SEC files charges against former Detroit mayor

Michael P. Tremoglie May 10, 2012, 10:29am


WASHINGTON (Legal Newsline) - The Securities and Exchange Commission on Wednesday charged former Detroit mayor Kwame Kilpatrick and two others with selling their influence.

The other officials are former city treasurer Jeffrey W. Beasley and the investment adviser to the city's public pension fund. They are charged with selling their influence over the funds' investment process.

The SEC alleges that Kilpatrick and Beasley were involved in a secret exchange of lavish gifts. The two were pension fund trustees. They solicited and received $125,000 worth of private jet travel and other perks paid for by Mayfield-Gentry Realty Advisors LLC, an investment adviser whose CEO, Chauncey Mayfield, recommended that the pension funds invest approximately $117 million in a real estate investment trust controlled by the firm, the SEC claims.

Neither Kilpatrick, Beasley nor Mayfield and his firm informed the pension boards of trustees about the trips. The REIT investment was approved, and Mayfield-Gentry received millions of dollars in management fees.

"It is a disappointing day when pension fund trustees such as ex-Mayor Kilpatrick and others corrupt the investment process by selling out hardworking police officers, firefighters and other municipal employees for the price of a few vacations and paltry extras like concert tickets and rounds of golf," said Robert Khuzami, Director of the SEC's Division of Enforcement.

The complaint, filed in U.S. District Court for the Eastern District of Michigan, stated that members of Kilpatrick's administration exerted pressure on Mayfield in early 2006 because he supported Kilpatrick's opponent in his 2005 re-election. Mayfield also hired the candidate's daughter.

The SEC said that "Beasley met with Mayfield in February 2006 and told him he was 'in the dog house' with Kilpatrick and offered to help him 'clear the air.'" Mayfield appeared before Detroit's public pension funds trustees pitching his REIT investment.

Meanwhile, the SEC alleges, Mayfield-Gentry started paying trips taken by Kilpatrick, Beasley and others that extended beyond business. 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 in January 2007.

Beasley's pretext for the trip, which he told to Mayfield, was to inspect a building recently acquired by one of the pension funds. But the SEC alleges the building was never inspected.

Other examples of alleged non-business travel include an April 2007 Mayfield-Gentry-financed Las Vegas outing for Kilpatrick, Beasley, and their associates via private jet. They allegedly stayed at luxury hotel accommodations, attended two concerts, played three rounds of golf and received massages. With meals, the Las Vegas trip cost more than $60,000, the SEC says.

Mayfield-Gentry allegedly paid more than $24,000 for another private jet trip in July 2007. This one allegedly took Kilpatrick, Beasley's son and others to Tallahassee, Fla., where Kilpatrick had a second home.

Another alleged trip, in October 2007, cost more than $34,000 and took Kilpatrick and his wife to and from Bermuda, and Kilpatrick's father and his girlfriend back from Bermuda.

The SEC alleges that "neither Kilpatrick nor Beasley nor Mayfield nor Mayfield-Gentry told anyone associated with the pension funds about any of the travel. The boards of trustees for the funds thus voted to invest approximately $117 million with Mayfield and his firm without the knowledge that they had supplied Kilpatrick, Beasley, and their associates with the extravagant travel and perks during the preceding 10 months."

The SEC seeks disgorgement of ill-gotten gains, penalties and permanent injunctions, including an injunction against Kilpatrick and Beasley to prohibit them from participating in any decisions involving investments in securities by public pensions.

Kilpatrick, a Democrat, was the youngest person ever elected as mayor of Detroit in 2001. He resigned after multiple scandals.

He was sentenced to federal prison in 2010 for violating the probation he received after his conviction for perjury and obstruction of justice. He has also been indicted for bribery, extortion and fraud.

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