The wide-ranging federal grand jury investigation into former District Attorney Walter Reed appears to be nearing an end, and charges almost certainly will be filed against the north shore’s former top law enforcement official, according to sources with knowledge of the case.
That would end nearly a year of speculation about the extent of the legal woes facing a once-seemingly unassailable incumbent. Amid news he was under federal scrutiny, Reed announced in July that he would not seek a sixth term as DA of St. Tammany and Washington parishes.
Weapons logs at the St. Tammany Parish Justice Center, where the 22nd Judicial District Attorney’s Office is located, show that the FBI, including some top members of the corruption squad, made 11 visits to it from July 2 through March 5.
Precisely what crimes Reed will be accused of remains to be seen, but the probe appears to center on some of his private business dealings and his potential misuse of campaign funds. The Internal Revenue Service’s criminal division also is involved, raising the possibility that he could face tax charges as well.
The Reed probe became public in May, when grand jury subpoenas went out to the Castine Center, the publicly owned facility where Reed held several fundraisers, and FBI agents began visiting Reed’s offices in Covington. Much of what the feds appear to be scrutinizing has been the subject of a barrage of news reports over the past year.
Rick Simmons, Reed’s attorney, acknowledges charges may be in the offing, but he says Reed has done nothing wrong and certainly never corrupted the DA’s Office.
“There’s nothing in here to suggest he sold his office — nothing to suggest he ever took money to do favors or things like that,” Simmons said.
It’s true that there’s been no claim that Reed ever took a bribe, but that doesn’t necessarily mean he didn’t trade on his power.
Rafael Goyeneche, president of the watchdog Metropolitan Crime Commission and a vocal critic of Reed’s behavior, said the probe covers “every aspect of Walter Reed, his public and his private life,” including the ways in which his private law practice was sometimes conducted at the expense of his duties as district attorney.
The initial focus of the federal probe — and of the first subpoenas — related to Reed’s spending of campaign money. A report by WVUE-TV and nola.com that preceded the subpoenas suggested that some payments from Reed’s campaign account to his son, Steven, were for amounts that far exceeded the cost of services that Steven Reed provided for a fundraiser at the Castine Center in Mandeville.
Moreover, Reed and his son gave conflicting accounts about which services Steven Reed actually rendered — in particular, whether he provided alcohol for the estimated 2,000 guests or just “setups.” Just last week, WVUE-TV reported receiving a subpoena for a copy of its 2014 story.
Meanwhile, Walter Reed’s former longtime girlfriend, Claire Bradley, told The New Orleans Advocate that Reed often used campaign money as a personal kitty. For instance, he tapped the fund to throw her what she described as a lavish birthday party at The Dakota Restaurant in Covington, complete with a special menu. Reed’s spokesman has said the event was a planning meeting for a golf fundraiser.
Bradley, who has been interviewed by the FBI multiple times, also said Reed gave her and her son money from his campaign fund for groceries and other personal items. Reed has maintained those expenses were political in nature.
Simmons dismisses questions about how Reed used his campaign war chest.
“Read my lips — it’s not public money,” he said. While not conceding that Reed made personal use of any of the money or purposely overspent on his son, Simmons said that even if he did, it wouldn’t constitute a federal crime.
“That’s not a federal offense,” Simmons said, arguing that policing abuses of campaign money falls to the state Board of Ethics.
Other local white-collar crime experts aren’t so sure. Some say federal prosecutors could charge Reed with wire or mail fraud if his campaign reports were intentionally misleading.
Others note that while it’s relatively common for politicians to tap campaign accounts for expenses that appear to be personal, it’s rare, if not unprecedented, for the feds to take an interest.
Former U.S. Attorney Harry Rosenberg, now a defense lawyer, said he believes the feds would find a campaign violation much more tantalizing if large amounts of money were involved and the benefit to Reed himself was clear.
For instance, if Reed simply overpaid his son for bar services, the feds might choose to overlook it. But if he did that so his son could repay a debt to Reed, for instance, “that would make it much more enticing,” Rosenberg said.
The hospital contract
A second prong of the federal probe revolves around Reed’s legal work for St. Tammany Parish Hospital, a side gig that paid him $30,000 a year.
There are two major questions about that deal: first, whether Reed improperly shifted work that had been handled by the DA’s Office to his private law firm; and second, whether Reed broke the law by sending an employee of the DA’s Office in his stead to the public hospital’s board meetings, thus profiting privately from the work of a public official who reported to him.
As to the first question, Simmons says he can prove — with a document dating from 1996 — that Reed and the hospital board long ago agreed that legal services would be provided by Reed personally rather than by the DA’s Office. The arrangement was so old that some current board members weren’t aware of it, he said.
On the second point, Simmons acknowledges — and board minutes confirm — that Reed on several occasions sent Leo Hemelt, an office employee, in his place.
Reed didn’t pay Hemelt for his services, a situation that has drawn comparisons to former St. Tammany Parish Coroner Peter Galvan’s use of a publicly paid staffer to provide services that Galvan was paid for privately. That arrangement was a central part of the federal corruption case against Galvan, who is now serving a two-year prison sentence.
But Simmons says the comparison is flawed, saying Reed personally attended at least 150 hospital board meetings and that Hemelt attended only in rare cases when Reed couldn’t make it. Galvan, by comparison, rarely if ever went to the Slidell jail, which paid him to provide medical care for inmates.
Hemelt, who was served with a subpoena last year, has not returned calls seeking comment. He has retired from the DA’s Office.
Contract with Causeway
The feds also are interested in another stream of income that flowed from a public agency to Reed, this one from the Causeway Commission to a private firm that in turn paid Reed.
The Becknell Law Firm, one of two firms that until recently represented the Greater New Orleans Expressway Commission, which oversees the Causeway, shared some of its fees with Reed. The feds are exploring the propriety of that arrangement — in particular, whether Reed used his political influence to help the firm land the work and whether he did actual legal work for the money he received.
Simmons said he can’t figure out what the federal angle is, but he said the government seems intrigued by the fact that on financial disclosure forms, Reed reported receiving money from the Causeway Commission, rather than the Becknell firm. On those forms, filed with the Ethics Board, Reed reporting receiving roughly $36,000 from the Causeway Commission between 2008 and 2011.
Simmons said Reed was not trying to obfuscate, but the opposite. The disclosure forms require politicians to report income from government sources to highlight possible conflicts, and the money Reed got from the Becknell firm originated with the Causeway, so he reported it that way, Simmons said.
“I don’t know where they’re coming from there,” he said.
Until last year, the Causeway Commission was represented by the Becknell firm and McCranie, Sistrunk, Anzelmo, Hardy, McDaniel & Welch LLC, another firm where Reed is listed as being “of counsel.” Last year, the commission terminated its relationship with both groups, on May 21 for McCranie Sistrunk and June 18 for the Becknell firm.
Causeway General Manager Carlton Dufrechou said the board wanted a change. A terse email to Burgess McCranie dated June 18 asked for a final billing and thanked him for his service.
Keith McDaniel, managing partner of the McCranie firm, had no comment. A message left with the Becknell firm was not returned.
A tax case?
A fourth angle federal authorities are exploring is the possibility that Reed didn’t report all of his income to the Internal Revenue Service, which could result in charges of tax evasion or filing false income tax returns.
Reed’s possible misuse of campaign money could come into play here, as any money he spent on personal expenses should have been reported as income.
Bradley, Reed’s ex-girlfriend, said FBI agents called her two months ago and told her they were going to put the IRS on the line while they asked about Reed’s campaign spending.
The connection was lost, however, and when the FBI called back, the IRS was no longer on the call. Agents quizzed her about two floral arrangements sent to her mother, a get-well bouquet with a card signed by Reed and a Mother’s Day arrangement that purported to be from Bradley and her son. Bradley told the FBI that Reed tapped his campaign account for both bouquets.
Apart from the nearly $200,000 in annual salary he took home as DA, Reed has drawn substantial income from a variety of other sources, including private legal work and a gold-buying business, MR Precious Metals, that took off as the price of gold soared.
Yancie “Bubba” Moseley III, Reed’s partner in that business, told The New Orleans Advocate that he was questioned by the FBI after news stories broke about a gold shop owner who claimed he had been subjected to unfounded legal prosecution after a falling-out with Moseley and Reed. Moseley did not return messages this week.
Simmons said Reed has reported all of his income properly, but he acknowledged that federal authorities may be exploring tax charges.
“You can make a tax case on anybody,” Simmons said. “It’s just a matter of who they want to target.”
Going beyond Reed himself, the FBI has shown an interest in the generous retirement benefits paid to select members of Reed’s staff. The DA set up a special retirement account for a handful of insiders, using public money to provide benefits equaling 20 percent of participants’ salaries. The employees contributed nothing.
Pete Adams, head of the Louisiana District Attorneys Association, said he was interviewed by the FBI about the retirement benefits last year.
“They asked me if I knew of that (the extra retirement fund), and of course I didn’t,” Adams said.
He said the FBI asked him to explain how the LDAA’s retirement system worked. They did not subpoena any records.
The generous benefits Reed gave his friends at taxpayers’ expense have sparked criticism. State Treasurer John Kennedy has wondered aloud how Harry Pastuszek, a close associate of Reed’s, was able to draw two retirements, a full salary from the DA’s Office and hundreds of thousands of dollars in legal fees each year from the St. Tammany Parish School Board.
Pastuszek initially represented the School Board as part of his job at the DA’s Office. But at the end of 1993, Reed urged the board to hire Pastuszek directly, and it did so. Though Pastuszek did little if any work for the DA’s Office in recent years, Reed allowed him to remain on the payroll and to continue building retirement benefits.
Pastuszek, who left the DA’s Office in September and now lives in Florida, did not return calls for comment.
Pat Fanning, a former federal prosecutor and now a defense lawyer, said he thinks that arrangement could land both Reed and Pastuszek in hot water.
“You can’t take public money and give it to your friends,” he said, comparing it to former Jefferson Parish President Aaron Broussard’s placement of his then-girlfriend in a do-nothing job — an action that was central to the corruption case against Broussard.
But former U.S. Attorney Rosenberg thinks — as with the campaign contributions — the feds will want to show that Reed himself benefited from Pastuszek’s deal before they include it in a charge.
“The government is looking to say the public official put money in his pocket,” Rosenberg said. “They’re looking to establish a direct benefit, not an act of friendship or kindness. Some people think you can get charged for stupidity, but that, of course, is not the threshold.”
Some of Reed’s questionable actions may fall short of federal criminal charges and instead land him in the crosshairs of the state Ethics Board or the Office of Disciplinary Counsel — an outcome Reed surely would prefer but one that could result in sanctions if not prison time.
Bradley said the Ethics Board has interviewed her about checks from a fundraiser. She said previously that Reed separated out checks that were left blank or that were made out to Reed personally and not his campaign fund, asking her to endorse them with his name. She said she believed he was planning to cash them rather than deposit them in his campaign fund.
The Office of Disciplinary Counsel has confirmed that it is looking into a number of matters involving Reed that have surfaced in media reports, including cases where he recused his office so he could take on potentially lucrative civil claims.
But most observers think Reed will face criminal charges in addition to possible administrative sanctions.
“I think he’s got a major problem,” said Fanning, who describes Reed as a friend. “I don’t take any great pleasure in it, but I think it’s going to happen.”
Rosenberg said the stature of the attorneys and case agents involved — the investigation team includes First Assistant U.S. Attorney Richard Westling — also doesn’t bode well for Reed.
“I don’t think they’re going to allow him to just plead to some minor offense like misprision (concealing a felony of which he was aware), given the seniority of the folks over there,” Rosenberg said. “I think they’re looking for much more serious charges.”