Minority Report: Feds Chasing Near North on Subcontractors, Group Alleges

By | March 20, 2003

Federal investigators are pursuing charges that Chicago-based Near North Insurance Brokerage has regularly failed to pay and in some cases falsely listed minority- and women-owned subcontractors on municipal insurance deals, according to confidential high-ranking sources within the beleaguered, clout-heavy firm.

“Numerous” sources within the company, including a spokeswoman for owner Michael Segal, confirmed the investigation, according to J. Terrence Brunner. He is executive director of the Aviation Integrity Project (AIP), an investigative group funded by suburban Chicago opponents of expanding O’Hare International Airport.

The group (for which this reporter used to work) also released a report claiming that Cook County Commissioner John Daley, brother of Chicago Mayor Richard M. Daley, has made about $400,000 annually producing insurance through Near North for 10 firms that have been paid $183 million over 15 years for construction work at O’Hare.

Segal is awaiting trial in June on charges of insurance fraud, mail fraud and racketeering. The trial was set to begin in April, but Segal’s lawyers ask for more time to prepare for additional charges they anticipate will be filed.

The U.S. Attorney’s Office of the Northern District of Illinois has charged that Segal ran a deficit of $5 to $7 million in Near North’s legally required reserve fund, and used the money to reward political allies in exchange for favors.

According to prosecutors, a couple of examples of Segal’s generosity with powerful politicians were a $139,500 “loan/gift” to Chicago Alderman Burton Natarus in 1996, and a $50,000 Dan Ross Associates, a consulting firm operated by former Illinois U.S. Rep. Dan Rostenkowski, who served 17 months in prison for mail fraud.

“It’s been stated publicly that we do have an ongoing investigation involving matters involving Mr. Segal,” said Randall Samborn, a spokesman for the U.S. Attorney’s Office, but he declined to comment “confirming or denying the substance of any investigation.”

If You Can Read My Mind, Why Must I Speak?

Brunner, who was paid $120,000 last year for his work at AIP, said that Segal spokeswoman Kitty Kurth told him the government had filed a bill of particulars with regard to Near North’s minority subcontractors. He also said that company insiders have confirmed the mailing of letters to past minority- and women-owned subcontractors asking if there was a balance due on any services rendered to Near North.

“We thought that came about because Near North was up for sale, so people would understand the nature of liability,” Brunner told Insurance Journal, referring to the letter of intent Segal signed to sell his brokerage operations to the investment firm of Frontenac & Co., reportedly for $170 million. He claimed that he later learned from conversations with Kurth and company insiders that the letters were being sent in response to a government request.

Kurth said there must have been a miscommunication with Brunner. When Brunner insisted to her that prosecutors were investigating the subcontracting issue, she claims she said, “OK, if you say so. I don’t know what people at Near North would know. I’m really just Segal’s spokesperson.”

The contention that prosecutors are pursuing the subcontracting issue is “as accurate as anything else in [AIP’s] report,” which Kurth said were “riddled with inaccuracies and misinformation.”

Kurth blamed the misinformation on “disgruntled former Near North employees, possibly backed by major competitors, who have engaged in a pattern of spreading misinformation.”

Segal has filed several lawsuits against former employees for using proprietary information about Near North’s clients to broker for other area firms.

‘It Stinks’

The AIP report also claimed that John Daley, who has admitted that the $400,000 figure “comes close” and that he has indeed produced insurance for most the firms listed, has steered municipal contracts toward those contractors.

“It stinks,” Brunner said in a news conference Monday. “It shouldn’t go on.”

Jacquelyn Heard, a spokeswoman for Mayor Daley, called the charges “absurd” and said Brunner is paid to “malign Mayor Daley and anyone else who supports O’Hare expansion.” The charges are based on “the false claims of nameless people,” she said.

John Daley, chair of Cook County’s Finance Committee, also denied the charge that he steered municipal contracts to his clients. Daley abstains from voting on any contract before the Finance Committee to which a client of his is a party.

“All he’s doing is signaling to the other guys [on the committee] that it’s his deal and they all have to vote for it,” Brunner said. “It’s obvious that a call from downtown gets the contracts.”

Many of the firms listed by AIP as Daley clients have longtime connections with the Daley family and the Cook County Democratic organization, including Patrick Harbour, whose firms (Airport Owners Representatives and Harbour Contractors) have been paid $106 million for work at O’Hare alone in the last 15 years.

Brunner stopped short of saying the practice was illegal, but said “we have a responsibility when we run across evidence to make that available to appropriate law enforcement agencies. We don’t know what those conversations were [between John Daley and his clients].

“All we know is the mayor has the authority to give out these kinds of contracts. They buy their insurance through Near North brokered to them by the mayor’s brother, who shares the proceeds with Near North. That’s a pretty stinky situation.”

Brunner said the feds should be investigating the matter, but said he has not directly contacted the U.S. Attorney’s Office.

Daley, an independent agent, has produced insurance using Near North as a broker for more than 30 years, according to Kurth.

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