribune staff reporter. Tribune reporters Jim
Kimberly, Crystal Yednak, and Ray Long contributed to this report
December 18, 2005

The former chairman of the state hospital board voted for construction projects financed by Bear, Stearns & Co. while he was quietly receiving more than $1 million in finder's fees from the firm for unrelated business, a Tribune investigation has found.

Thomas P. Beck's dual role as both a paid consultant to the firm and a public servant overseeing projects it financed raises questions about his long-standing financial ties, never before fully disclosed.

Beck's attorney said he followed the law, and there is no connection between his consulting work and his public service.

Officials at two public pension funds that do business with Bear Stearns initially said they had no records of a 15-year-old consulting deal Beck had with the bond firm, but supplied the documents after repeated Tribune requests.

Following the newspaper's inquiries, one of the pension funds asked Bear Stearns to end Beck's payments. It did.

The revelations come at a particularly sensitive time for both the company and the Illinois Hospital Facilities Planning Board chaired by Beck until last year.

In May, another hospital board member and Bear Stearns' former Chicago managing director were indicted in an alleged scheme to buy influence at the board, which approves all major hospital construction.

Beck, 66, a longtime Democrat and former Cook County comptroller, was not implicated in the indictment.

Beck's attorney said the payments Beck receives from Bear Stearns are completely unrelated to his role on the hospital board and that he made all the disclosures required by state law.

Beck lists Bear, Stearns in the section of his state ethics form that requires disclosure of entities from which a public official receives "in excess of $1,200." No more details are offered on Beck's form, or required under state law.

"He made all the disclosures. He made them diligently since 1991 and that's all we have to say about it," said Beck's attorney, Michael W. Coffield. He also said Beck's consulting contract with Bear Stearns did not extend to the company's business before the hospital board.

"The two were completely unrelated," Coffield said. "In fact, whether he voted in favor, against, or recused himself, he was still going to be entitled to his payments from Bear Stearns on the unrelated matter."

A review of public records shows Beck voted at least six times for hospital projects that chose Bear Stearns to finance $170 million in bonds. It remains unclear whether Bear Stearns' ties to the projects were readily apparent, since hospitals aren't required to disclose their bond underwriters to the board.

A watchdog group said Beck's dual role should have been more transparent so the public could decide whether his decisions were made purely for the benefit of taxpayers.

"This is a perfect example of why the law is inadequate," said David Morrison, deputy director of Campaign for Political Reform. "It's much too vague and meaningless. There ought to be an improvement so the public understands the difference between a $1 million interest and $1,000."

Beck's professional relationship with Bear Stearns dates to May 1990, when he signed a consulting deal to solicit pension business for the firm. Under the contract, Beck received 20 percent of Bear Stearns' fees in the first year and 10 percent every year thereafter.

On April 30, 1990--just days before he signed with Bear Stearns--Beck retired as county comptroller and as a board member at the County Employees' Annuity & Benefit Fund, the pension fund for most county employees. As a board member four years earlier, Beck made the motion that gave Bear Stearns its first business from the pension fund, a $50 million investment.

Within weeks of signing his consulting deal in 1990, Beck had persuaded his former board colleagues to add another $110 million to the portfolio Bear Stearns was already managing for the county retirees.

Bear Stearns and Beck--through his attorney--refuse to say whether his payments from the firm included fees for the company's management of the original $50 million he voted to place with the firm.

In 1991, the board of another public pension fund--the Municipal Employees' Annuity and Benefit Fund of Chicago--voted to invest $60 million with Bear Stearns.

Under the terms of his contract, Beck receives quarterly fees from Bear Stearns' business at both funds that to date total nearly $1.4 million.

In 1997, he returned to public service when then-Gov. Jim Edgar appointed him to the hospital board.

Officials at the board said they were unaware of the extent of Beck's financial ties to the company.

Administrators at both pension funds said they don't remember Beck having any involvement with the accounts since he helped set up the deals 14 years ago.

Even though federal securities law required Bear Stearns to disclose in writing to clients all third-party marketing contracts, neither fund supplied the document when the Tribune first filed records requesting lists of all such consultants.

"It surprised us to hear about it," said Terrance Stefanski, executive director of the Municipal Employees' fund. "We didn't have any record of it in our files. We never had any dealings with Mr. Beck. And we had no idea what Mr. Beck might be doing behind the scenes, or whether this contract had any merit."

Stefanski said he asked Bear Stearns to supply a copy of the required 1990 disclosure letter. After reviewing their records, pension officials asked Bear Stearns to terminate Beck's contract and renegotiate its fees.

The company agreed and decreased its fees by about 17 percent, Stefanski said. John Fitzgerald, executive director of the county pension fund, said he remembers Beck soliciting the board on Bear Stearns' behalf immediately after his retirement in 1990.

Fitzgerald supplied Bear Stearns' disclosure of the Beck deal only after the Tribune specifically asked for it in a second records request.

Russell Sherman, a company spokesman in New York, confirmed that payments on the city pension account stopped at the fund's request. "He helped facilitate our introduction," Sherman said. "He was paid a finder's fee. As per the agreement, we continued to pay him as long as we continued to manage the money."

Sherman would not specify how much Beck has received from Bear Stearns since 1990, nor would he say whether Beck received finder's fees on any other deals.

A review of bond documents and board minutes shows that since he was appointed to the hospital board, Beck's votes helped send $170 million in bond business to the firm and generated $4.7 million in underwriting fees.

An administrator at one of the hospital companies said he was unaware the firm he hired to finance two construction projects was writing unrelated checks to a board member whose approval the hospital needed.

"That comes as a shock to me," said Dan Baker, chief financial officer at OSF, which owns St. Anthony's Medical Center in Rockford and St. Francis Center for Health in Peoria. "I understand how it appears, but I had no idea."

Baker said it's possible that Beck had no idea as well.

Jeffrey Mark, executive secretary to the hospital board, agreed, noting that board members are not given information on which firms are hired to underwrite bonds. But Mark said if board members are aware of a potential conflict, board rules require them to disclose it and abstain.

"It happens at almost every meeting," Mark said. "And sometimes board members aren't aware of the conflict until it emerges in discussions at the meetings."

Beck's attorney, Coffield, said in at least some cases Beck was aware of Bear Stearns' involvement.

"I'm sure that he was aware in some cases and in some cases he wasn't," Coffield said. "But I don't put much stock in that regardless. He made the required disclosures, and that is what's important here."

Bear Stearns and the hospital board have been under intense scrutiny for nearly two years, ever since administrators of Edward Hospital in Naperville reported an alleged extortion scheme.

Edward administrators told federal agents that former Bear Stearns managing director P. Nicholas Hurtgen and board Vice Chairman Stuart Levine were trying to extort them into hiring a favored construction company, Kiferbaum Construction.

Edward Chief Executive Pamela Davis asserts in court documents that Hurtgen told her at one recorded meeting that he was politically connected and that Levine and Beck would make the determination on the hospital's plan to build a medical office building.

Hurtgen also told Davis, she says, that it "would never be approved" if Kiferbaum wasn't hired to build it.

While cooperating with the FBI, Davis refused to hire the firm.

Federal authorities allege in court documents that Hurtgen's firm--Bear Stearns--was in line to get the bond business from Kiferbaum.

Edward Hospital's project was denied unanimously at the April 24, 2004, meeting.

At the same meeting, another hospital that did hire Kiferbaum Construction won board approval.

In May, Levine, Hurtgen and Jacob Kiferbaum were indicted on federal charges of extortion and paying kickbacks to Levine for his influence on the board. They have pleaded not guilty.

Beck is not named in any way in the indictment or accused of any wrongdoing.

In recent months, Bear Stearns has lost nearly $1 billion in business at two state pension boards that cited the firm's sub-par performance, its use of politically connected consultants and the ongoing federal corruption investigation.

Beck--and all the other hospital board members--were replaced by Gov. Rod Blagojevich in 2004 after the scandal erupted. Federal authorities declined to be interviewed for this story.

Said Coffield, Beck's attorney: "We have no indication that Mr. Beck is a target or that he is in any jeopardy because of this investigation."
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At a glance

Former state hospital board chairman Thomas P. Beck's dual role as public servant and consultant:

1986: Cook County Comptroller Beck and other trustees of a county

employees pension fund vote to invest $50 million with Bear Stearns.

1990: Beck retires as comptroller, leaves the pension board and signs a consulting contract with Bear Stearns. Within weeks, he persuades his former board colleagues to invest another $110 million with the firm. The following year, a city pension fund invests $60 million.

Beck's consulting payments begin.

1997-2004: As a member of the state hospital board, Beck votes for projects that send $170 million in bond business to Bear Stearns. He continues to receive consulting payments for the unrelated pension business which under his contract totals more than $1 million to date.