Treasurer targets GOP insider
Report questions expenses,

hidden profits in hotel deal

By Jeffrey Meitrodt

Chicago Tribune, Chicago, IL

Published Monday, May 19, 2008

Republican power broker William Cellini and his business partners "improperly diverted" nearly $2 million from the hotel they built in the capital with a hefty state loan and used the money for expenses ranging from Christmas presents to preparing their personal income taxes, said state Treasurer Alexi Giannoulias, referencing a report he plans to release Monday.

Cellini's attorney on Friday vigorously disputed the irregularities detailed in a forensic accounting report the state treasurer commissioned after beginning foreclosure proceedings against the hotel last year.

The report, by Blackman Kallick Bartelstein, does not accuse Cellini or his partners of criminal wrongdoing. Giannoulias asked for a criminal investigation, and late last week he turned over the results of the $50,000 study to the Chicago office of the FBI and the Illinois attorney general's office.

In addition to their questionable expenditures, Cellini and his partners took steps to hide profits and make the hotel look unprofitable, Giannoulias said.

"Evidence in the report suggests that Bill Cellini orchestrated a sophisticated scheme to cook the books and cheat the state," Giannoulias said Saturday in an interview.

Under the terms of the deal, Cellini and his partners did not have to make mortgage payments to the state if the hotel was unprofitable. The owners have made only two payments in the last 10 years, according to Giannoulias.

At a Springfield news conference on Monday, Giannoulias said the recent turnaround of the hotel supports the audit, noting that the hotel earned profits of $1.2 million in 12 months after a court-appointed trustee assumed control, after the hotel reported no profits for years.

"We didn't make major renovations or hire new staff. We just got rid of the owners," Giannoulias said. "Taking them out of the equation made all the difference in the world."

Cellini's attorney on Friday strongly rejected the findings of the report.

"The allegations are absolutely baseless," said attorney Kathleen Vyborny, who has represented Cellini on the hotel deal since the 1980s.

"All of these expenditures are permitted deductions under the loan," Vyborny added.

Cellini is a Republican fundraiser whose political ties go back to the 1960s.

Federal prosecutors have described Cellini as an unindicted co-schemer allegedly involved in a kickback scheme figuring prominently in the public corruption trial of Antoin "Tony" Rezko, a one-time top fundraiser for Gov. Rod Blagojevich.

But before that case, Cellini and his partners received publicity for their two-decade battle with the state over the ill-fated hotel, which was conceived as a luxury property that would help spur downtown development but has fallen into disrepair. The property lost its Marriott franchise and now operates independently as the President Abraham Lincoln Hotel and Conference Center.

Cellini and his partners obtained a $15.5 million state loan with the help of then-Gov. James Thompson, a Republican, who was criticized for using his position to help Cellini. Cellini was state transportation secretary in the 1960s under Republican Gov. Richard Ogilvie and is the longtime treasurer of the Sangamon County GOP.

When Cellini and his partners fell behind on loan payments shortly after the hotel opened in 1985, Thompson and then state Treasurer Jerome Cosentino, a Democrat, renegotiated the terms of the deal. Since then, the state has recovered little.

The state took title to the hotel in March, when Cellini and his partners gave up their legal fight. At that time the state was owed about $30 million in unpaid principal and interest, Giannoulias said.

The report accuses Cellini of diverting $722,000 to cover legal fees generated in the owners' battle with the state.

"The owners claimed that the legal fees were part of normal operating expenses," Giannoulias said.

Vyborny acknowledged that the $722,000 was used to help cover the costs of three hotel lawsuits involving the state, but she said the expenses were allowed under a "very broad provision" of the partners' loan agreement.

Giannoulias also accused the owners of improperly taking 80 percent of the profits from the hotel's catering business, which amounted to $475,000 over a 10-year period ending in 2006. But Vyborny said that shouldn't have come as a surprise because the state "knew about the catering contract arrangements" from the beginning.

The partners also diverted $154,000 to cover the costs of having their personal taxes done and pay for other tax consulting services, and sent $5,000 to the Illinois Asphalt Pavement Association, of which Cellini is executive director, the examination found. Among other items, the money sent to the asphalt group was used to buy $2,259 worth of Christmas gifts and $644 worth of caramel apples.

"I am not going to go into specifics, but all of the deductions are allowable under the terms of the loan," Vyborny said.

Giannoulias also hit Cellini and his partners for making $92,000 in "improper payments" to Vince Forgione, who works for another Cellini real estate firm. According to Giannoulias, Forgione made the hotel appear unprofitable, avoiding the requirement to make loan payments.

"I really don't have a comment or statement," Forgione said.