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May 28, 08

NEWS / STATE SENATOR EDWARD B. McCLAIN AND FORMER HEAD OF NONPROFIT CORPORATION CHARGED WITH CARRYING OUT C






BIRMINGHAM, AL - On May 16, 2008, a Federal Grand Jury indicted EDWARD BROWNING McCLAIN, 68, of Midfield, and SAMUEL P. PETTAGRUE, 65, of Leeds, with conspiracy, mail fraud, bribery involving a program receiving federal funds, and money laundering relating to the payment of over $305,000 in corrupt payments to McCLAIN from the nonprofit corporation PETTAGRUE controlled. The indictment was unsealed yesterday and announced by U.S. Attorney Alice H. Martin, Acting Alabama Attorney General Richard J. Minor, Carmen S. Adams, Federal Bureau of Investigation, Special Agent in Charge, and Reginael McDaniel, Special Agent in Charge, Internal Revenue Service.

“Senator McCLAIN is charged with using his public office for personal profit. He worked the ‘pass through’ grant process not to help his community and those in need of GED training, but to line his pockets with over $300,000. As evidenced by this indictment, both paying and accepting a bribe will be aggressively prosecuted,” said U. S. Attorney Alice H. Martin.

“The foundation of government lies in the truth that elected officials will act in the best interest of public trust. The public corruption alleged in this indictment violates that trust. With our investigation and prosecution, we take yet another step towards restoring the public’s trust in their public officials as we hold accountable those who would use the treasury of the State of Alabama as their own personal bank account,” stated Acting Alabama Attorney General Richard J. Minor.

McCLAIN, a State Senator representing the 19 th District ( Jefferson County) is charged in a conspiracy with PETTAGRUE, a former pastor of Sardis Baptist Church who controlled Heritage to Hope Foundation, Inc. (“HTHF”), a nonprofit entity. The 50-count indictment charges that the conspiracy ran from April 2001 to November 2006, during which McCLAIN and PETTAGRUE conspired to defraud the State of Alabama and its citizens of their right to McCLAIN’s honest services. Specifically, the indictment charges that McCLAIN used his official position in the Alabama legislature to ensure that “pass through” grants, funded through discretionary funds administered by the Alabama Department of Economic and Community Affairs (“ADECA”), would be awarded to the HTHF. HTHF (previously known as the Community Resource Center and Christian Resource Center) through PETTAGRUE, would make bribe payments to McCLAIN upon receipt of the state funding, fraudulently labeled as “consulting fees” or “wages” in an effort to conceal their true, corrupt nature.

For example, in the Spring of 2001, McCLAIN engaged in official acts which helped secure a $65,000 grant from ADECA to the Community Resource Center n/k/a HTHF “to provide funds to be used to facilitate senior citizen projects and educational outreach for the Birmingham Metro Area.” The grant was approved in April, and ADECA disbursed the funds on May 17, 2001. The next day, PETTAGRUE caused a check for $8,000 to be written to McCLAIN. Then, from May through August 2001, McCLAIN received an additional $10,500 from HTHF. By 2003, corrupt payments to McCLAIN had risen to the point where he actually received $48,000 of a $65,000 grant awarded to HTHF, supposedly for his services as a “consultant.”

A listing of the public funding secured for HTHF by McCLAIN, and the amount he was corruptly paid by PETTAGRUE through HTHF includes:

- A $65,000 grant disbursed in May 2001 (for which McCLAIN was paid $18,500);

- A $83,245 grant disbursed in August 2001 (for which McCLAIN was paid $13,500);

- A $65,000 grant disbursed in April 2002 (for which McCLAIN was paid $45,000);

- A $100,000 grant disbursed in October 2002 (for which McCLAIN was paid $45,000);

- A $65,000 grant disbursed in January 2003 (for which McCLAIN was paid $48,000).

The indictment alleges that in February 2003, the Governor of Alabama issued Executive Order No. 05, which placed significant restrictions on the use of “pass through” grants. From that point forward, the conspiracy scheme shifted from the use of direct grants to HTHF to funneling money via various community colleges to HTHF – and then to McCLAIN. For example, in the Fall of 2003, the Alabama Department of Postsecondary Education (“DPE”) operated an online program to assist students in obtaining a Graduate Equivalency Diploma (“GED”). The indictment alleges that McCLAIN engaged in official acts to ensure that HTHF received a $100,000 professional services contract, paid through Bessemer State Technical College, to provide “assistance with program marketing, recruiting, retention, and any other appropriate activity related to Bessemer State Technical College’s effort to serve as a state pilot site for the GED On-line program” for a ten-month period. In order to receive the funding, Bessemer Tech was obligated to “form a partnership with a community and/or faith-based organization” to help carry forth the purpose of the program, and McCLAIN engaged in official acts to ensure that HTHF was awarded that contract. McCLAIN secured the following contracts, and received the following bribe payments, in connection with the GED On-line Program:

- A $100,000 contract awarded in December 2003 (for which McCLAIN was paid $40,000);

- A $100,000 contract awarded in October 2004 (for which McCLAIN was paid $37,908.98); and

- A $130,000 contract awarded in October 2005 (for which McCLAIN was paid $40,000).

The indictment charges that McCLAIN repeatedly engaged in official acts and misused his official position, in order to secure funds for HTHF and received in excess of $305,000 in corrupt payments during the scheme. The bribes were disguised as “consulting fees” when in fact it was not intended that McCLAIN would perform any legitimate consulting services. The indictment sets forth that from October 2002 through May 2004, HTHF had an Executive Director who worked for the non-profit to develop the programs for the community. She performed these services without any compensation after being told by PETTAGRUE that there were no funds to pay a salary to the Executive Director. PETTAGRUE concealed from the Executive Director the fact that HTHF had received grants totaling $165,000 from ADECA and additional money from DPE in connection with the GED On-line program, as well as McCLAIN’s alleged “consulting” relationship with HTHF.

Counts 2 through 15 charge violations of the honest services mail fraud statute in connection with payments outlined in the conspiracy charge. Count 16 charges McCLAIN with receipt of a bribe and Court 17 charges PETTAGRUE with payment of a bribe under separate federal statutes which prohibit solicitation and payment of bribes to an agent of a state government that receives money under federal programs. Counts 18 through 48 charge the defendants with money laundering, based on their efforts to conceal the nature of the corrupt payments by labeling them as “consulting fees” or “wages.”

Count 49 seeks criminal forfeiture concerning the conspiracy, mail fraud and honest services charges for $305,000.00. Count 50 seeks criminal forfeiture under the money laundering statutes for at least $121,090.08. However, the alleged bribe total is $305,000.00 and if successful, sums are offset.

“The charges in this indictment against Senator McClain are official corruption in its purest form,” stated Carmen S. Adams, Special Agent in Charge, Federal Bureau of Investigation. “The use of public office for personal financial gain is a matter which the FBI takes seriously.”

“Public officials who allegedly choose to be part of the problem rather than part of the solution should understand that their future may include criminal prosecution,” stated Criminal Investigation Special Agent in Charge, Reginael McDaniel, Internal Revenue Service.

If convicted, the maximum sentences for the charged offenses are: conspiracy - five years and a fine of $250,000; mail fraud - twenty years and a fine of $250,000 for each count; bribery involving a program receiving federal funds - ten years and a fine of $250,000 for each count; money laundering - twenty years and a fine of $250,000 (or twice the amount of the financial transaction involved, whichever is greater) for each count.

On May 23, 2008 a State Grand Jury sitting in Jefferson County returned indictments charging McCLAIN and PETTAGRUE with Theft of Property in the First Degree based on their conduct in obtaining and disbursing the proceeds of a $65,000 grant from ADECA to HTHF in 2002. Those charges carry a penalty of two to twenty years imprisonment and a fine of up to $10,000.

The investigation of this matter was conducted by investigators from the Federal Bureau of Investigation, the Internal Revenue Service, and the Alabama Attorney General’s Office. Assistant United States Attorney William C. Athanas is prosecuting the matter on behalf of the U.S. Government. Acting Attorney General Richard Minor and Assistant Attorney General William L. Lisenby are prosecuting the state case.

Members of the public are reminded that an indictment contains only charges. A defendant is presumed innocent of the charges and it will be the government’s burden to prove a defendant’s guilt beyond a reasonable doubt at trial.



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Tags: criminal investigation, corporation,
 




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