A business deluge, a rainmaker under a cloud

Posted: March 18, 2007

He has been what lawyers call a "rainmaker." He's lined up government and corporate clients for a Philadelphia law firm that pays him well for this - as much as $1 million a year.

But he was just moonlighting. His day job? State senator.

While Vincent J. Fumo has served in the Pennsylvania Senate, he has drummed up business for his law firm from government agencies where he has political clout, an Inquirer examination shows.

He has marketed the Dilworth Paxson law firm from City Hall to the state Capitol. Since he joined Dilworth in 1993, he has helped bring a parade of clients to the firm's door.

They have included the city, its courts, the turnpike, the Philadelphia School District, and Blue Cross, according to people familiar with the firm's work.

The volume of Dilworth's city and state bond work has more than doubled since Fumo joined, according to an Inquirer analysis of data provided by Thomson Financial. That work generated millions of dollars in fees for Dilworth.

Pennsylvania permits its legislators to earn outside income as lawyers, and Fumo and 29 others do. And the firm's chairman says he doesn't know of Fumo ever "using his office" to steer business to the firm. The state ethics law prohibits that.

Still, government ethicists say that law is murky about what a legislator can or can't do when soliciting government work for his firm. Some say legislators simply shouldn't do this.

If a legislator "wanted to run a pet store, if he wanted to be a physician, if he wanted to sell dresses, that would be fine," says Arthur Levitt, who as Securities and Exchange Commission chairman from 1993 to 2001 championed tough ethics rules. "But I think that for any public official to be able to profit from association with a firm that does business with the state is improper and, in my judgment, probably unethical."

Others, such as Common Cause's Barry Kauffman, say Pennsylvania could save taxpayers money if it kept politicians out of the choosing of bond lawyers and used competitive bidding, as Maryland has for years. "It's a prudent way," says Howard Freedlander, deputy Maryland treasurer.

Gov. Rendell said that while it's "perfectly legal" for legislators to seek government work for their law firms, "I don't think it's proper or appropriate."

"I think it creates at least an appearance of undue influence when a legislator is asking a governmental agency or authority to give work to a firm," Rendell said in an interview.

The governor knows whereof he speaks: Before he was elected, he took criticism for his $250,000 salary from Philadelphia's law firm of Ballard, Spahr, Andrews & Ingersoll in return for what he said was "very little" work. But Rendell said he didn't drum up government work for Ballard Spahr.

He said that when he was mayor, in the 1990s, Fumo hit him up for Dilworth bond work "on occasion."

Asked if the senator's requests had helped Dilworth get city work, Rendell said, "It didn't hurt."

Rendell took pains to point out that his City Hall had tried to spread the work among qualified firms, including Dilworth, and that Fumo wasn't the only lawyer making pitches. "I was hit up constantly," Rendell said.

It's an important point: Fumo didn't invent this. The practice of dishing out legal work, especially bond work, to politically wired firms is a time-honored part of the political spoils system in City Hall and the state Capitol. "Pinstripe patronage," it's been called. Governors do it; so have mayors from Frank Rizzo to John Street. Work typically goes to firms that donate generously to campaigns.

But it is rare for a legislator to be a law firm's paid pitchman.

In some instances, such as Rendell's, officials say Fumo personally recommended Dilworth to them. Elsewhere, Senate Democratic staffers have put the firm's name into a selection process. And city and state boards that include close Fumo allies have hired Dilworth.

Fumo, a 63-year-old Philadelphia Democrat, did not respond to questions submitted by The Inquirer for this article. One of his lawyers, Mark B. Sheppard, declined to comment in response to those questions.

Dilworth's chairman, Joseph H. Jacovini, said Fumo had neither written briefs nor argued cases, but was paid to "market the services of the firm."

His annual pay of up to $1 million from Dilworth was disclosed in his Feb. 6 indictment on charges of obstructing justice and misusing state and nonprofit funds. Fumo has said he is innocent, and is on a paid leave from Dilworth while he fights the charges.

The indictment touched on his rainmaking role, saying he had asked Verizon Communications to give "as much as $2.5 million of its legal business" to Dilworth as part of a deal in which Fumo would stop his drive to break up the company.

Verizon did not hire Dilworth, and Fumo was not charged in connection with that; prosecutors allege that destruction of records blocked them from learning if his dealings with Verizon amounted to extortion.

Jacovini, Dilworth's chairman, said he saw no problem with Fumo's dual role of senator and rainmaker. He acknowledged that the firm pays Fumo, in part, for landing government clients.

"Government work is in the mix of his compensation," Jacovini said. But he added, "The majority of his clients are people in the corporate world."

Jacovini declined to name clients Fumo had recruited, citing a legal ethicist's advice to Dilworth that such information is confidential.

Before he went on leave, Fumo was "of counsel" at Dilworth. Generally, lawyers "of counsel" are paid a salary; unlike partners, they don't share in firm profits.

Lawyers in both parties have gone on from Dilworth to high office, starting with founder Richardson Dilworth, who in 1947 became the first Democrat elected Philadelphia mayor in decades. Other former partners have included the late Gov. Bob Casey, U.S. District Judge Bruce W. Kauffman, and William T. Coleman, who served in President Gerald R. Ford's cabinet.

(Among Dilworth's clients is Philadelphia Media Holdings, owner of The Inquirer and the Philadelphia Daily News.)

Government officials who have hired Dilworth praise its work and note that it is listed in the elite "Red Book" of qualified bond lawyers. Some said Fumo played no role in getting Dilworth hired.

Jacovini described Fumo as a "very well-known, respected public figure, business executive, lawyer, government figure" who was often asked to recommend law firms. Asked if the senator had recommended Dilworth for government work, Jacovini replied, "Sure."

Jacovini declined to confirm the amount of Fumo's pay but said it was in tune with "market rates for those services." The firm said his pay is a fixed rate and not "calibrated" to specific clients Fumo recruits.

At $1 million, Fumo's pay puts him in the upper tier of local lawyers. A 2005 survey said only two Philadelphia firms, both much larger than Dilworth, paid partners an average of more than $1 million.

Fumo actually holds three jobs: legislator, lawyer and banker. As the ranking Democrat on the Senate Appropriations Committee, he was paid $98,000 yearly; he took a pay cut when he stepped down from that post to fight the criminal charges.

He also heads a small banking company where his compensation was worth $874,000 in 2005, the most recent year for which figures are available.

Fumo devotes most of his time to his Senate work, his chief lawyer has said in response to The Inquirer's previous questions about use of his state staff. In a Jan. 26 letter, Richard A. Sprague called Fumo "a tireless public servant" who, with his staff, works "24/7 at the job of being the most effective Senate office" in the state.

Still, Fumo has found time to seek clients for Dilworth.

Based on interviews and government records, here is a look at three state agencies that hired Sen. Fumo's firm.

The Commonwealth Financing Authority

In 2004, the state legislature created an authority to carry out a Rendell campaign promise to boost the state economy. It would float bonds to give out $750 million in loans and grants to businesses.

Under a deal struck between Rendell and legislative leaders, each of four caucuses - Democrats and Republicans in the House and the Senate - would take turns picking law firms to hire for the bond issues.

This account came from senior officials in both parties. What they described is an unofficial but decades-old practice in the Capitol: The major parties' leaders carve up what amounts to a four-way patronage pie, typically directing legal work to firms that give heavily to campaigns.

According to four officials with knowledge of the matter, a top Fumo aide, Randy Albright, told the new authority's leaders that the Senate Democrats had picked Dilworth.

Albright, who has worked for Fumo for two decades and earns $139,000 annually, did not return messages seeking comment for this article. In Harrisburg, he is considered Fumo's expert on state spending.

So far, the authority has marketed three bond issues. Republican and Democratic leaders instructed that the legal work on those issues should go to eight firms including Dilworth.

Dilworth earned $246,000 as underwriters' cocounsel on those deals, said Kevin Ortiz, an administration official.

The bailout board

In the early 1990s, as Philadelphia teetered on the brink of fiscal ruin, an agency was created to serve as the city's fiscal watchdog and to sell bonds to help make it solvent. It was called the Pennsylvania Intergovernmental Cooperation Authority.

But this new agency also featured the old pie-cutting: a four-way split in which legislative leaders of both parties sent in the names of law firms.

In an interview, PICA's former director, Joseph C. Vignola, said Fumo had recommended that the agency use Dilworth in three bond deals totaling $1.1 billion between 1996 to 2003.

Fumo had picked the firm for Senate Democrats and sent it in through his appointees on the PICA board, said Vignola, now an executive at Janney Montgomery Scott in Philadelphia.

Vignola said he rejected one of these recommendations - to name Dilworth as PICA's counsel on a 1996 bond issue. "I just perceived that if there could be a conflict of interest, that's where it was," he said.

He said he was not troubled by having Dilworth serve in a less direct role, as underwriter's counsel on PICA bonds. Regardless of who had lobbied whom, Vignola said, Dilworth's lawyers "were class acts and did the job."

The two Fumo PICA appointees whom Vignola mentioned disputed his account last week. One of them, Carol Gassert Carroll, said the senator had "never asked me to hire Dilworth" - and that he "didn't do anything all the other politicians were doing."

Told of this on Friday, Vignola said, "They are wrong." He repeated his recollection that when they were on the PICA board, both appointees had brought the Dilworth firm's name to him and said they were relaying "Fumo's picks," as Vignola put it.

Vignola, a Democrat, lawyer, and former city controller, offered his own view about Fumo and Dilworth:

"If I was running the firm, I would say, 'No, you are not getting compensated for any direct or indirect government work that you bring in from Pennsylvania. . . . We don't need the grief.' "

The Turnpike Commission

For years, Fumo has had allies on the Pennsylvania Turnpike Commission, whose members are confirmed by the state Senate. His friend Bob Brady served from 1991 to 1998. Then, when Brady was elected to Congress, Fumo arranged for businessman Mitchell Rubin to fill Brady's turnpike seat. "That was my call," Fumo said then.

Fumo and Rubin go way back.

Rubin is married to Ruth Arnao, a former top Fumo legislative aide. Rubin and Arnao have vacationed with Fumo; in 2003, Fumo sold the couple a bayside condo in Ventnor, N.J.

Arnao was indicted with Fumo last month. No charges were brought against Rubin, but the indictment said that over five years, he was paid $150,000 as a state Senate research consultant through a fund Fumo controlled, but "did little or no actual Senate work." The consulting payments, from 1999 to 2004, overlapped with Rubin's years on the turnpike board.

Rubin, the turnpike's chairman since 2003, did not respond to calls seeking comment for this story.

Over the years, the Dilworth firm has received a stream of work on turnpike bond issues, starting before Fumo joined the law firm.

With Rubin's arrival and his ascension to the post of chairman, the stream became a river.

According to the the turnpike's own figures, in the dozen years before Rubin joined the turnpike board, Dilworth was a relatively small participant in bond work there, providing legal advice for four deals.

In the nine years since he arrived, Dilworth has been involved in 21 bond issues.

Since 1998, the turnpike has not issued a bond without Dilworth having a role.

In those years, Dilworth has been paid about $2 million for bond work, said turnpike spokesman William Capone. He said the turnpike has also paid the firm an additional $1 million for other legal services.

In a 2005 article in the Pittsburgh Tribune-Review, Gary Tuma, Fumo's press secretary, said the senator did not personally benefit from Dilworth's turnpike work. In a recent interview, Joseph Brimmeier, the turnpike's chief executive, said that Dilworth did "a very excellent job for us," and that as far as he knew, Fumo had "no influence as to who gets picked."

At Dilworth, Jacovini said he didn't know precisely what role Fumo may have had in getting turnpike work for the firm.

"I'm sure there were a variety of factors that come into play," Jacovini said. "No doubt he was consulted. I'm sure that he said they were a fine firm."


Clients and Connections

Dilworth Paxson does legal work for a range of state and city agencies, as well as for some of the region's major corporations.

State Sen. Vincent J. Fumo has influence over many agencies and the private sector.

Here's a look at some Dilworth clients and their connections to Fumo. The firm's fees from these clients have totaled more than $12 million, according to the clients and public records.

Commonwealth Financing Authority

Work history: The state authority was created in 2004 to borrow money to pay for economic improvement projects. Dilworth has worked as underwriters' counsel on three bond deals.

Fees paid to Dilworth: $246,000.

Ties to Fumo: Harrisburg politicians worked out a deal for Democratic and Republican legislative leaders to divvy up the legal work. A top Fumo aide told the authority that Dilworth was the choice of Senate Democrats.

Comment: Agency officials could not be reached.

Philadelphia city bonds

Work history: The law firm worked on 18 bond issues since 1996, according to the city Finance Department. These included general obligation issues, as well as revenue bonds on behalf of Philadelphia Gas Works.

Fees paid to Dilworth: $1.2 million.

Ties to Fumo: Gov. Rendell said Fumo occasionally sought work for Dilworth when Rendell was mayor - "but no more than anyone else."                      Comment: After the City Hall pay-to-play scandal, City Council enacted changes in 2005 that require a competition for choice of counsel on each bond issue. "A committee of five people get in a room, go through the resumes, and pick on the basis of experience," said Vincent J. Jannetti, acting city finance director.

Pennsylvania Intergovernmental

Cooperation Authority

Work history: The agency created to serve as Philadelphia's fiscal watchdog named Dilworth as bond counsel or underwriters' counsel on seven deals since 1993.

Fees paid to Dilworth: The firm received $100,000 for work as underwriters' cocounsel on its last two bond deals, according to Rob Dubow, PICA director.

Ties to Fumo: Fumo controlled one slice of a four-way split in which state legislative leaders of both parties got to pick the law firms, said Joseph C. Vignola, PICA's former director.

Comment: Regardless of how Dilworth was chosen, Vignola was satisfied. "They were class acts and did the job," he said.

Philadelphia School District

Work history: Dilworth has done legal work for school system bond issues and defended it in a desegregation case.

Fees paid to Dilworth: $1.5 million since 1999.

Ties to Fumo: In a 2000 interview, the district's retired managing director, Irv Davis, said he "absolutely" chose Dilworth because of Fumo's position - though he said Fumo never asked him to. Davis said he hired Dilworth "because of the power base that Fumo represents, and the help that he could provide in Harrisburg and the harm that he could do."

Comment: Cecilia E. Cummings, a spokeswoman for the school district, said recently, "We kind of inherited Dilworth and kept them because the work was satisfactory. We were never contacted by Fumo."

SEPTA

Work history: Dilworth advised the transit agency on contractual, audit and lease agreements. Dilworth also handled a 2004 lawsuit over the contaminated Paoli rail yard, winning a $23 million settlement for SEPTA.

Fees paid to Dilworth: $4.3 million over the past five years.

Ties to Fumo: Two longtime Fumo allies sit on SEPTA's board.

Comment: Richard Maloney, SEPTA spokesman, said Dilworth has represented the agency since its founding in 1964. "We have had no requests, directly or indirectly, with the senator or from the senator for any legal services regarding Dilworth," he said.

Pennsylvania Higher Education

Assistance Agency

Work history: Dilworth served as underwriters' counsel on four bond issues between 2002 and 2004 that raised $993 million to finance student loans.

Fees paid to Dilworth: $188,500.

Ties to Fumo: The senator has served on the 20-member PHEAA board since 1993. He was vice chairman from 1995 until this year.

Comment: PHEAA spokesman Keith New said Fumo played no role in selecting Dilworth; PHEAA chief executive Dick Willey declined to comment on whether Fumo had recommended the firm.

Pennsylvania Turnpike Commission

Work history: Since 1998, Dilworth has received an increasing amount of legal work from the turnpike.

Fees paid to Dilworth: About $2 million for bond work since 1998; another $1 million for other legal services over the last dozen years.

Ties to Fumo: In 1998, Fumo arranged for close friend Mitchell Rubin to join the commission. He replaced Bob Brady, the city Democratic chairman and Fumo ally who left upon winning a seat in Congress. Rubin became turnpike chairman in 2003.

Comment: Fumo spokesman Gary Tuma told the Pittsburgh Tribune-Review in 20w05 that the senator does not personally benefit from Dilworth's turnpike work.

Independence Blue Cross

Work history: A spokeswoman for IBC said Dilworth Paxson was among several major Philadelphia law firms it employed, and the relationship began more than 15 years ago.

Fees paid to Dilworth: As The Inquirer reported in 2000, public records showed Dilworth had earned more than $1 million from IBC in the preceding six years. More recent figures were unavaiable.

Ties to Fumo: He has been on IBC's board since 1989, taking a leave after his recent indictment. He was close friends with IBC's late chairman, G. Fred DiBona Jr.

Comment: Fumo "had no role in our decision to select Dilworth," said Christopher Cashman, senior vice president. "Dilworth is a long-established, well-regarded firm."

- Andrew Maykuth, Craig R. McCoy,

and Mario F. Cattabiani


Contact staff writer Mario F. Cattabiani

at 717-787-5990 or mcattabiani@phillynews.com.

Inquirer staff writers Marcia Gelbart and John Shiffman contributed to this article.

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