It also charges Mulgrew, 54; his wife, Elizabeth, 55; and Lorraine DiSpaldo, 58, Keller's aide, with filing false tax returns.
The alleged scheme started while Mulgrew worked for Local 98 of the International Brotherhood of Electrical Workers, headed by John Dougherty.
Mulgrew became a Traffic Court judge in 2008, thanks in part to $120,000 in campaign contributions from Local 98. He also once worked in Keller's South Philly district office.
Dougherty, asked Thursday if he or the union had been contacted by the feds about the Mulgrew probe, replied: "Absolutely not."
He said Mulgrew was known in their Pennsport neighborhood for coaching kids, fixing sidewalks and running a snowblower after snowstorms.
"I think that Bobby Mulgrew is one of the squarest guys that I have ever seen in politics," Dougherty said. "Bobby had very little gray area in his life."
Keller did not return a call for comment late Thursday afternoon.
The Mulgrews and DiSpaldo were arrested at their homes early Thursday and released during afternoon arraignments. The three pleaded not guilty.
According to the indictment, between 1996 and 2008, the state Department of Community and Economic Development gave grants to the Friends of Dickinson Square, a nonprofit Mulgrew helped run, and Community to Police Communications, a nonprofit DiSpaldo helped operate.
The Friends group, which cleans Dickinson Square Park, at 4th and Tasker streets, received eight grants totaling $465,000. Community to Police, which gave police cell phones and secured vacant lots and buildings, got 13 grants totaling $397,000.
The indictment says Mulgrew and DiSpaldo improperly used state grant funds in these ways:
* Mulgrew's relatives and friends and Keller's friends and associates were sometimes paid for "expenditures by creating 'make work' projects."
* Mulgrew spent more than $46,000 to lease "pickup trucks which he used almost exclusively for his personal needs during 2002 through early 2008." He also bought work boots, an $827 camera and cigarettes.
* DiSpaldo paid Keller's office cleaner and errand runner more than $12,700 and "submitted altered invoices . . . to conceal her payment of over $4,600" for her personal cell phone.
After Thursday's hearing, Angie Halim, attorney for Robert Mulgrew, said he denied all charges filed against him.
"There are a lot of baseless allegations in this indictment," Halim said, adding that Mulgrew intends to report Friday morning to his job as Traffic Court judge.
Robert Lynch, attorney for Elizabeth Mulgrew, said the couple plans to fight the charges at trial.
"They have impeccable records of honesty and trustworthiness, not only in business but in the community at large," said Lynch, calling the tax charges against Elizabeth Mulgrew "baseless."
The indictments come two years after federal raids at Keller's district office, at a business he owns and at Mulgrew's home and Traffic Court office.
Frank Keel, spokesman for the First Judicial District, said the "indictments are unrelated to the ongoing federal investigation of allegations of ticket-fixing within Philadelphia Traffic Court and the First Judicial District's own internal investigation of the same allegations." Keel said the state Supreme Court will determine whether Mulgrew stays on as a judge.
City Councilman Bobby Henon, the political director at Local 98 when Mulgrew worked there, said: "Bob Mulgrew is a man of integrity. . . . I hope this process will straighten things out and his name will be vindicated."
- Staff writer Catherine Lucey
contributed to this report.
Contact Chris Brennan at firstname.lastname@example.org or 215-854-5973. Follow him on Twitter @ChrisBrennanDN. Read his blog at phillyclout.com.