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Daley’s son had secret deal, was an owner of a sewer-inspection business that did city work

This story originally ran in the Dec. 14, 2007, Chicago Sun-Times

Mayor Daley ‘s son Patrick had a hidden interest in a sewer-inspection company whose business with the City of Chicago rose sharply while he was an owner, a Chicago Sun-Times investigation has found.

Patrick Daley invested in Municipal Sewer Services in June 2003, along with Robert Vanecko, a nephew of the mayor. The pair cashed out their small investment about a year later, as federal investigators were swarming City Hall in the early days of the Hired Truck scandal.

Municipal Sewer Services had partnered with a Hired Truck company in the sewer-cleaning program.

It’s unclear how much money Patrick Daley and his cousin made from the city contracts, which were signed by the mayor. Five months after they became owners, the company got a $3 million contract extension from the city.

After cashing out at a profit, Patrick Daley — then 29 and a recent MBA graduate of the University of Chicago’s Business School —- made an abrupt career change. He enlisted in the Army. He is stationed at Fort Bragg, N.C., but is to be deployed next week to an undisclosed location, the mayor confirmed this week.

The mayor’s press secretary said Daley never knew that his son and nephew had stakes in Municipal Sewer Services as the company sought City Hall’s permission to take over two contracts from Kenny Industrial Services.

“Yes, it is the mayor’s son, and, yes, it is also his nephew,” Daley press secretary Jacquelyn Heard said. “But, as you know, the mayor is a very busy man, and he does not make a practice of knowing the details of other people’s investments, including those of his son and/or his nephew.

“The answer to your question, did he know about this, the answer is a resounding no.’’

Beside allowing Municipal Sewer Services to take over the contracts, City Hall twice extended the deals, by a total of 23 months, rather than seeking new competitive bids. That gave the company an additional $4 million of work.

The mayor’s son and nephew never publicly disclosed their ownership stake in Municipal Sewer Services, despite a city ordinance that appears to require such disclosure.

The company also appears to have violated the same city ordinance by not identifying the mayor’s son and nephew as investors in the economic-disclosure statements it filed with the city amid the Hired Truck scandal.

Daley family members have a history of doing business at City Hall. Mayoral brother Michael Daley ‘s law firm, Daley & George, is often hired to help developers get zoning changes from City Hall. And Vanecko recently got $63 million in city pension funds to invest in a risky real estate venture that involves redevelopment deals with the Chicago Housing Authority. But this is the first report of any of Daley ‘s children getting city business during the mayor’s 18 years in office.

Heard would not discuss details of the deals involving the mayor’s son and nephew, referring questions to them and the other investors in Municipal Sewer Services.

Patrick Daley could not be reached.

His cousin, Vanecko, issued a written statement that said, in part: “My cousin and I were small, passive investors in Municipal Sewer Services from approximately mid-2003 to late 2004. . . . We were not involved in running the company and had no dealings with any of its clients.”

The other investors — Robert Bobb, a former federal prosecutor who is now chairman of the investment firm Cardinal Growth, and his partner, Joseph McInerney —- also declined to be interviewed for this story, though, in written responses to questions, Bobb said the company did nothing wrong.

The company’s former president, Anthony Duffy, would not comment.

Roots of the deal

In fall 2000, City Hall hired two private companies — Kenny Industrial Services and Brunt Brothers Transfer Inc. — to do videotaped inspections of sewers to spot cracks or other signs of deterioration. The work was split into three contracts. Two of them went to Kenny, which did all of the inspections north of 63rd Street. Brunt Brothers got the other contract, doing all inspections south of 63rd.

Kenny worked closely with Brunt, which was one of the largest black-owned companies in the Hired Truck Program. Brunt didn’t have its own video equipment, so Kenny ended up doing all of the sewer inspections, while Brunt hauled debris from the sewers.

In February 2003, Kenny Industrial filed for bankruptcy, listing creditors across the United States — among them Disney World and the City of Chicago.

Duffy, who was then Kenny ‘s sewer division manager, proposed taking over the sewer inspection business, including the City of Chicago contracts.

But Duffy needed money. So he turned to Cardinal Growth, a Loop investment firm headed by Bobb and McInerney. At the time, Patrick Daley was an unpaid intern at Cardinal.

In April 2003, Duffy, Bobb and McInerney formed Municipal Sewer Services, state records show, and negotiated to buy Kenny ‘s equipment. The deal closed June 2, 2003, with Municipal Sewer Services paying Kenny $850,000, according to court records.

The next day, MSS Investors LLC — a company co-owned by the mayor’s son and nephew — was formed in Delaware, according to records filed with the secretary of state’s office there. The Daley-Vanecko company invested $65,000 in Municipal Sewer Services, getting a 5 percent stake in the company, according to records obtained by the Sun-Times.

While still awaiting City Hall’s OK to take over Kenny ‘s city contracts, which were set to expire in just five months, Municipal Sewer Services began doing city sewer inspections. Just one day before the contracts expired, the mayor’s chief procurement officer, David Malone, gave Municipal Sewer Services permission to take over the two contracts, each of which was extended by one year. It was the first of two contract extensions Municipal Sewer Services would get from City Hall.

The mayor’s son and nephew were shareholders in Municipal Sewer Services for about a year, a period in which the company’s city work increased significantly, according to several sources, to $3.7 million.

That amount, paid in just one year, amounted to nearly a third of what the city spent on sewer inspections and cleanings during the five years that Municipal Sewer Services and Kenny had the contracts.

The sewer inspections proved to be much costlier than the city projected. City Hall planned to spend $2.3 million over three years when it hired Kenny . The city ended up spending more than $12.6 million over five years.

Under Municipal Sewer Services, 95 percent of the money the city spent went toward cleaning sewers, rather than sewer inspections. The city contracts had estimated that two-thirds of the money would be spent on sewer cleaning.

Fallout from Hired Truck

In late January 2004, with Municipal Sewer Services and Brunt Brothers still handling the sewer inspections, the Sun-Times published “Clout on Wheels,” a series that exposed waste and fraud in the city’s Hired Truck Program and sparked a still-ongoing federal investigation. In an interview for that series, Brunt Brothers owner Jesse Brunt told the Sun-Times that many Hired Truck companies were paid to do nothing.

“You put in your eight hours a day, but you just sit on the job,’’ Brunt said then. “There’s no fuel cost, no wear and tear on the trucks.’’

The Hired Truck scandal rocked City Hall. Among the fallout: The mayor fired his cousin Mark Gyrion, a high-ranking Water Management Department official whose mother-in-law ran a Hired Truck company using a formerly city-owned truck that Gyrion had sold for scrap.

Amid the Hired Truck scandal, the city received an economic-disclosure statement from Municipal Sewer Services listing the company’s owners. Duffy, the company president and chief operating officer, filed the form Feb. 24, 2004, saying he owned 20 percent of Municipal Sewer Services, and Bobb and McInerney each owned 40 percent. Neither Patrick Daley nor Vanecko was included, though together they owned about 5 percent of the company’s stock when that form was filed, according to records and sources.

A city ordinance requires that all privately held companies getting city business “list . . . the name, business address and percentage of ownership interest of each shareholder.’’

Asked about this, Bobb said in an e-mail: “The statements filled out and submitted by the former COO of Municipal Sewer Services contain errors. . . . We will correct the filings [which are for an expired contract] if the city requests.”

Sometime after Duffy filed that disclosure form, Daley and Vanecko cashed out, recouping their $65,000 investment, according to sources. They also got interest — $4,246.67 — in April 2004, company records show. And they got a $13,114 “tax distribution” in December 2004, by which time Patrick Daley had enlisted in the Army.

Daley and Vanecko no longer have any financial stake with Municipal Sewer Services, according to a spokesman for Cardinal Growth. Municipal Sewer Services got a new deal with the city two years ago — a five-year contract that could pay Municipal Sewer Services more than $4.6 million by the time it expires in July 2010.

Patrick Daley still has connections to Cardinal Growth. One of his companies — called PRD-EVAM — operates from Cardinal’s 55th-floor offices at 311 S. Wacker, according to records filed two months ago with the state.

Cardinal Growth is among the investors in Chicago Concourse Development, a company that landed a 10-year city contract to provide wireless Internet service at O’Hare and Midway airports. Patrick Daley has nothing to do with the wi-fi contract, according to the mayor’s press secretary.

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