By Robert Snell
The Detroit News
DETROIT — A failed $10 million pension fund loan that led to a businessman’s suicide and an international manhunt started with a $100,000 bribe to ex-Mayor Kwame Kilpatrick’s father, the dead man’s partner said.
Businessman George Kastanes said he told a federal grand jury in January about the alleged payment and a second $80,000 bribery demand from a powerful Detroit businessman.
“Based on the response I received, they were already aware of both,” Kastanes told The Detroit News in a telephone interview.
The allegations offer insight into a secretive, ongoing FBI investigation of the city’s pension funds, which in February resulted in the indictment of former city Treasurer Jeff Beasley. The allegations emerged as Kastanes and his wife were on the run and holed up at a Caribbean resort while federal investigators and lawyers hunted for the South Carolina couple and the pension fund’s money.
The alleged bribe payment is the latest accusation against Bernard Kilpatrick, who is awaiting a September trial date along with his son, ex-Mayor Kwame Kilpatrick, on federal racketeering conspiracy charges.
Federal investigators would not talk about the status of the probe or whether Bernard Kilpatrick will face additional charges.
Bernard Kilpatrick’s consulting firm, Maestro Associates, worked on the pension deal, Kilpatrick lawyer John Shea said.
Maestro Associates was hired by Detroit businessman Abner McWhorter, and Shea said his client did not receive a bribe. McWhorter killed himself in August amid accusations he was involved in a Ponzi scheme that defrauded the pension fund.
“You got a guy who can’t be cross-examined who says the only reason we got to fleece the pension board was because we bribed a family member who happened to have a last name that is among the most vilified in southeast Michigan history?” Shea said.
“And (Kastanes) tells you this while he’s on the lam at a resort island? No, it doesn’t sound credible.”
Detroit police and fire pension fund members knew about Kilpatrick’s involvement, Shea said.
In a June 2007 letter, McWhorter told pension members that no loan money would be used to pay consulting fees or commissions in connection with a $10 million loan to his company Paramount Land Holdings.
One pension fund member was surprised to learn about Kilpatrick’s involvement.
“This is the first time I’ve heard of it,” police and fire trustee George Orzech said.
Kilpatrick was being paid before the loan was approved, Shea said.
“If there were any (money paid) after, how would he know the source of the funds?” Shea asked.
Prosecutors previously have accused Bernard Kilpatrick of wrongdoing related to the city’s pension funds.
Bernard Kilpatrick, Kwame Kilpatrick and former city official Derrick Miller are charged in the racketeering conspiracy indictment with soliciting and pocketing more than $1.2 million in cash and property from people seeking deals with the city’s pension funds. The money was paid in return for official acts and favorable treatment from Kwame Kilpatrick, according to the indictment.
“In addition, Kwame Kilpatrick and Bernard Kilpatrick also obtained items from some of these same individuals through the fear of economic harm,” prosecutors wrote in the indictment.
The indictment does not mention the Paramount deal.
Shea is prohibited from talking about evidence uncovered during the racketeering investigation. But he said he has not heard anyone characterize the Paramount payments as a bribe.
Shea said there was nothing improper about Kilpatrick consulting on a deal pitched to a pension board whose members included Beasley. Beasley was a Kwame Kilpatrick appointee and fraternity brother.
“I don’t think it was a rigged game,” Shea said. “There were other proposals that Bernard consulted on that didn’t go anywhere.”
When pressed, the attorney couldn’t name one.
Kastanes, 62, spoke at length with The News during a phone interview from the Caribbean island of St. Kitts, where he fled along with his wife, Teresa, last month.
The News interviewed Kastanes by phone after contacting him via his personal email address. The News verified Kastanes’ identity through emails and a telephone interview with his son, Alex Kastanes, who also lives in South Carolina.
Kastanes says he’s broke
George Kastanes and his wife were featured in a March 23 story in The Detroit News chronicling the Paramount deal’s unraveling. The loan was intended to buy and restore more than 1,400 foreclosed homes in Metro Detroit.
The loan went into default last year, McWhorter committed suicide in August, and the pension fund is trying to recover money from the $10 million deal.
Kastanes said he is broke and didn’t travel to St. Kitts with any pension fund money. During the phone interview, Kastanes said federal officials have questioned him about the Paramount deal as recently as January.
Kastanes said he spent nearly three hours testifying about the deal in front of a federal grand jury in Detroit on Jan. 25.
“Don’t you think if the FBI and U.S. Attorney’s Office thought I had done anything wrong that they would have arrested me?” Kastanes said.
The U.S. Attorney’s Office declined comment.
McWhorter was concerned an $80,000 bribe demand made by a Detroit businessman scuttled a second pension fund deal, Kastanes said.
McWhorter was in talks with the police and fire pension fund about a second $10 million loan in 2009, Kastanes said.
McWhorter was told to meet with the businessman in late summer or early fall 2010. During the meeting, the businessman claimed he could ensure the loan’s approval in return for an $80,000 bribe, Kastanes said.
Pension fund officials dispute the allegation. McWhorter had withdrawn his request for a second $10 million loan months earlier, in spring 2010, police and fire pension fund chairman Sean Neary said.
A review, however, discovered questionable financial issues involving the first Paramount deal, and those questions led to a lawsuit in May 2011.
McWhorter refused the alleged $80,000 demand and talked to the FBI, Kastanes said.
“Within weeks, not only did the second loan disappear but the pension fund issued a letter of default on the first loan,” Kastanes said, adding the loan was called in February 2011.
“When the note was called, I had a rather heated conversation with Abner,” Kastanes said. “That’s when Abner confessed. He admitted he paid $100,000 to the mayor’s father.”
Bernard Kilpatrick received the bribe in spring or summer 2007, Kastanes said.
"(McWhorter) only stated to me that the money was paid so that the loan would be approved,” Kastanes said. “I went nuts. I said ‘I don’t do business that way. I’m not a crook.’”
According to Kastanes, McWhorter replied: “This is how we do business in Detroit.”
Paramount sued
In May 2011, the pension fund sued Paramount and 17 related parties, alleging McWhorter was involved in a Ponzi scheme that defrauded the pension fund.
The pension fund alleged the Kastanes’ helped perpetuate the fraud and diverted loan money.
The couple was found in contempt of court in November after failing to turn over files and a Wayne County judge issued warrants for their arrest Jan. 6.
They also failed to comply with subpoenas related to their bankruptcy case in Florida, skipped a March 6 hearing and traveled to St. Kitts. The bankruptcy judge late last month ordered federal investigators to find the couple and bring them back to the United States.
The Paramount deal has drawn federal scrutiny.
Pension fund lawyer Marie Racine was subpoenaed to testify twice before the federal grand jury, according to copies of subpoenas obtained by The News. She was instructed to bring all records relating to the Paramount deal in March and July 2011.
The July subpoena instructed her to produce records involving McWhorter and George and Teresa Kastanes.
Racine did not respond to questions from The News about the subpoenas.
During his grand jury testimony, Kastanes said he was questioned about the alleged bribes.
“They wanted to know what I had done and who got paid to get that loan,” he said.
Neary would not address any specific allegation made by Kastanes.
“Given that the Paramount case is in litigation, we decline to give any credence at this time to any inflammatory allegations made by the Kastanes, who are essentially fugitives,” Neary said.
Kastanes does not expect the pension fund probe to end with Beasley’s indictment
“That was just number one,” Kastanes said.
Kastanes said the U.S. Attorney’s Office told him he is not a target of the probe.
“I want to ask the FBI to investigate and put to rest that we have stolen any pension fund money,” he said. “Will they do that? I don’t know.”
Copyright 2012 The Detroit News
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