George Ryan:GOVERNMENT'S EVIDENTIARY PROFFER AS TO CO-CONSPIRATOR AND AGENCY STATEMENTS

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STATES OF AMERICA	)
	)	No. 02 CR 506
v.	)
	)	Honorable Rebecca Pallmeyer
LAWRENCE WARNER and	)
GEORGE H. RYAN, SR.	)

GOVERNMENT'S EVIDENTIARY PROFFER AS TO
CO-CONSPIRATOR AND AGENCY STATEMENTS

The UNITED STATES OF AMERICA, by PATRICK J. FITZGERALD, United States Attorney for the Northern District of Illinois, respectfully submits this evidentiary proffer pursuant to United States v. Santiago, 582 F.2d 1128 (7th Cir. 1978), and moves that the Court admit coconspirator statements based on the existence of a conspiracy or joint venture in which the defendants George H. Ryan, Sr., Lawrence Warner and numerous unindicted co-schemers participated in the manner outlined below.

INTRODUCTION

On December 17, 2003, a federal grand jury returned a twenty-two-count second superseding indictment against defendants Lawrence E. Warner (“Warner”) and George H. Ryan, Sr. (“Ryan”). In Count One, the grand jury charged that the defendants, being employed by and associated with an enterprise engaged in interstate commerce, namely the State of Illinois, conspired with each other, and others known and unknown, to violate the RICO statute, that is, to conduct and participate in the conduct of the affairs of the enterprise through a pattern of racketeering activity involving multiple acts indictable under federal law (mail fraud, money laundering, extortion, obstruction of justice) and under state law (bribery and bribery-related official misconduct). Count One further charged that it was part of the conspiracy that Warner and others (referred to in the second superseding indictment as “the Associates”) provided benefits to Ryan, Ryan family members, third parties affiliated with Ryan, and Ryan’s political campaign committee (Citizens for Ryan or “CFR”), due to Ryan’s official position and to influence and reward Ryan in the exercise of Ryan’s official authority; that Ryan took actions in his official capacity to benefit Warner and others while concealing his relationship with them; and that Ryan permitted Warner and others to participate in the governmental decision-making process and provided them with material, non-public information, which Warner and others converted into financial benefits for themselves, Ryan, and third parties.

Counts Two through Five and Seven through Ten charged that Warner and Ryan devised a scheme to defraud the people of the State of Illinois and the State of Illinois of money, property, and the right to the honest services of Ryan and other State of Illinois officials and employees by means of false pretenses, representations, promises and material omissions, and, in furtherance thereof, used the United States mails and other interstate carriers, in violation of 18

U.S.C. §§ 1341, 1346, and 2. Count Six charged Ryan with an additional mailing in furtherance of the mail fraud scheme. Counts Eleven through Thirteen charged Ryan with making materially false, fictitious and fraudulent statements and representations in a matter within the jurisdiction of the FBI.

Count Fourteen charged Warner with extortion, which obstructed, delayed and affected commerce, by knowingly attempting to obtain property in the form of payments from American Decal Manufacturing under the color of official right and induced by the wrongful use of actual and threatened fear of economic harm, in violation of 18 U.S.C. §§ 1951 and 2.

Counts Fifteen and Sixteen charged that Warner knowingly conducted and attempted to conduct financial transactions affecting interstate commerce by causing checks to be issued to American Management Resources, which transactions involved the proceeds of mail fraud and extortion related to the Illinois Secretary of State Office (SOS Office) validation stickers contract and computer-related contracts, knowing that the transactions were designed to conceal the nature, source, and ownership of the proceeds of the unlawful activity and knowing that the property involved in the transactions were the proceeds of unlawful activity, in violation of 18

U.S.C. §§ 1956(a)(1)(B)(i) and 2.

Count Seventeen charged that Warner, to evade the reporting requirements of 31 U.S.C. § 5313(a) and prescribed regulations, structured, assisted in structuring and attempted to structure and assist in structuring, a transaction with a domestic financial institution, namely, the withdrawal of $14,000 in two separate transactions at different branches of the financial institution and involving the cashing of two checks, each in an amount under $10,000. Count Seventeen further alleged that Warner committed this offense while violating other laws of the United States and as part of a pattern of illegal activity involving more than $100,000 in a 12month period, in violation of 31 U.S.C. §§ 5324(a)(3) and (d)(2).

Count Eighteen charged that Ryan corruptly obstructed and impeded and endeavored to obstruct and impede the Internal Revenue Service in the correct reporting of income and the identification, assessment and collection of taxes and tax penalties due the United States. As part of the corrupt endeavor, Count Eighteen alleged that, among other things: Ryan used CFR funds to pay his and certain family members’ personal expenses and to provide personal gifts for the benefit of third parties; Ryan caused income that he was receiving from both CFR and third parties to be diverted, paid and allocated to others, thereby depriving the IRS of accurate information as to his true income; Ryan concealed benefits that he received from the campaign of then Texas Senator Phil Gramm; and Ryan received money from political supporters which he used for personal expenses and failed to report as income. Counts Nineteen through Twenty-Two charged Ryan with filing materially false tax returns and amended tax returns.

I. GOVERNING LAW

This proffer begins by discussing case law governing the admissibility of coconspirator statements under Federal Rule of Evidence 801(d)(2)(E) and, alternatively, other provisions of Federal Rule of Evidence 801(d)(2).¹Next, the government summarizes some of the evidence supporting the admission of coconspirators’ statements at the trial of the defendants. The government is not detailing all of its evidence that would go to show the existence of the conspiracy or joint venture (hereinafter “conspiracy”) or all of the coconspirator statements that were made in furtherance of the conspiracy. Rather, this proffer highlights for the Court samples of the government’s evidence in order to establish to the Court the existence of the conspiracy and the roles of the various coconspirators. Thus, this proffer does not list all of the government’s witnesses and the evidence each will present, nor does it provide all of the evidence that will be presented by those witnesses who are named. Finally, by presenting statements attributed to particular witnesses, the government is not herein committing to call each of the witnesses for each of the statements so attributed.

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¹ As discussed in detail below, the legal principles governing admissibility of coconspirator statements apply to any criminal joint venture even when the activity is not formally charged as a conspiracy.

A. ADMISSIBILITY OF COCONSPIRATOR STATEMENTS

Rule 801(d)(2)(E) of the Federal Rules of Evidence provides that a “statement” is not hearsay if it “is offered against a party” and is “a statement by a coconspirator of a party during the course and in furtherance of the conspiracy.” The admission of a coconspirator statement against a defendant is proper where the government establishes by a preponderance of evidence that: (1) a conspiracy or joint venture existed; (2) the defendant and the declarants were members of that particular conspiracy or joint venture; and (3) the statement was made during the course and in furtherance of the conspiracy or joint venture. See Bourjaily v. United States, 483 U.S. 171, 175 (1987); United States v. Haynie, 179 F. 3d 1048, 1050 (7th Cir.1999); United States v. Lindemann, 85 F.3d 1232, 1238 (7th Cir.1996); Santiago, 582 F.2d at 1130-31. See also United States v. Kelly, 864 F.2d 569, 573 (7th Cir. 1989). The law is clear that statements may be admitted under Rule 801(d)(2)(E) even in the absence of a formal conspiracy charge. See, e.g., United States v. Cox, 923 F.2d 519, 526 (7th Cir. 1991) (conspiracy charge not a condition for admission of statements under Rule 801(d)(2)(E)); Kelly, 864 F.2d at 573 (“Rule 801(d)(2)(E) applies not only to conspiracies but also to joint ventures, and . . . a charge of criminal conspiracy is not required to invoke the evidentiary rule.”). Instead, the statements may be admitted if the government establishes that a criminal venture existed and that the proffered statements were made during and in furtherance of the conspiracy. United States v. Reynolds, 919 F.2d 435, 439 (7th Cir. 1990).

More significantly, the exception does not require that each member of the venture share a criminal intent for the exception to apply:

The distinction should be noted between “conspiracy” as a crime and the co-conspirator

exception to the hearsay rule. Conspiracy as a crime comprehends more than mere joint

enterprise. It also includes other elements, such as a meeting of the minds, criminal intent

and, where required by statute, an overt act. When these elements are established, the

crime of conspiracy is proved. The co-conspirator exception to the hearsay rule, on the

other hand, is merely a rule of evidence founded, to some extent, on concepts of agency

law. It may be applied in both civil and criminal cases. . . . Its rationale is the common

sense appreciation that a person who has authorized another to speak or to act to some

joint end will be held responsible for what is later said or done by his agent, whether in

his presence or not.

* * *

The substantive criminal law of conspiracy, though it obviously overlaps in many areas,

simply has no application to this evidentiary principle. Thus, once the existence of a joint

venture for an illegal purpose, or for a legal purpose using illegal means, and a statement

made in the course of and in furtherance of that venture have been demonstrated by a

preponderance of the evidence, it makes no difference whether the declarant or any other

“partner in crime” could actually be tried, convicted and punished for the crime of

conspiracy.

United States v. Gil, 604 F.2d 546, 549-550 (7th Cir. 1976).

In this circuit, the preferred way for the government to make its preliminary factual

showing as to the admissibility of coconspirator statements is by filing a pretrial written proffer

of the government's evidence. See United States v. Rodriguez, 975 F.2d 404, 406 (7th Cir. 1992);

United States v. Boucher, 796 F.2d 972, 974 (7th Cir. 1986). In making its preliminary factual

determinations under Rule 801(d)(2)(E), the court may consider the coconspirator statements

themselves as evidence of a conspiracy or joint venture and whether the statements the

government seeks to admit were made in furtherance of that conspiracy or joint venture. United

States v. Brookins, 52 F.3d 615, 623 (7^th Cir. 1995); United States v. Maholias, 985 F.2d 869,

877 (7th Cir. 1993). Indeed, the court may consider all non-privileged evidence. Lindemann, 85

F.3d at 1238.

A district court's preliminary determination of admissibility for purposes of Rule 801(d)(2)(E) is distinct from the standard required in determining on appeal whether sufficient evidence exists to uphold a jury verdict in a conspiracy case. The standard to be applied in the context of admissibility under Rule 801(d)(2)(E) is a preponderance of the evidence standard. Lindemann, 85 F.3d at 1238 (citing Bourjaily, 438 U.S. at 175-76).

1. Membership in and existence of the conspiracy

A district court may consider the proffered coconspirator statements themselves in determining the existence of the conspiracy and a defendant's participation in it. Bourjaily, 483 U.S. at 180; United States v. de Ortiz, 907 F.2d 629, 633 (7th Cir. 1990). However, the government typically must present some evidence, independent of the statements, to corroborate the conspiracy's existence. Lindemann, 85 F.3d at 1238. The evidence may be either direct or circumstantial. The Seventh Circuit has consistently held that “because of the secretive character of conspiracies, direct evidence is elusive, and hence the existence and the defendants’ participation can usually be established only by circumstantial evidence.” United States v. Redwine, 715 F.2d 315, 319 (7th Cir. 1983); see also Lindemann, 85 F.3d at 1238 (secretive nature of conspiracies one reason for conspirator exception to hearsay rule). In this case, the evidence is both direct and circumstantial. In this case, the indictment alleges that defendants Warner and Ryan participated in the enterprise and conducted their schemes through their co-schemers and agents. Thus, while the criminal nature of some their activities was hidden, the execution of their plans – including through their agents – was at times public or overt. Indeed, by the very nature of their crimes occurring in the context of public entities, the defendants could not have executed all of them without the unwitting (and sometimes witting) assistance of their employees and other agents who acted at their direction and supervision.

A defendant joins a conspiracy if he agrees with a conspirator to one or more of the common criminal objectives set forth in the indictment; it is immaterial whether the defendant knows, has met or has agreed with every coconspirator. Boucher, 796 F.2d at 975; United States v. Balistrieri, 779 F.2d 1191, 1225 (7th Cir. 1985); see also Rodriguez, 975 F.2d at 411 (defendant must have intended to join and associate himself with the conspiracy's criminal design and purpose). The government need not prove, however, that a defendant or coconspirator knew each and every detail of the conspiracy or played more than a minor role in the conspiracy. United States v. Liefer, 778 F.2d 1236, 1247 n.9 (7th Cir. 1985); United States v. Towers, 775 F.2d 184, 189 (7th Cir. 1985).

A defendant or coconspirator may be found to have participated in a conspiracy even if he joined the conspiracy or terminated his relationship with core conspirators at a different time than another defendant. United States v. Ramirez, 796 F.2d 212, 215 (7th Cir. 1986); United States v. Noble, 754 F.2d 1324, 1329 (7th Cir.1985).² A district court may consider the conduct, knowledge and statements of the defendant and others in establishing participation in a conspiracy. A single act or conversation, for example, can “suffice to connect the defendant to the conspiracy if that act leads to the reasonable inference of intent to participate in an unlawful enterprise.” United States v. Baskes, 687 F.2d 165, 169 (7th Cir. 1981). Similarly, efforts by

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² A defendant, even if not an “agreeing” member of a conspiracy or joint venture, may nonetheless be found guilty of conspiracy if he knew of the conspiracy's existence at the time of his acts, and his acts knowingly aided and abetted the business of the conspiracy. See United States v. Scroggins, 939 F.2d 416, 421 (7th Cir. 1991); United States v. Kasvin, 757 F.2d 887, 890-91 (7th Cir.1985); United States v. Galiffa, 734 F.2d 306, 309-11 (7th Cir. 1984). There is no requirement that the indictment charge him with aiding and abetting in order for this principle to apply. See Kasvin, 757 F.2d at 890.

an alleged coconspirator to conceal a conspiracy may support an inference that he had joined the conspiracy while it was still in operation. United States v. Robertson, 659 F.2d 652 (5th Cir. 1981); United States v. Freeman, 498 F.2d 569, 576 (2d Cir. 1974). Statements made during the course of and in furtherance of a conspiracy, even in its embryonic stages, are admissible against those who arrive late to join a going concern. United States v. Potts, 840 F.2d 368, 372 (7th Cir. 1987). A conspirator who has become inactive in the conspiracy nevertheless is liable for his coconspirators’ further statements unless he openly disavows the conspiracy or reports it to the police. United States v. Feldman, 825 F.2d 124, 129 (7th Cir. 1987); see also United States v. Andrus, 775 F.2d 825, 850 (7th Cir. 1985).

2. Statements made in furtherance of the conspiracy

In determining whether a statement was made “in furtherance” of the conspiracy or joint venture, courts look for a reasonable basis upon which to conclude that the statement furthered the conspiracy's goals. Shoffner, 826 F.2d at 628; United States v. Mackey, 571 F.2d 376, 383 (7th Cir. 1978). Under the reasonable basis standard, a statement may be susceptible to alternative interpretations and still be “in furtherance” of the conspiracy; the statement need not have been exclusively, or even primarily, made to further the conspiracy in order to be admissible under the coconspirator exception. Shoffner, 826 F.2d at 628.

Given the government's “relatively low burden of proof on this issue,” Shoffner, 826 F.2d at 628, the Seventh Circuit has found a wide range of statements to satisfy the “in furtherance” requirement. See, e.g., United States v. Herrero, 893 F.2d 1512, 1527-28 (7th Cir.1990); Garlington v. O'Leary, 879 F.2d 277, 283-84 (7th Cir. 1989). In general, a statement that is “part of the information flow between conspirators intended to help each perform a role” is admissible under Rule 801(d)(2)(E). United States v. Santos, 20 F.3d 280, 286 (7th Cir. 1994) (quoting United States v. Johnson, 927 F.2d 999, 1001 (7th Cir. 1991)). These include statements made:

(1) to identify other members of the conspiracy and their roles, United States v. Magee, 821 F.2d 234, 244 (5th Cir. 1987); United States v. Roldan-Zaoata, 916 F.2d 795, 803 (2d Cir. 1990); (2) to recruit potential coconspirators, Shoffner, 826 F.2d at 627-28; (3) to control damage to an ongoing conspiracy, United States v. Van Daal Wyk, 840 F.2d 494, 499 (7^th Cir. 1988); (4) to update coconspirators and advise them as to the progress of the conspiracy, Potts, 840 F.2d at 371; (5) to conceal the criminal objectives of the conspiracy, United States v. Kaden, 819 F.2d 813, 820 (7th Cir. 1987); United States v. Xheka, 704 F.2d 974, 985-86 (7th Cir.1983); (6) to plan or to review a coconspirator’s exploits, United States v. Molt, 772 F.2d 366, 368-69 (7th Cir. 1985); or (7) as an assurance that a coconspirator can be trusted to perform his role. United States v. Buishas, 791 F.2d 1310, 1315 (7th Cir. 1986) (concerning a failed operation or conspiracy undertaking); United States v. Pallais, 921 F.2d 684, 688 (7th Cir. 1990) (concerning a conspiracy’s successes); Van Daal Wyck, 840 F.2d at 499.

3. The Absence of Confrontation Issues with Coconspirator Statements

No separate Sixth Amendment confrontation issues are posed by the use of a non-testifying coconspirator or agent’s statements that are offered for their truth against a defendant. This is because the requirements for admission under Rule 801(d)(2)(E) are identical to “the requirements of the Confrontation Clause.” Bourjaily, 483 U.S. at 182. Thus, there are no “constitutional problems” once Rule 801(d)(2)(E)’s requirements have been met. Id.; United States v. Singleton, 125 F.3d 1097, 1107-08 (7th Cir. 1997). See also Idaho v. Wright, 497 U.S. 805, 814 (1990)(the Confrontation Clause is not violated where hearsay statement falls within a firmly rooted hearsay exception). As a result, in considering the admissibility of proffered coconspirator statements, the trial court does not consider whether or not the coconspirator-declarant is “unavailable” or whether there is independent evidence to establish the “reliability” of the proffered statements. Bourjaily, 483 U.S. at 183-84; United States v. Inadi, 475 U.S. 387, 400 (1986).

This long-standing rule was not affected by the Supreme Court’s recent decision in Crawford v. Washington, 124 S.Ct. 1354 (2004). In Crawford, the Supreme Court considered whether to admit the recorded statement of the defendant’s wife at trial, where she had made the statement to law enforcement prior to trial. The wife was “unavailable” at trial by virtue of the state’s spousal privilege law, thus, the defendant did not have an opportunity either prior to trial or during trial to cross-examine her. The Court ruled that admission of the wife’s statement violated the Sixth Amendment’s Confrontation Clause, holding that where the government offers at trial hearsay that is “testimonial” in nature, the Confrontation Clause of the Sixth Amendment requires actual confrontation, i.e., cross-examination, regardless of how reliable the statements may be. The Supreme Court’s limitation on its decision to cover only those statements that are “testimonial” in nature is what distinguishes that ruling from the evidence being sought to be admitted here, which includes “garden variety” coconspirator statements. Under Crawford, coconspirator statements are a recognized exception to the strictures of the Sixth Amendment since they are not testimonial in nature. 124 S.Ct. at 1367; United States v. Cozzo, 2004 WL 1151630 at *4 (N.D. Ill. April 28, 2004)(J. Zagel)(following Crawford, coconspirator statements are not subject to the Confrontation Clause). See also United States v. Saget, 377 F.3d 223, 229 (2d Cir. 2004)(co-conspirator statements are not testimonial and do not violate the Confrontation Clause; hence, their admissibility is not barred under Crawford); United States v. Reyes, 362 F.3d 536, 540-41 (8th Cir. 2004)(same). Therefore, since coconspirator statements are not “testimonial” hearsay statements, Crawford is not implicated, and those statements may be admitted without offending the Sixth Amendment

B. ALTERNATIVE BASES FOR ADMISSIBILITY OF STATEMENTS

1. Defendant’s Own Statements

Many of the statements described herein and sought to be admitted against defendants Ryan and Warner are independently admissible and do not require a Rule 801(d)(2)(E) analysis. A defendant's own admissions, for example, are admissible against him pursuant to Fed. R. Evid. 801(d)(2)(A), without reliance on the coconspirator-statement rule.³Maholias, 985 F.2d at 877. A defendant’s own admissions, moreover, are relevant to establishing the factual predicates for the admission of coconspirator statements against him. See Potts, 840 F.2d at 371-72; United States v. Alexander, 741 F.2d 962, 966 (7th Cir. 1984), overruled on other grounds, United States v. Ginsburg, 773 F.2d 798, 802 (7th Cir. 1985).

1. SOS Contracts Benefitting Warner and Udstuen

a. The Transition Team

In late 1990, as the Illinois Secretary of State-elect, Ryan named a number of individuals, including Warner, his close personal friend who operated insurance-related businesses, and Donald Udstuen, a political advisor and high ranking official at the Illinois State Medical Society, to a transition team in order to assist in the planning of Ryan’s Secretary of State Office (“SOS Office”) administration (the “Transition Team”). Scott Fawell, a top Ryan campaign aide for the 1990 election who was slated for a high-ranking position in the incoming Ryan

⁶The following summary is based on information contained in investigative reports, grand jury transcripts and documents obtained during the course of the investigation, all of which the defendants have been provided. By providing the instant proffer, the government is not committing to call each and every individual to whom statements are attributed as a witness at the trial in this case.

Administration, also was an active participant in the Transition Team. In their respective capacities as Transition Team members (Ryan named Udstuen as a co-chair), Warner, Udstuen and Fawell were given access to SOS officials and employees, as well as internal SOS Office documents and information not generally available to the public.⁷

Shortly after George Ryan’s election as SOS in 1990, and in the context of the Transition Team discussions, Udstuen and Warner had a series of conversations. In one such conversation, Warner indicated to Udstuen that, as close friends of Ryan, Warner and Udstuen might be able to secure lucrative lobbying or consulting contracts with companies doing business with the SOS Office or companies that wanted to do business with the SOS Office.

Beginning early in the first term, Ryan and Fawell discussed on various occasions Ryan's desire to try to keep his friends, such as Warner and a few others, “happy”, which Fawell understood to mean giving them SOS business whenever possible. Based on Fawell’s subsequent conversations with Ryan and Warner, Warner regularly kept Ryan in the loop as to what SOS business Warner was involved in, as well as his relationship to these vendors and potential vendors. In the typical case, after Warner obtained a client seeking to do business with the SOS Office, Warner contacted Ryan to disclose that he was hired by a particular company to advocate for SOS business. In reference to SOS contracts and business, on multiple occasions, Ryan told Fawell, in substance, "Let's help Larry if we can." In conversations with Fawell, Ryan made it clear that he viewed helping Warner and Ryan’s other close friends as a priority for the

⁷On March 1, 1991, the Transition Team issued its report under the signature of Ryan. In the report, information relating to a number of the contracts and leases that are a subject of the indictment were referenced.

SOS Office.⁸

With Ryan’s approval, Fawell also decided to be a central control person for any and all contracts handed out by the SOS Office, so that he could personally know the companies and Ryan’s close friends who were interested in obtaining contracts within the SOS. By being the central control person, Fawell was able to facilitate steering the contracts to Ryan's friends and others, most often with Ryan's approval. Fawell agreed to advance Ryan’s purposes in this regard and took steps to keep track of these things for Ryan, including by creating the so-called “master” and “priority” lists, which tracked the awarding of some SOS jobs, contracts, leases and license plates by “sponsor”.

After a period of time, as Fawell and Warner became closer, Warner dealt directly with Fawell on subjects relating to Warner’s interest in SOS contracts, leases and license plates. In Fawell’s conversations with Warner, Fawell informed Warner that he would brief Ryan about Warner's involvement and interest in certain SOS business. On one or more occasions, Ryan told Fawell that he approved of Warner informing Fawell, in the first instance, of his interests in contracts, but that Fawell should always keep Ryan apprised of what was going on.

b. Udstuen and Warner Discuss SOS Vendors

In or about 1991, Warner and Udstuen had a series of conversations in which they discussed the possibility of representing various firms doing business with the SOS. In these

⁸In the early months of the Ryan SOS administration, there was tension between Fawell and Warner regarding the issue of Warner’s role with SOS vendors. After Fawell had received numerous reports that Warner had been contacting directors of the SOS and discussing potential vendors for their respective departments, Fawell confronted Warner with his concerns in the summer of 1991. Fawell expressed his concern to Warner that Warner’s involvement in too much official business would be picked up by the media and come back to hurt Ryan politically.

conversations, Warner told Udstuen in substance that Udstuen had done more for George Ryan than anyone else and that Udstuen deserved to get something for it. Warner told Udstuen that he had discussed with Ryan the proposal that Udstuen receive a share of the money from Warner’s lobbying activities. Specifically, Warner told Udstuen he would give Udstuen one-third of the revenue he received from the lobbying clients he obtained. Warner further told Udstuen that he would “take care” of George Ryan from Warner’s end, which Udstuen understood to mean that Warner was going to supply a portion of the revenue from the SOS vendors to Ryan and that Ryan approved of that arrangement.

When Warner initially proposed giving Udstuen some of the money he was going to make from SOS vendor clients, Udstuen expressed reluctance receiving the funds directly from Warner in a lobbyist capacity, because Udstuen did not want to be publicly associated with some other lobbying effort because of his position as an employee and lobbyist for the Illinois State Medical Society (“ISMS”). Warner told Udstuen to think about it. Udstuen then approached Alan Drazek, a long time friend and associate, to see if Drazek would be willing to funnel money from Warner so that Udstuen would not be directly linked to Warner’s money from SOS vendors. Udstuen asked Drazek if he was willing to run the money through his company, American Management Resources (AMR), pay the taxes and then transfer the money to Udstuen as he needed it. Udstuen told Drazek that in return for his trouble, Drazek could keep some portion of the Warner money. Udstuen also told Drazek that this arrangement was confidential and that they needed to keep quiet about it. Drazek agreed to the arrangement. After Udstuen’s conversations with Drazek on the topic, Udstuen called Warner back and told him that he (Warner) should make the checks for Udstuen’s portion of the money payable to Alan Drazek’s company, AMR. Warner told Udstuen that he didn't know Drazek, but that he would follow any arrangements Udstuen requested.

Some time after Udstuen had these conversations with Warner and Drazek, Udstuen received his first check from Warner related to ADM. Per Udstuen’s instructions, Warner made the check out to AMR. Warner sent the check, and subsequent checks, through the U.S. mail to Udstuen’s home. The checks were written on the account of Omega Consulting (“OCC”) or National Consulting Company (“NCC”), the two business names Warner was using for his business with SOS vendors. When Warner sent Udstuen his one-third portion of the money that Warner was being paid by the SOS vendors, he usually only sent Udstuen a check for his share of the proceeds; however, Warner occasionally sent Udstuen the invoice that he had billed to his client or a copy of the check that he had received from his client.

On each occasion that Udstuen received a check from Warner, whether related to ADM or IBM, Udstuen sent the check to Drazek for deposit into Drazek’s AMR account. Then, from time to time, when Udstuen needed money, Udstuen would ask Drazek to give Udstuen some cash. Typically, Udstuen received $1,500 to $2,500 from Drazek at a time. Approximately four times per year, Drazek would bring cash in an envelope to downtown Chicago and give it to Udstuen.

As described below, the same scenario generally followed after Warner began receiving payments relating to lobbying efforts for IBM. The system used by Warner, Drazek and Udstuen to hide Udstuen’s receipt of the money from Warner relating to ADM, and later IBM, continued during Ryan’s entire tenure as SOS from 1991-1999. In total, during this nine-year time period, Drazek received approximately $381,096 in Warner checks relating to ADM and IBM.

c. The Awarding of the Contracts for Validation Stickers and Title Laminates to ADM The first “client” that Warner told Udstuen he had lined up was ADM, a label printing and manufacturing business located in Chicago. In 1986, under a prior SOS administration, ADM first won the contract with the SOS Office to manufacture and print all registration validation stickers (the colored stickers that one must affix annually to a vehicle license plate to demonstrate that registration renewal is current) for Illinois license plates (hereinafter “the stickers contract”). Once ADM received the stickers contract, it retained the contract through rebidding processes through 1998. Throughout that period (1986-1998), the validation stickers contract generated approximately $1 million per year in revenues for ADM, and was the company's largest single source of income. Generally speaking, as part of that periodic re-bidding process, the SOS Department of Vehicle Services (hereinafter the “VSD”) issued specifications (typically referred to as “specs”) describing the technical requirements a bidding company had to agree to meet in order to win the contract. The VSD then forwarded the specs to Central Management Services (hereinafter “CMS”), a state agency independent from the SOS that handled contract letting by state agencies like the SOS. After receiving the specs from the VSD, the CMS would then release a request for bids based upon the specs to prospective vendors. The vendors had to submit bids directly to CMS, which then would share the bid information with the VSD. Absent some specific directive otherwise, the VSD's traditional practice was to award the contract to the lowest bidder who met

the specs. From the time ADM first obtained the stickers contract in 1986, there was a provision in the specs that substantially guaranteed that ADM would win the contract. Namely, the specs required that the validation stickers have what was called a “metallic security mark.” The metallic security mark was a security (i.e. anti-counterfeiting) feature specifically created and manufactured by ADM.⁹

Prior to Ryan taking office, ADM had never hired a lobbyist in dealing with the state of Illinois, including the stickers contract. In about May or June 1991, then ADM president Thomas O'Brien got a call “out of the blue” from Larry Warner. O'Brien had never met Warner and did not know who he was. In the initial conversation, Warner said he was close friends with the new Secretary of State, George Ryan. Warner warned O'Brien that ADM's principal competitor, 3M, had just hired former Governor Jim Thompson as its lobbyist, a statement that was untrue.¹⁰Warner said that with Thompson's assistance, 3M likely would get the metallic security mark requirement removed from the SOS specifications for the validation stickers contract. (3M had its own, different security mark, however, called the “Ensure” mark, which was a patented 3M product and a competitor to ADM's “metallic” mark). Warner offered to provide his assistance to ensure that did not happen. Warner assured O'Brien that with his connections, he could guarantee the specs would not change and thus that the contract would stay with ADM. Warner

⁹In 1991, for example, the VSD had made the decision to award the sticker's contract for the upcoming year (1992) to ADM and reject a lower bid by an entity called Decal’s Inc. that did not meet the metallic security mark specification. As a result of Decal's Inc. inability to meet the specs, their bid was rejected. In response, the company submitted a formal protest, arguing that their stickers did in fact meet the specifications. On July 1, 1991, Warner called VSD Director Jim Covert about the Decal's Inc. protest and advised Covert on how to respond to the protest on behalf of the SOS.

¹⁰James Thompson was never hired by 3M to assist them in winning a contract for the validation stickers contract at the SOS. Since the early 1980s, 3M had retained Thompson’s firm, Winston & Strawn, specifically Jim Fletcher and Clive Topol, as 3M lobbyists with regard to certain legislative initiatives, but neither were solicited by 3M with regard to anything related to the validation stickers contract.

asked to meet with O'Brien in person to further discuss the matter, to which O'Brien agreed. Within a few weeks, O'Brien met Warner for lunch. During that meeting, Warner made clear that if ADM did not hire him as its lobbyist, the specifications for the validation stickers contract likely would change in favor of 3M. Warner again suggested that he could keep the specifications from changing. He indicated that for him to do that would cost ADM $2,000 per month, and that the rate was non-negotiable.

At the time of this Warner conversation, the specifications for the following year were due to be released soon. O'Brien told Warner that if those specs did not in fact change and still contained the metallic security mark upon release, then ADM would begin paying Warner's $2,000 monthly fee. Within weeks of O’Brien’s conversation with Warner on the issue, O'Brien learned that the specs for the upcoming stickers contract had not changed. Consequently, he met again with Warner and agreed to start paying Warner's fee, which agreement was memorialized in a July 17, 1991, letter from Warner. According to the agreement, O'Brien agreed to pay Warner his $2,000 monthly fee until November 1992, at which time the fee would increase to $3,000 per month.¹¹

In August 1991, just weeks after ADM agreed to start paying Warner his monthly $2,000 “consulting” fee, Warner called O'Brien regarding another, distinct SOS contract -- the contract to produce laminated security strips for vehicle titles (hereinafter “the laminates contract”). Up until 1991, 3M had held the laminates contract. Prior to Warner's involvement, that contract was

¹¹Also, according to the July 17 letter, Warner's company, NCC, was to serve as American Decal's “consultant” in dealing with the SOS. At some point before O'Brien left ADM (in November 1992), Warner told O'Brien that he did not want to be called a lobbyist but rather a consultant. Without further explanation, Warner said words to the effect that calling a person a lobbyist could get that person in trouble.

not a piece of business ADM was pursuing.

When Warner called O'Brien in August 1991, he said he could get the laminates contract for ADM. Warner said that in exchange for obtaining that contract, he wanted more money. Specifically, as reflected in an August 12, 1991, letter and invoice from Warner, Warner said he wanted an additional $67,000 -- above and beyond his monthly fee for preserving the stickers contract -- and he wanted it in two lump sum payments of $33,500 by the end of September 1991. Warner told O'Brien that the company would have to pay the additional money up front to get his assistance with the laminates contract. Once again, the price was not negotiable.

On August 20, 1991, O'Brien arranged for the first $33,500 ADM check to NCC. On September 3, 1991, O'Brien received a letter from Warner indicating that Warner had received the first $33,500 payment and expected the remaining $33,500 to be paid by September 16, 1991. On September 24, 1991, O'Brien signed the second $33,500 check to NCC. As described below, ADM was later awarded the laminates contract.

i. Covert’s Early Conversations with Warner and Ryan Relating to ADM

As to the management of the VSD, in or about April 1991, Ryan selected James Covert to be the Diretor of the VSD. Covert served in this role for eight years through both Ryan’s terms as SOS. In his capacity as VSD Director, Covert reported to Ryan and Fawell. Beginning in early 1991, shortly after he met Warner for the first time at a CFR fundraiser, Covert had a series of conversations with Warner and/or Ryan regarding SOS business pertaining to ADM business, including but not limited to the following¹²:

¹²For the early portion of the Ryan years, Covert kept detailed diaries. More specifically, starting in July 1991 and lasting until about mid-1992, Covert maintained a detailed daily planner, wherein he kept notes regarding SOS Office matters, including some of the entries

* Following a Warner phone call and request for a meeting, in or about May 1991, Covert and Warner met at Covert's VSD office in Springfield. During the meeting, Warner reminded Covert that he was “very close” to Ryan. Warner also said he was receiving money as a lobbyist for ADM. Warner made clear to Covert that the VSD should continue to do business with ADM. Also, either during that initial meeting or one of their conversations afterward, Warner suggested to Covert that ADM's principal competitor, 3M, had refused to hire him and that the VSD should not do business with 3M.¹³

* On July 11, 1991, Warner told Covert that he wanted Covert to come to Chicago and meet with him and Don Udstuen. Warner explained that he wanted Covert to talk to him and Udstuen about “new initiatives” coming out of the VSD. Warner also said he wanted Covert to bring several things to the meeting, including samples of the SOS title laminates and a copy of a document called “Visions,” an internally-prepared roadmap of initiatives that Covert and several members of his staff had prepared and which was not publicly disseminated. Covert told Warner that he would bring the requested materials, and the meeting was scheduled for July 18, 1991.

* On July 18, 1991, Covert met in Chicago with Udstuen and Warner at Udstuen’s ISMS office. The meeting lasted about two hours. During the meeting, Covert gave Warner and Udstuen the Visions document, as well as the specifications for both the title laminates contract and the title paper contract. After looking at the materials, Warner and Udstuen told Covert what

described herein.

¹³Covert believed that Warner was telling him, not asking him, that he was to continue the VSD relationship with ADM. Through his words, tone, and demeanor, Warner gave Covert the impression that he had authority to speak on behalf of Ryan and that Covert was to do as Warner instructed.

Warner and Udstuen considered should be Covert’s priorities for the VSD.

* Within a couple of days of the July 17, 1991, “agreement” with O’Brien, Warner brought Covert to meet with O'Brien at ADM's facility on West Fullerton Avenue in Chicago. During that meeting, Warner told O'Brien that Covert was “on the team,” which O'Brien understood to mean that Covert would be helping ADM with SOS business. O'Brien gave Covert a brief tour of ADM's facility.¹⁴

* On August 23, 1991, Warner asked Covert to provide him with sheets of the title laminates the SOS had been using from 3M, as well as a copy of the draft specifications for the upcoming title laminates contract. Covert provided to Warner the non-public information Warner requested.

* On or about August 29, 1991, Warner called Covert about the laminates specifications. Specifically, Warner wanted to know if those specs already had gone to CMS. Warner also asked about what was in the specs regarding maintenance of the 3M machine used to affix the laminates to the title paper.

* On or about September 2, 1991, Warner told Covert that he was going to bring O'Brien in to see Covert. Warner rehearsed how Covert should act during the meeting with O'Brien. Warner told him to “be evasive on trying something new” with ADM. Covert

¹⁴In late July 1991, Ryan held an SOS retreat at Pheasant Run Resort in St. Charles, Illinois, for the purpose of discussing the future of the SOS within the newly elected Ryan administration. Ryan, Warner and Fawell were present, along with most of the Directors. During the presentations, Fawell sat at a large conference table with members of the Transition Team, including Warner and Udstuen. Warner sat directly to the right of Ryan. During this retreat, various Directors of the different departments within the SOS Office came in to present their ideas and visions of what they wanted to do during the first four years of the Ryan administration. During the presentations, Fawell saw Ryan and Warner conferring.

understood and believed that Warner wanted him to be evasive with O'Brien so that Warner could try to get more money out of ADM regarding any potential new business with the SOS.

* On or about September 9, 1991, Warner asked Covert to “stall” for a couple weeks on releasing the specifications for the laminates contract. Covert believed it highly unusual for a lobbyist or vendor to seek to delay the release of specifications.

* On or about September 19, 1991, after Covert, at Warner's request, had caused CMS to hold off on releasing the laminates specs, Covert had a conference call with O'Brien and Warner, during which they all agreed that for ADM to bid on the laminates contract, Covert would need to pull the specs back from CMS and make some changes. Covert then instructed one of his VSD underlings to pull the specs back from CMS.

* On or about September 23, 1991, Covert met with Warner and Udstuen. As Covert wrote in his notes, during that meeting, Udstuen and Warner told Covert: “Do not give Amer Decal blatant advantage” with the laminates contract. Covert underlined the word “blatant” because he understood that Udstuen and Warner were cautioning him not to do anything to the laminates specifications that would “stick out like a sore thumb” and make it obvious that these changes were being made to benefit ADM.

* On October 3, 1991, Covert met with Warner and SOS Office General Counsel Roger Bickel to discuss the laminate specifications. After the Bickel-Warner meeting with Covert and after Warner had been paid $67,000 by ADM, the SOS specifications for the laminates contract were changed to favor ADM. The changes enabled ADM to win the contract, about $250,000 annually, away from 3M. As with the validation stickers contract, ADM then kept the laminates contract throughout the remainder of Ryan's tenure at SOS.

* In late 1992 or early 1993, Scott Fawell or one of his subordinates told Covert that he should not have further contact with Warner. Based upon that instruction, Covert stopped returning Warner's telephone calls. Shortly thereafter, he received a call from Ryan, who asked why Covert was not returning Warner's calls. Covert told Ryan that he was very uncomfortable with Warner and what Warner was doing with regard to the VSD. Covert told Ryan that he was nervous because Warner frequently intervened in his job and manipulated SOS contracts, all while doing business with the SOS. Covert told Ryan that he felt pressured by Warner and that, in his opinion, Warner might get Ryan in trouble because of the way he was conducting himself. During the conversation with Ryan, Covert likely provided Ryan specific examples, such as the laminates contract, of what Warner had been doing with regard to VSD contracts. In response, Ryan told Covert, “Warner is your friend.” Ryan then said words to the effect that Warner was “just a businessman trying to do business.” Ryan instructed Covert to return Warner's calls. Covert said he would do so, and that was the end of the conversation.

* In early 1992, 3M invited Covert and two other SOS officials to visit 3M's headquarters in Minnesota and tour their facility there. Covert had concerns about whether he should go based on his previous conversations with Warner, but thought it was a good idea to see and learn about 3M's technology. Covert did not tell Warner that he planned to make the trip. On April 1, 1992, Covert and his two SOS colleagues went to 3M. When Ryan learned of the Covert trip, Ryan told Covert he was concerned with one of Covert's colleagues being on the trip, and also that he did not want Covert and the others “getting too close to 3M.” Ryan did not explain why he did not want them “getting too close to 3M.” Ryan later told Covert he didn’t have a problem with the 3M trip and was not mad at Covert.

ii. Warner’s Demands Continue Through ADM’s Changes In Ownership

Through late 1992, O'Brien’s contacts with Warner principally related to Warner's occasional demands that ADM pay him his monthly fee “on time,” which Warner defined as in advance, by the first day of each month. In addition to the calls, O'Brien received letters from Warner demanding the money and, on at least one occasion, indicating that he was “resigning” as ADM's lobbyist because the company was behind in payments. During at least two of these phone calls regarding late payments, Warner told O'Brien (falsely) that 3M had offered to pay him $8,000 per month to serve as its lobbyist.¹⁵ O'Brien interpreted Warner's comments regarding 3M as a threat. O'Brien responded simply that ADM could not afford to go higher than the current monthly fee. O'Brien told Warner to “do what you have to do” regarding the higher offer from 3M. Warner never mentioned the 3M offers to O'Brien again.

In about August 1992, ADM was purchased. A consultant to the new owner asked O'Brien to obtain a letter from Warner explaining the exact nature and scope of Warner's services for the company. O'Brien relayed that request to Warner, who, on September 10, 1992, wrote O'Brien a letter in which he refused to describe his services, stating: “Quite frankly, I don't understand your requesting this information from me inasmuch as, if anybody is aware of the services I have provided your company, you should be aware and, therefore, if you want an essay

In late 1992 or early 1993, Warner contacted 3M and requested a meeting regarding the possibility of 3M retaining Warner as a lobbyist. At the (one and only) meeting with 3M representative Steve McQueen, Warner said he was interested in representing 3M with regard to the stickers contract. Warner explained that he had contacts in the SOS, including Jim Covert, Scott Fawell, and George Ryan, and that he previously had represented the stickers contract-holder, ADM, as its lobbyist. Warner said he could get 3M an audience “to make their pitch” regarding the stickers contract, but that his fee when 3M got the contract would be $60,000 a year. 3M rejected Warner’s offer and had no further dealings with him as to these matters.

on what I have done for American Decal, I suggest you write it because I'm not going to.” Warner then concluded the letter by stating: “I will expect payment in full by Monday, September 14th. If this is not met, I'm through and there will be no more conversations.” For reasons unrelated to the SOS Office business, O’Brien was forced to resign from ADM in November 1992.¹⁶

In about November1992, John Koepke was named the interim President of ADM. Koepke first met Warner in March 1993, when Warner came to ADM's offices to explain his services to Koepke. During that meeting, Warner told Koepke that his job was to generate business and represent ADM's interests with the SOS. Warner repeatedly referenced his “connections” with the SOS and made clear that he was a close personal friend of George Ryan. Warner also told Koepke that if ADM wanted to keep the stickers contract, the company would need Warner's help. Warner said that his fee, now $3,000 per month, was not negotiable. While questioning what services Warner actually provided, Koepke did not want to sever the Warner relationship for fear that ADM might lose the stickers contract, which was its largest individual piece of business.

iii. Ryan Overrules Change in Specifications in Order to Benefit Warner and ADM

In early 1993, in light of complaints from CMS and various vendors, including 3M, regarding the sole-sourcing of the sticker’s contract, the VSD had begun questioning why the

¹⁶After he left the company, O'Brien had no further contact with Warner until 1998. In late 1998, O'Brien and another former ADM executive, Dan Lang (discussed below), hired Warner as a lobbyist for MRM-Data Com Graphics, which took the validation stickers contract from ADM in the wake of ADM’s refusal in 1998 to capitulate to Warner's money demands (also discussed below). In January 1999, the group was awarded the validation stickers contract by Ryan’s SOS successor administration.

specifications for the validation stickers contract required the metallic security mark. A VSD employee named Stuart Hunt was assigned to research the security mark issue, and a committee of VSD employees was created to make a recommendation, based on Hunt's research, regarding whether the stickers specifications should be changed.¹⁷

In or about April 1993, Covert received a written “recommendation,” signed by all seven committee members unanimously recommending that the metallic security mark requirement be removed from the VSD stickers specifications and the specifications be made “generic” so that other companies would have an equal footing with ADM to bid. Based on that recommendation, Covert and his Chief Deputy, Roger Muncy, decided to go forward with changing the specifications by removing the metallic security mark requirement in favor of more generic security features language. After the specifications had been changed, they sent the new specifications to CMS for bidding on the contract for the upcoming fiscal year.

After learning of the alleged change in the specs to the detriment of ADM, Koepke called Warner. Warner insisted that the specs could not have been changed without his knowledge. Koepke asked Warner to check into it.

Shortly after the VSD forwarded the new specs to CMS, Covert got a call at home one morning from Warner. Warner was irate and demanded to know why the VSD had changed the specifications. Warner said that Covert was going to “put him out of business” by jeopardizing

¹⁷In March 1993, Hunt researched the validation stickers contract to determine whether the “metallic security mark” requirement should be removed. Based upon his research and findings, including reviewing information from two other states who successfully used 3M’s product in their sticker’s contract, Hunt recommended to the committee that the specifications be changed to eliminate the metallic security mark requirement and instead be made “generic” so as to allow all potential vendors, including ADM and 3M, to bid.

his contract with ADM. Covert attempted to explain to Warner why they had made the changes. Covert emphasized the need for a competitive bidding process and noted that ADM could still bid on the contract, as the changes simply allowed other companies to bid as well. Warner was not satisfied with Covert's explanation, and told Covert that he would “take care of it” himself. The conversation ended abruptly.

Shortly after his conversation with Warner about the change in specs, Covert got a call from Ryan, who wanted to know what was going on with the stickers contract specifications. Covert explained to Ryan that Muncy and he had submitted to CMS revised specifications that would allow equal opportunity for all vendors to bid. Covert told Ryan that he had made the changes for Ryan's protection so that it would be a fair, competitive bidding process. Covert said there were companies out there with perhaps equal security products. Covert also reiterated his concern about Warner's involvement with such contracts. Ryan indicated he was unhappy with the change.

Shortly after Ryan and Fawell learned that the specifications without the metallic security mark feature had gone out for bid, Ryan convened a meeting in his Chicago SOS Conference Room, with Roger Bickel, Roger Muncy, and Scott Fawell, among others. In the meeting, Ryan asked Muncy what had happened, and Muncy defended the decision to drop the metallic security mark which favored ADM on policy grounds by noting that it would open up competition on the contract. Ryan was unhappy and somewhat combative in demeanor throughout the meeting. Once the meeting was over and Muncy and others had departed, Ryan told Fawell and Roger Bickel that the metallic security mark should be put back into the bid specifications, saying "I want this back" in reference to the metallic security mark. Fawell and the VSD managers did as instructed and ensured that the metallic security mark feature was placed back into the bid package specifications at the cost of other vendors being able to bid on the sticker’s contract.

At or around the time of this meeting, Ryan also asked if Covert could retrieve the specifications back from CMS “quietly,” that is, without calling attention to the fact that they were being changed back. Covert said he thought it could be done, and Ryan said to do it. After his conversation with Ryan, Covert had the specs retrieved from CMS and changed back to include the metallic security mark. That aspect of the specs then remained the same throughout the rest of Ryan's administration, and ADM kept that contract. Having observed Ryan’s stated views on the matter, Covert never raised the issue about the specifications again. After the specs confrontation with Warner and Ryan, Covert also had considerably less communication with Warner.

Shortly after the specs had been changed back to again favor ADM, Warner called Koepke and said, “it's been taken care of,” which Koepke understood to mean that the specs had been changed back to the original form, including the metallic security mark.

iv. Warner Continues to Sound Similar Themes to New ADM Ownership

In about August 1993, Koepke attended a CFR fundraiser/golf outing for Ryan at Cog Hill. At the outing, Warner introduced Koepke to Ryan, and told Ryan that Koepke was President of American Decal, “the guys who do the validation sticker contracts.”

Beginning in early 1993, Mike Kelly became ADM's sales representative responsible for sales with the Illinois SOS. During Ryan's SOS tenure, Kelly attended a number of different Ryan fundraisers. The first was a downstate fundraiser at the Fairgrounds in 1993 or early 1994. During that fundraiser, Kelly introduced himself to Ryan and told him he was with ADM. When Kelly said he was with ADM, Ryan mentioned Warner and said that he (Ryan) was aware that Central Management Services had “screwed up” by not including a renewal agreement for ADM's validation stickers contract that year. Kelly was pleasantly surprised that Ryan said the lack of a renewal agreement had been an oversight by CMS.

Kelly also attended a Ryan fundraiser at Cog Hill in 1993 or 1994. At that event, Kelly saw Warner smoking a cigar outside by himself during the cocktail party. Kelly approached Warner, and they started talking. Warner told Kelly that he had cheap cigars that he gives to the people “around here,” referring generally to the SOS employees, and that he had good cigars that he saves for more important people. Warner offered Kelly one of the good cigars, and Kelly declined. Warner then made the comment that he could get “any of these people fired tomorrow” but he found it was easier just to give them small gifts and “stroke them” into doing what he wanted.

In December 1993, ADM was sold again, and Bryce Anderson and John Reed were named as President and Vice President respectively. In about February 1994, Reed met with Warner at ADM's offices in Chicago. During the meeting, which Warner had requested, Warner said that he wanted more money from ADM -- $5,000 per month. Warner threatened that if ADM did not pay him $5,000 per month, he would become a lobbyist for ADM's “competition” (which Warner did not specify by name). Warner explained that he had very important connections at the Illinois SOS, and in that regard, repeatedly dropped George Ryan's name. Warner told Reed that if he (Warner) was not “on ADM's team,” the stickers contract was going to go to “the competition,” and said that if he was not paid the $5,000 fee, he would not be “on ADM's team.” During the meeting, Warner did not offer to provide any type of service for ADM, but rather only threatened that the company needed to pay him to keep the stickers contract.

Concerned about losing the business to the competition, as a compromise, Reed and Anderson decided that they would not meet Warner's $5,000 monthly demand, but that they would continue sending the $3,000 monthly fee as the company had been doing. Shortly thereafter, both Reed and Anderson left ADM. In about April 1994, Jim Motter was hired to replace Anderson as ADM President. Within weeks of joining ADM, Motter received a telephone call from Larry Warner. At the time of the call, Motter had never met or heard of Warner. During that conversation, Warner told Motter that he recently had resigned as ADM's lobbyist because Anderson had refused to pay him his $5,000 monthly fee. Warner explained that he had been ADM's lobbyist for years and that his fee for those services recently had increased from $3,000 to $5,000 per month. Warner claimed that his services to ADM were worth $5,000 per month because if the metallic security mark were taken out of the specs, ADM likely would lose the stickers contract to 3M. Warner claimed that 3M wanted to hire him as its lobbyist, and suggested to Motter that if that happened, there was a strong likelihood that ADM would lose the stickers contract. Warner also made clear to Motter that he was close friends with SOS Ryan.

On or about May 16, 1994, Motter met with Warner at ADM's offices in Chicago. During the meeting, Warner reiterated what he told Motter during their telephone conversation. Warner said he would not stay on as ADM's representative unless the company paid him $5,000 per month, both retroactive to the beginning of the year and in the future. Warner gave no explanation as to why his fee had gone from $3,000 to $5,000 per month, but made clear that the new rate was not negotiable. Viewing Warner's demands as a threat, Motter decided to capitulate to Warner's demands. On May 18, 1994, Warner mailed Motter a letter to “confirm the understanding” reached during their meeting. Warner said he felt “reassured that American Decal will fully cooperate with me in my future efforts on your behalf,” and then set forth the agreed-upon price terms. After their May 1994 meeting, Motter did not have any conversations with Warner about ADM business.

After Motter left ADM in September 1995, Dan Lang, who was then serving as vice-president, took over as President and held that job until Aristotles Mpougas bought the company in September 1998. Lang, who was generally aware of Warner’s history with ADM prior to becoming president, first met Warner in about the Spring of 1997, when Warner requested a meeting with Lang. The meeting occurred at ADM's offices and was attended by Lang and 2-3 other ADM officers. ADM had been late on some of Warner's monthly payments, and the purpose of the meeting was to discuss that issue.

During the meeting, among other things, Warner falsely claimed that 3M had been calling and asking him to be its lobbyist. Warner implied that if he decided to take 3M up on its offer, ADM would then “have problems” with the stickers contract.¹⁸ As a result of Warner’s statements, Lang made the decision to continue paying Warner his $5,000 monthly fee. By early 1998, ADM had again fallen behind on its payments to Warner. On March 17, 1998, Lang received a letter from Warner stating that if he was not paid $20,000 by April 1, Warner would have to “seriously consider withdrawing” as ADM's “consultant.” Warner explained, “I know

¹⁸On one occasion, in which Udstuen and Warner discussed ADM’s procurement of the sticker’s contract, Warner told Udstuen that ADM would be "fucked" if Warner had not been assisting them in obtaining the contract.

you have been having some financial problems, however, I also have obligations which are predicated on my cash flow and it is necessary for me to make this demand on you at this time.”

In April 1998, Warner requested another meeting with Lang. During the meeting, Warner told Lang that he wanted $8,000 per month instead of the previous rate of $5,000 per month. Warner said that if ADM paid him the additional $3,000 per month, he would “help push through” a new SOS contract to manufacture temporary registration permits (hereinafter “TRPs”).¹⁹ Warner also said he wanted a written contract reflecting his pay arrangement with ADM, so that he would be covered as a creditor if the company went bankrupt. Given the fact that ADM was in the process of being sold, Lang decided to stall Warner for time. In September 1998, just before ADM was sold, Lang resigned as ADM President and the ownership reins were turned over to Aristotles Mpougas.

In the Spring of 1998, Mpougas, who had begun working as a full-time contract consultant for ADM in 1995, received his first telephone call from Warner. Warner told Mpougas that he had heard ADM might be splitting up. Warner said ADM owed him money and he wanted that money immediately. Warner also said he would need a written contract right away, so that if ADM went bankrupt, he would be on the books as a creditor. Warner also mentioned the upcoming TRP contract, and said that if ADM paid an extra $3,000 per month, he

¹⁹Months before this meeting, the SOS had directly contacted ADM and asked them to make a prototype new TRP that included the same metallic security mark used for the validation stickers. The company, and particularly Aristotles Mpougas, who was then operating ADM's Printing Division, was already working on that project and had provided the SOS with several prototype TRPs. No one at ADM had discussed the company's efforts with Warner. In June 1998 (five months before the election), Ryan held a press conference during which he displayed one of Mpougas' prototypes as the SOS's “new TRP.” After the November election, Ryan's SOS office re-assessed the prospective TRP initiative and decided to leave the decision for Ryan’s successor, who rejected ADM's TRP proposal as too expensive.

would ensure that the company won that contract.

Mpougas then bought ADM, which was in financial difficulty at the time. Within days after Mpougas bought the company, Warner called Mpougas and asked for a meeting. Mpougas agreed, and the meeting occurred on about September 18 in Mpougas' office. During the meeting, Warner told Mpougas that ADM owed him $25,000, representing $5,000 per month for the previous five months, and that ADM would owe him an additional $5,000 by the end of September. Warner said that Mpougas had to both pay him and provide him with a written contract immediately. Warner said that if Mpougas did not meet those demands, he would resign as ADM's consultant and “go with 3M.” Warner specifically said that he already was considering “opening the specifications” for 3M.

At some point in 1998, Warner told Covert that Mpougas had taken over ADM and that he (Warner) was trying to develop a relationship with Mpougas. At the time, ADM had been having production problems with the validation stickers contract, and Covert told Warner about the company's performance problems. Warner initially indicated that he would look into the problems. Soon after that, however, Warner informed Covert that he was “finished” with ADM because they would not pay him. Warner said words to the effect that he “did not care if ADM's SOS contract was terminated.” Warner also said he was going to approach 3M, but did not say specifically what he was going to approach them about.

Mpougas attempted to be diplomatic and stall Warner because he felt that was the best thing for the company, which at that time could not afford to lose the stickers contract. Mpougas told Warner he would see what he could do. Just days after the meeting, on September 21, 1998, Mpougas received a follow-up letter from Warner. In it, Warner again demanded his money and threatened to “resign” if he did not get it immediately. Warner also reiterated his demand for a written contract and stated his terms for such a contract, which included $5,000 per month for the stickers contract and $3,000 per month for the TRP contract. Warner demanded the written contract for his lobbying services by the end of September.

On September 25, 1998, Mpougas wrote Warner back. In that letter, Mpougas offered to pay Warner $5,000 immediately, and suggested that as ADM's business improved, more money would be forthcoming. On October 8, 1998, Warner sent Mpougas a short letter indicating that because of ADM's “failure to bring us up to date by September 30,” NCC would “no longer be able to represent American Decal.” After receiving that letter, Mpougas never had another communication with Warner.

The next year, after Ryan had left the SOS, ADM lost the validation stickers contract (for the first time in 15 years) to a Detroit-based company called MRM which, as noted above, was a consortium of ex-ADM officials who hired Warner as its lobbyist. In December 1999 just three months after MRM had won the contract, the Chicago Tribune ran an article about Warner's interest in the SOS's Joliet lease (discussed below) and the related federal investigation. Either that same day, or within days, O'Brien called Warner and asked if he was in trouble. Warner responded, “it looks that way.” Warner then told O'Brien that he needed to “keep a low profile” for awhile, further indicating that it would “probably be better for everyone” if he were “not visibly visible” any longer.

d. The Awarding of Computer-Related Contracts to IBM

A second “client” landed by Warner and Udstuen during Ryan’s first SOS term was IBM. However, prior to coming to terms with IBM, Warner and Udstuen unsuccessfully solicited a competitor of IBM’s, Honeywell, which, at the time Ryan became SOS, held the major computer contract with the SOS. ²⁰ As with the pursuit of ADM and certain leases (described below) Warner and Udstuen’s pursuit of Honeywell and, later, IBM had its roots in the Transition Team process.

i. Warner and Udstuen’s Pursuit of Honeywell

In about 1985, prior to Ryan becoming SOS, Honeywell had won a contract to provide mainframe computer services to the SOS Office. The contract was worth about $4 million, and included a separate maintenance contract worth about an additional $70,000 per month. Additionally, between 1986 and 1990, the SOS approved two upgrades to the SOS data processing system. Accordingly, the SOS Office computer contracts were a substantial and important piece of business for Honeywell.

In an effort to protect Honeywell’s existing SOS computer contracts and win future mainframe business, Honeywell’s principal sales representative, Ed Wuttke, arranged for a meeting with Ryan to introduce himself and make a pitch for Honeywell. In approximately March 1991, Wuttke and senior Honeywell management met with SOS Ryan in the SOS Office in Springfield. In addition to Ryan, there were several members of Ryan's Transition Team at the meeting, including Udstuen, Warner, and others. During the meeting, Wuttke told Ryan and his advisors about their proposed discounted mainframe upgrade, and he emphasized that the SOS was an important customer to Honeywell.

During the Transition Team process in which Warner and Udstuen participated, an

²⁰In about 1986, a majority of Honeywell was sold to a French company called Bull, which eventually bought out Honeywell altogether. While the name of the company thus changed at various times, the collective entity will be referred to herein as Honeywell.

analysis had been done regarding the current volume and memory capacity of the SOS’s mainframe computer system and the potential for a major upgrade of system. The proposed upgrade was estimated to cost approximately $9 million. During the Transition Team process, Warner and Udstuen further learned that Honeywell Corporation supplied the mainframe computer for SOS. In conversations between the two, Warner and Udstuen agreed to pursue Honeywell and see if they would be interested in hiring Warner and Udstuen as lobbyists. Separately, Honeywell, through Wuttke, had learned that Udstuen and Warner were people of influence within the SOS on the computer issues.

Within a short time frame, Wuttke had two meetings, the first was with Udstuen and the second was with Udstuen and Warner. In the second meeting, Udstuen introduced Warner as an advisor to Ryan and someone who was going to be involved in the decision about the SOS Office's mainframe computer system. Leading up to the second meeting, there was no indication made to the Honeywell representatives that either Warner or Udstuen were acting as private lobbyists as opposed to Transition Team members.

During the second meeting, which occurred in Chicago, Udstuen and Warner indicated that they could speak with Ryan on Honeywell's behalf and that they believed Ryan would accept their recommendation regarding the computer upgrade contract. Udstuen and Warner also said, however, that there would be a $250,000 fee for their assistance in getting Honeywell the upgrade mainframe contract. Udstuen and Warner made clear that they would only help Honeywell get the contract if Honeywell paid their $250,000 fee. Shocked and troubled by what Udstuen and Warner had proposed, Wuttke reported the “offer” to superiors at Honeywell and was instructed to arrange another meeting in order to try and reach some more reasonable alternative to the $250,000 fee.

Shortly after the second meeting with Udstuen and Warner, Wuttke saw Warner at a Chicago golf outing fundraiser for Ryan. Warner and Ryan shared a golf cart during the fundraiser. After the golf rounds, there was a dinner, during which Wuttke saw Warner alone at the bar. Wuttke approached Warner and began a conversation with him. Wuttke told him that Honeywell wanted to schedule another meeting to discuss the proposal made by Warner and Udstuen. Warner said that would be fine and again suggested that he and Udstuen were in a position to help Honeywell win the mainframe upgrade contract. Within weeks after the golf outing, Honeywell management and Wuttke met again with Warner and Udstuen at Udstuen's office in Chicago.

During or after this second meeting, Udstuen and Warner indicated they felt that had a "conflict of interest" because they were part of Ryan's Transition Team and close group of advisers. Udstuen and Warner suggested that because of their roles with the SOS, they had decided it would be inappropriate for them to be financially involved with Honeywell and the mainframe upgrade contract. They suggested instead that Honeywell talk to long-time Ryan friend, Arthur “Ron”Swanson (described below), whom they said was close to Ryan and could help. After the meeting, Wuttke called Swanson, who seemed to be expecting Wuttke’s call. Within days, Wuttke met with Swanson at his office in the Lincoln Towers complex in Springfield. During the meeting, Wuttke explained Honeywell's mainframe upgrade proposal. Swanson said he was close with Ryan and likely could get Honeywell the mainframe upgrade contract, but that his fee for doing so would be $750,000. Swanson did not offer to do anything in exchange for the $750,000 other than talk to Ryan about awarding Honeywell the mainframe upgrade contract. Wuttke complained about the price and noted that it had tripled from what Udstuen and Warner were asking. In response, Swanson said Honeywell could pay $250,000 a year for three years, but that the total, $750,000, was not negotiable. After the meeting with Swanson, Wuttke told his supervisors of Swanson's $750,000 price. Wuttke had at least one follow up meeting with Swanson at Lincoln Towers to try to talk him down from that price, with no success. Given the payment demands that had been made to Honeywell through Warner, Udstuen and Swanson, Wuttke reported what had happened to Randy Witter and Robert Cook of Cook & Witter in Springfield, Honeywell’s retained lobbyist for SOS efforts. (They were retained for $60,000 per year to assist Honeywell with state business opportunities). Wuttke told Cook and Witter the full story regarding his meetings with Udstuen, Warner, and Swanson, and their money demands made at those meetings.

Cook, who was a friend of Ryan's, responded that he was shocked about what had happened and indicated that he was going to speak personally with Ryan about the matter. On September 24, 1991, Cook had a face-to-face meeting with Ryan in Ryan’s SOS Springfield office. In the meeting, Cook related the sequence of events regarding the meetings with Udstuen, Warner, and later Swanson. Cook related that Udstuen had informed Honeywell that Ryan was privy to Warner and Udstuen’s pitch for Honeywell to hire them, and that Ryan had approved it. Cook further stated that Warner had requested a substantial fee for his and Udstuen’s services. Cook then related that, due to a potential “conflict of interest,” Udstuen and Warner sent them to Swanson, who in turn asked for $1 million in payments over a four-year period.

While acknowledging that Warner was one of his advisors, Ryan denied that he had any conversation with Udstuen about Udstuen and Warner’s role in soliciting Honeywell. Ryan further went on to attempt to persuade Cook that Ryan personally was unaware of Udstuen and Warner’s solicitation and that he could not afford this to go on because of his age and reputation. He also told Cook that he would speak to Udstuen and get to the bottom of it.

The next morning, September 25, Ryan telephoned Cook. Ryan told Cook that he had talked to Udstuen who related his version of events, which included Honeywell seeking out Udstuen and Udstuen and Warner’s request for a financial arrangement. After Udstuen and Warner identified a conflict, they directed Honeywell to Swanson, but only after Honeywell asked for another recommendation. Ryan told Cook that, after talking with Udstuen, he was greatly relieved that things were not as presented by Cook the day before and attempted to convince Cook that there was nothing wrong with how Udstuen and Warner handled the matter. Ryan went on to criticize Honeywell for “misreading” Udstuen’s intentions. Strongly believing that Ryan was refusing to acknowledge the realities of the conduct by his advisors, Cook finished the conversation with Ryan and had no further discussions with Ryan on the issue. Cook reported the results of his meeting and follow up conversation with Ryan in a confidential memo.

ii. Within SOS, Udstuen and Warner Promote IBM

At some time early in Ryan’s first term as SOS, Udstuen received a call from Bob Kjellander, a Springfield lobbyist, who represented IBM. Kjellander asked Udstuen for his recommendation for another lobbyist that IBM could hire to try to procure business with the SOS Office. Udstuen told Kjellander that he thought Warner would be a good choice. Udstuen recommended Warner because he knew that Warner was very close to George Ryan and by that time, Udstuen already had made a financial arrangement to share in any lobbying proceeds with Warner relating to SOS business. After Udstuen’s conversation with Kjellander, Udstuen told Warner about Kjellander’s call and his recommendation of Warner. At or around this time, Udstuen also shared his conversations regarding Warner and IBM with Fawell. Some time after Udstuen’s conversation with Kjellander, Warner told Udstuen that IBM had hired him to try to get business with the SOS.

By late 1991, and in contemplation of the mainframe computer issue, Ryan was looking to hire a Director of the SOS Office’s Information Systems Services Department (hereinafter “the ISSD”) to be responsible for addressing the mainframe computer issues. Ryan selected Warner and Udstuen to aid Ryan in the search of the Director. In 1991 or early 1992, Frank Cavallaro was contacted by Kjellander who asked Cavallaro if he was interested in working at the SOS Office. Through Kjellander’s recommendation, Udstuen contacted Cavallaro and had a series of conversations with him. One of the conversations took place at a lunch meeting with Udstuen, Larry Warner, and possibly Bob Kjellander. This meeting was the first time Cavallaro ever met Warner. During his lunch with Warner and Udstuen, switching the SOS Office to an IBM mainframe was the primary topic of conversation. Warner and Udstuen were very explicitly pro-IBM and seemed pleased that Cavallaro supported the idea of switching to an IBM mainframe system. It was clear to Cavallaro during the meeting that Warner and Udstuen wanted to make sure that Cavallaro would support IBM as Director of the ISSD.

In their capacity as members of a search team for the ISSD position, Udstuen and Warner arranged for Cavallaro to be interviewed with Ryan. After Ryan’s interview with Cavallaro, Ryan told Fawell he did not believe Cavallaro would be “his guy.” Fawell reminded Ryan that he had authorized Udstuen and Warner to do the interviews to find someone for the job. After Fawell, Udstuen and Warner lobbied Ryan to hire Cavallaro, Ryan ultimately agreed. Ryan personally called Cavallaro and hired him for the position as Director of the ISSD.

In January 1993, two Springfield-based IBM representatives, Mark Mullins and Bart Lambert, met Warner at a Chicago-area restaurant to discuss SOS business. Mullins and Lambert decided it would be wise to hire Warner as their lobbyist. On March 11, 1993, with Cavallaro having been selected and Warner having laid the groundwork for the mainframe effort, IBM entered its first contract with Warner. For purposes of the contract, Warner created a company, Omega Consulting Group, Ltd. (hereinafter “OCC”). Under the contract with IBM, OCC was to receive a 3.5% commission from IBM's net revenues from any subsequent SOS business.

When IBM hired Warner in 1993, Warner was prohibited from hiring any subcontractors for his lobbyist duties. Nonetheless, and unbeknownst to IBM, Warner continued to forward a cut of his proceeds under the IBM contract to Udstuen, via Drazek and his business, AMR.

In late 1994, Warner's initial contract with IBM was scheduled to expire. IBM contacted Warner to negotiate a new contract, but they hit a snag. Earlier that year, the Illinois legislature passed the Lobbyist Registration Act, which for the first time in Illinois, required that all lobbyists vis-a-vis Illinois Executive agencies register with the Illinois SOS Office.²¹

During the contract renewal negotiations with Warner, IBM told Warner that, in light of the passage of the Act, he needed to register as IBM's lobbyist. Warner refused. At a confrontational meeting in Chicago in December 1994, Warner told Mullins and Lambert that he

²¹Specifically, the Act required the following persons to register: "Any person who, for compensation or otherwise, either individually or as an employee or contractual employee of another person, undertakes to influence executive, legislative, or administrative action” and/or “Any person who employs another person for the purpose of influencing executive, legislative, or administrative action."

did not want to register as a lobbyist. Warner argued that since he had not talked to state legislators on behalf of IBM and was not making sales calls for IBM, he did not need to register. Mullins and Lambert told him they believed the law required him to register. As an alternative to registering himself, Warner proposed that IBM could draft the new contract to make Warner a subcontractor to one of IBM's other consulting firms, such Bob Kjellander's firm, Springfield Consulting, which then could register under its own name. Mullins and Lambert rejected Warner's proposal.

In January 1995, the IBM representatives told Warner that in addition to the previously agreed-upon 3.5% commission, they would be willing to pay him a monthly flat fee of about $2,700 for his services. They emphasized again, however, that before they would enter such an agreement, Warner would have to register as their lobbyist. Warner then relented. On January 25, 1995, Warner sent Lambert a letter stating in part, “Bart, I am now prepared to register as your Lobbiest [sic].” That same day, Warner submitted his first lobbyist registration statement with the SOS relating to IBM. In it, Warner identified OCC as the lobbyist registrant and himself as OCC's authorized agent. Later that month, Warner and IBM entered a new four-year contract.

Prior to the award of the mainframe contract to IBM, Warner told Cavallaro to “hold off” and not do anything while he was working on his deal with IBM. Cavallaro understood and believed that Warner was re-negotiating his deal with IBM and did not want Cavallaro to do anything further until Warner's deal was finalized. Warner later called Cavallaro back and told him to move forward with the project.

During Ryan's first term and after Cavallaro understood Warner was IBM’s lobbyist, Warner contacted Cavallaro occasionally to check on what type of projects were in the works at the ISSD and what was happening in general. When Warner called, Cavallaro would provide him whatever information he requested. Cavallaro understood and believed that he should provide Warner the information because of his close friendship with Ryan and his role in Ryan’s “kitchen cabinet.”

In or about early 1995, Cavallaro set up a meeting with Scott Fawell to discuss switching to an IBM system. Shortly after his meeting with Fawell, Cavallaro met with Fawell and Udstuen in Udstuen's ISMS offices in Chicago. During that meeting, Fawell, Udstuen and Cavallaro discussed the conversion to an IBM mainframe system. They also discussed a concern about avoiding criticism against Ryan for sole sourcing the mainframe contract to IBM. In order to avoid any sole sourcing issues, they agreed to hire a consultant to make recommendations for the system. Fawell and Udstuen agreed that this was a smart thing to do politically, to make it look like they were not automatically giving the work to IBM.

Shortly before the award of the mainframe to IBM, Warner told Udstuen that Roger Bickel, the general counsel at SOS, was looking into the issue of whether an emergency procurement could be used to obtain the new mainframe contract. Such a process would accelerate the award of the contract, and also payments to Warner and Udstuen from IBM. Warner asked Udstuen to call Bickel and talk to him about the emergency procurement issues. Without disclosing his financial interest to Bickel, Udstuen called Bickel and encouraged him to support an emergency procurement request. Around this time, Warner also informed Udstuen that he had discussed with Ryan the advantages of converting the SOS mainframe computer system to IBM.

IBM and Honeywell were the only vendors to bid on the mainframe contract. Based upon the bids, the selection committee recommended that IBM be awarded the contract. After the recommendation was made, Cavallaro met with Ryan and Fawell to discuss the final facts and figures regarding the proposed mainframe. Ryan seemed surprised at the $25 million price tag and frustrated by the cost of the project, which Cavallaro attempted to justify.

In the time period following IBM hiring Warner, IBM's fortunes vis-a-vis the SOS swelled. By the end of 1993, IBM had taken in about $1.3 million in revenues from the SOS. For each year thereafter, IBM's revenues from the SOS increased. By 1998, IBM's total SOS revenues were over $5 million. By the time Ryan left office, Warner's total income from IBM was approximately $1.0 million, approximately $250,000 of which was directed to Udstuen through AMR, as described above.

iii. Warner He