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Lies, bribes and videotape.

Kentucky's former House speaker has been convicted of extortion and racketeering, and three other sitting lawmakers have been indicted in an FBI investigation of gambling corruption.

A nearly three-year federal investigation of public corruption in Kentucky reached a climax April 30 with the extortion and racketeering convictions of former Kentucky House Speaker Don Blandford.

Blandford, who had served an unprecedented eight years as speaker, was the most powerful figure charged in the investigation. Three other sitting legislators have been indicted, and a related probe produced another conviction of a House member.

Also convicted are five former legislators--three who had become lobbyists and one who served as Blandford's top aide; the state's most influential lobbyist; a lobbying organization; and the nephew of a former governor, who served as an aide on his uncle's staff.

Two weeks after Blandford's conviction, the first sitting senator was indicted, showing that the investigation is continuing. A few other legislators and people with legislative interests remain under investigation--the most notable being Louisville-based Humana Inc., a health care giant that won regulatory exemptions from the legislature in 1990 after an intense and controversial lobbying campaign.

The investigation has stunned the Kentucky General Assembly. Its public standing plunged from an all-time high in 1990 with the passage of landmark education reforms to a new low in 1992 after the investigation was revealed.

Since then, the legislature has been battered by revelations in 12 indictments and two trials. Particularly painful were the secretly recorded videotapes played at trials that showed rare glimpses inside the cash-happy world of some lobbyists and legislators.

"You are going to see a legislator take a payoff," Assistant U.S. Attorney Steve Pence said with apparent satisfaction in his opening argument at Blandford's trial. And they did.

A powerful speaker has been toppled, and key committees have new chairmen. At a special session early this year, the legislature endured a painful self-examination that ultimately produced some of the nation's toughest laws on legislative ethics and campaign finance.

Like many other FBI probes of legislative corruption, this one focused on expanded opportunities for gambling. The Bluegrass State already has parimutuel wagering; this investigation focused on a new development in the horse industry--betting on races televised from other tracks and the profits to be made from such "intertrack" wagering.

Kentucky was reluctant to embrace the idea, fearing that more televised races would mean fewer live races and less demand for horses produced by the state's famous thoroughbred industry. Yet the state's eight race tracks could not ignore the popularity of intertrack wagering, particularly as their handle was threatened by the state lottery started in 1989.

The General Assembly wrote the rules for intertrack wagering. Within the legislature, racing legislation is handled by the Business Organizations and Professions (BOI,) committees. The FBI named its probe Operation BOPTROT for the committees and the trotting races of harness horses.

The investigation grew from a bitter struggle between two tracks in Henderson over local rights to conduct intertrack wagering on races televised from Kentucky's thoroughbred tracks. Henderson, an Ohio River city of 25,000 near too small a market for two tracks.

The 1988 and 1990 sessions of the legislature passed bills that gave Henderson's thoroughbred track, Ellis Park, the upper hand in intertrack wagering. That threatened to drive Henderson's small harness track, Riverside Downs, into bankruptcy. When the chief owner of Riverside Downs, M.L. Vaughan, went pleading for relief, he got an interesting offer that soon led to BOPTROT.

Vaughan said that in September 1990, Senate Majority Whip Helen Garrett--who had been defeated in that year's primary and was seeking lobbyist contracts before her term ended-suggested that Vaughan's problems within the General Assemkly could be solved for about $100,000. Vaughan alerted the FBI, which got him to call Garrett back. He offered her a $2,000 payment, and she accepted, in a call monitored by the FBI.

The first crime in Operation BOPTROT had been committed, and the bureau had its foot in the door. (Garrett later pleaded guilty to mail fraud in connection with this payment.)

The FBI did not use its own agents as undercover moles. Instead, a tough-talking investigator, who worked for Vaughan's Florida insurance company, Chris Koumas, was sent in to pose as a new investor in Riverside Downs.

Koumas, a burly, bearded man who looks natural in an open-collar shirt and gold jewelry, quickly established a rapport with the Henderson area's lameduck senator, John Hall. Koumas accompanied Hall and a handful of other Kentucky legislators in December 1990 to Las Vegas for a convention of the Jockeys, Guild.

Koumas, wired with a tape recorder, and Hall tried to pass money to the Kentucky legislators while on this trip. The payments were intended to win support of legislators in persuading then-Governor Wallace Wilkinson to put on the agenda of an upcoming special session a measure to give Riverside Downs its fair share of the Henderson area's intertrack wagering rights.

Some legislators refused. But others took the bait.

Hall himself later pleaded guilty to taking $4,850--some for himself and some he gave to other legislators. Representative Clay Crupper of Dry Ridge, who chaired the House Agriculture Committee, pleaded guilty to taking $400. Lame-duck Representative Ronny Lavman of Leitchfield, the only Republican charged so far, did likewise.

About three months after the Vegas junket, the FBI decided it needed inside help. Koumas lured Hall to a meeting at a Louisville office where Hall was told he would be meeting a group of potential investors in Riverside Downs. He arrived at the office to find it filled with FBI agents. The room was also designed to shock Hall--banks of empty file cabinets were marked with his name to make it look as if he had been the major target of the investigation.

It worked. After being confronted with the evidence against him on the money he took from Koumas in Las Vegas, Hall agreed to cooperate secretly. By that time, he had left the Senate and was a lobbyist.

Though the FBI now had both Hall and Koumas wired and trolling Frankfort for incriminating conversations, it took eight months for the investigation to get a big break. But for the FBI, it was worth the wait.

Near the end of 1991, as Governor Wilkinson was about to leave office, the two state boards that then independently regulated harness and thoroughbred racing had awarded conflicting intertrack wagering rights to the two Henderson tracks. State law called for the governor to appoint an arbitrator. When Koumas asked how Riverside could win the arbitration, bigger crimes turned up.

Koumas won the confidence of two men who for 20 years had been hugely influential in crafting racing legislation in Kentucky, and who would become BOPTROT's chief villains.

One was John W. "Jay" Spurrier III, who for 30 years lobbied in Frankfort and Washington for Kentucky Utilities, an electric company. Spurrier was also a long-time state harness racing commissioner and the key backroom negotiator on racing bills.

The other was former Representative Bill McBee, who had chaired the House BOP Committee until he was upset in the 1990 general election. (The Jockeys, Guild pleaded guilty to a 1986 bribery of McBee, whom Blandford had placed in line for the BOP chairmanship at the time.)

"Any significant thing done in racing was done in that House committee," Spurrier testified. "The chairman would sit down with all the racing interests and write the bill."

Spurrier, McBee and Koumas met at a hotel bar in Lexington Nov. 1, 1991, and--in a conversation recorded by Koumas--laid plans to fix the arbitrator's decision so Riverside Downs would win.

In this and other secretly recorded conversations, the three concocted a plan in which Koumas would supply $50,000 from Riverside to buy a favorable arbitrator's decision.

Spurrier, architect of the plan, said $20,000 of that money would go to the man who could fix the arbitration. The man he had in mind was the aide who oversaw such appointments--Wilkinson's nephew, Bruce Wilkinson. Spurrier and McBee would share $10,000 of the bribe money. The remaining $20,000 would go to a middleman--a lawyer or lobbyist used to launder the entire $50,000 payment from Riverside as a consultant or legal fee.

The scheme almost fell through when McBee's wife, who is a lawyer, refused to serve as the middleman. But McBee gave the FBI its big break when he suggested that the middleman be Hall--who, unknown to Spurrier and McBee, had been cooperating with the FBI for several months.

The FBI was ecstatic. It immediately alerted Hall and told him to agree when McBee asked him to be the bagman.

Meanwhile, in his final weeks in office, Governor Wilkinson appointed an arbitrator who--on Wilkinson's last day as governor--ruled in favor of Riverside Downs.

Federal prosecutors have said the ruling was something of a coincidence because the arbitrator was never party to the conspiracy. But the conspirators--Spurrier and McBee--did not know that. They had won the arbitration, and proceeded as planned to deliver the $20,000 payoff to Bruce Wilkinson for what they thought was his crucial help in fixing the decision.

Acting on instructions from Spurrier, McBee told Hall to get the $50,000 that Koumas had agreed to supply from Riverside. Hall was to keep $20,000-more than enough to cover his tax liability on this $50,000 "fee." He was to give McBee the other $30,000 in two packages--$10,000 to be shared by Spurrier and McBee and $20,000 for Bruce Wilkinson.

The FBI wired Hall with two tape recorders. It initialed each bill with invisible ink. It recorded the serial numbers and photocopied each bill. And it sprayed all of the bills with a fluorescent powder visible only under special lighting. It also put a transmitter in the briefcase containing the money. And carloads of agents--still uncertain where the payoff would occur or who was to be the recipient--secretly drove the streets of Frankfort. Agents even watched the scene from an airplane overhead to help in following the cars of the conspirators.

Hall met McBee as planned on Jan. 7, 1992, and was told to take the money to an unlocked room at a Frankfort hotel and put it in the dresser drawer. Spurrier was hiding in an adjoining room. When Hall left, Spurrier picked up the money and took it up to his condominium in the same hotel where he had been having a pre-arranged lunch with Bruce Wilkinson.

Spurrier took the briefcase. With the transmitter hidden in it, the FBI was able to record a barely audible conversation between him and Bruce Wilkinson. "There's your 20," Spurrier said as he dumped $20,000 in $20 bills on the bed.

The two later testified they were both struck with fear, though, when they noticed the bills were coated with a sticky powder. They quickly counted the money and left the hotel, separately--meeting in front of the hotel where Spurrier, who concealed the cash inside a newspaper, dropped off the money in Wilkinson's car.

FBI agents followed their prearranged plan to apprehend only Spurrier. After he dropped off McBee's $4,000, they swarmed around Spurrier's car and took him to their command post at a different hotel. Spurrier caved in. He showed the agents the $6,000 in marked bills he had kept.

The dean of the Frankfort lobbyist corps had been caught. More importantly, this man, who had the total trust of so many top legislators, agreed to cooperate secretly with the FBI. Agents turned his hotel condo into an elaborate snare with hidden microphones and cameras, and likewise rigged up a Florida boat on which McBee, Spurrier, Blandford and his secretary-girlfriend vacationed during the 1992 session.

Spurrier told investigators that he had planned to work with McBee during the 1992 legislative session to pay off three key legislators to make sure to block passage of a possible bill that would kill Riverside Downs by keeping harness tracks from taking bets on any thoroughbred races. With the help of Spurrier and his condo, the federal government was able to bring charges that alleged that all three of Spurrier's targets took relatively modest payoffs during the 1992 session:

* Representative Jerry Bronger of Louisville, who chaired the House BOP Committee after McBee lost his seat, pleaded guilty to taking $2,000 in bribes.

* Senator David LeMaster, who chaired the Senate BOP Committee, was charged in May 1993 with extortion, allegedly taking $6,000 in bribes from Spurrier. LeMaster, who announced his resignation the day after he was indicted, denies the charges and is awaiting trial.

* Blandford, who was found guilty of taking $1,500 in payoffs, three payments of $500 each from McBee.

Blandford admitted he took money from McBee, though he said he did not believe the payments were as high as $500 each. Blandford would have had a hard time denying it because the FBI recorded one of the payoffs inside Spurrier's condo after a dinner party there.

But Blandford insisted he took no bribes. He said he did nothing in exchange for the money. He said he believed his old buddy McBee--a close personal and political ally during their 20 years together in the House--was just giving him money to cover meal expenses and bar tabs.

Most importantly, Blandford said it was impossible for him to have done anything to help McBee and Riverside Downs to kill the bill they so feared because that bill was not filed during the 1992 session. But prosecutors argued that the bill was still a threat during the 1992 session and that Blandford committed the crime of attempted extortion because he took the money while McBee explained that it was from harness racing interests because they were happy that the bill they so feared appeared to be dead.

Jurors watching a video of the one payment saw Blandford put money in his pocket and tell McBee, "Bless your heart."

In the final days of the 1992 legislative session, the FBI had hoped to expand the investigative possibilities of BOPTROT by bringing McBee inside the probe with Spurrier and Hall.

Koumas lured McBee to a meeting at a northern Kentucky hotel, and the two called room service for coffee while they plotted their next steps in helping Riverside Downs. But, as McBee testified, when he answered a knock at the door, "It wasn't coffee, it was the FBI."

At that meeting, McBee initially agreed to cooperate. But the next day, he changed his mind. The FBI's cover was blown, and it put into operation an emergency plan on the afternoon of March 31--the next-to-last day for passage of nonvetoed bills in 1992. More than 30 agents, some in jeans and tennis shoes because of the short notice, swept through Frankfort to interview many legislators. Another 20 agents were sent across the state to interview other witnesses.

LeMaster, Blandford and Blandford's top aide, former Representative Buel Guy, were charged with lying to the FBI during those interviews. Guy pleaded guilty; Blandford, who was shown a videotape during his interview, was found guilty.

Frankfort was awash in fear and confusion following the stunning FBI sweep. Many fears were realized, and much confusion was abated, as the string of indictments were returned one by one over the next 14 months.

Among those indicted were Spurrier and McBee, who--like nine of the 12 BOPTROT defendants to date--immediately pleaded guilty and agreed to keep cooperating. They are awaiting sentencing as they testify against their once-intimate friends.

Spurrier's credibility has withstood intense cross-examination at the Wilkinson and Blandford trials where he has been depicted as the "prince of darkness" and BOPTROT's only true villain. (Wilkinson was convicted of conspiracy to commit extortion and sentenced to three years in federal prison and fined the amount he was convicted of taking as a bribe--$20,000.)

Spurrier surely will face another test at the trial of LeMaster, who aggressively maintains his innocence and is represented by the flamboyant Nashville attorney and former Watergate prosecutor James Neal, who has said he is looking forward to confronting Spurrier in court "mano a mano."

Federal prosecutors have said most of the charges stemming from Operation BOPTROT have already been brought, but at least a few more indictments are expected.

Reforms Grow from Kentucky Corruption

The continuing federal probe of corruption in Kentucky state government has resulted in a new code of ethics, stronger campaign-finance laws and some new leaders in the General Assembly.

In a special session early this year, the legislature passed laws that redefined their relationships with special interests.

Lawmakers are now barred from taking anything of value from a lobbyist (defined as someone who is paid to lobby) except $100 per year in meals and drinks from each lobbying interest, which must be reported.

That's still too much, say those who wanted an all-out ban--a so-called "no cup of coffee" rule like those in Wisconsin and South Carolina. Defenders of the new code say the reporting requirement will discourage most legislators from accepting meals and drinks.

Lobbyists must report their spending periodically during a legislative session, instead of after a session as the old law required. A new lobbyist registration fee of $250 helps finance a new Legislative Ethics Commission, which is appointed by legislative leaders to enforce the code.

Unlike its predecessor, the nine-member commission operates independently of the General Assembly and includes no legislators. That may make it a model for other legislatures.

Three of the lobbyists convicted in the investigation were legislators who lost their seats in 1990 and immediately became lobbyists. That led to a "revolving door" rule banning former lawmakers from becoming lobbyists for their first two years out of office.

Also, lobbyists may no longer contribute to or raise money for legislative campaigns, or act as campaign treasurers. Legislators must disclose any business and family ties with lobbyists, and the sources (but not the amounts) of their assets and liabilities. They may not accept speaking fees, and must get legislative leaders, approval to accept a trip from a lobbying group.

Other new rules ban lawyer-legislators from representing plaintiffs for damages against the state, and from handling certain kinds of cases (permits and rate-making, for example) before the state.

Campaign finance has played a very small role in the corruption probe, but was a major feature of the special session, partly as a follow-up to a massive political-reform package passed in the 1992 regular session.

Last year, the Senate passed but the House rejected a 35 percent limit on the share of campaign money that legislators could get from political action committees. The limit became law this year, but only after the House allowed up to $5,000 in PAC money. House members from poor districts demanded that, saying they had to have PAC money to finance their campaigns.

Critics noted that the change would help lawmakers stockpile unused PAC contributions, further circumventing the 35 percent limit.

Kentucky's new law also bans legislators or groups of legislators from forming or controlling PACs, and limits the use of campaign funds to campaign purposes instead of "political" purposes--which many legislators had interpreted broadly, using campaign funds for such things as year-round cellular telephones.

As part of his drive for political reforms in 1992, Governor Brereton Jones proposed an ethics code for all of state government, but the General Assembly removed itself from the bill. lust as the 1992 session was winding up, the FBI revealed its investigation, and as indictments mounted, so did pressure for a better legislative ethics code.

The FBI's appearance also scuttled legislators, plans for a constitutional amendment that would have established Kentucky's first regular annual legislative sessions since 1851. The sessions would have lasted only 30 days instead of 60, the length of regular sessions, but lawmakers didn't think it was a good time to ask voters for more authority.

Public perception influenced both the style and substance of the special session. House and Senate leaders opened their conference committee to the public and press, and the proceedings were televised. But some of the toughest decisions were still made in private talks.

After he was indicted in November, Representative Don Blandford announced that he would not seek another term as speaker, a job he held for eight years, longer than anyone else in Kentucky history. Even before he stepped aside, two of his allies--Majority Leader Greg Stumbo and Whip Kenny Rapier--suggested a replacement, Joe Clarke, who was elected in January.

Clarke, the new speaker, earned a reputation for integrity in more than 20 years as chairman of the Appropriations and Revenue Committee, the longest tenure of any budget committee chairman in the nation. Clarke's largest influence had been in budget matters, but his colleagues thought his probity would help repair the legislature's sullied image.

--Al Cross

Tom Loftus is chief of The (Louisville, Ky.) Courier-Journal's state capital bureau. Al Cross is The Courier-Journal political writer.
COPYRIGHT 1993 National Conference of State Legislatures
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes related article; corruption by Kentucky legislators
Author:Cross, Al
Publication:State Legislatures
Date:Jul 1, 1993
Words:3491
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