The sheriff looks into a mysterious bank account
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As William P. Mullen prepared to take over the office of Allegheny County Sheriff from Pete DeFazio prior to the latter's guilty plea to a federal charge in 2006, he noticed something that bothered him: A bank account that typically held around $6 million, and was earning just 2.1 percent interest, a rate that was less than half of those current at the time.
"I asked, 'Why is that?'" Sheriff Mullen recently recounted. "Nobody could give me a good answer."
The account, it turned out, was subject to a referral fee. Its details provide an example of one way a politically connected business made money from government.
The account was subject to a referral agreement dated March 21, 2000, between the Pittsburgh Home Savings Bank -- which later became Bank Pittsburgh -- and a Downtown firm called PrimeSolutions Capital Corp. That agreement, and other documents in the sheriff's office files, suggest that while taxpayers were missing out on six-figure interest opportunities, PrimeSolutions was getting around $30,000 a year in referral fees.
One of PrimeSolutions' independent contractors was Allegheny County Democratic Committee Finance Co-Chair Edward J. Grattan, who contributed to Mr. DeFazio's 2001 and 2005 campaigns. Mr. Grattan was a volunteer for County Executive Dan Onorato's campaign in 2003 and continued to get occasional reimbursements for expenditures on behalf of the executive's campaign into 2008, according to campaign spending reports filed with the county Elections Division.
A sometime PrimeSolutions contractor was Joseph M. Viehbeck, who managed Dan Onorato's successful run for county executive. He now works in government relations for Chester Engineers, which has multimillion-dollar contracts with the Allegheny County Sanitary Authority and the Pittsburgh Water and Sewer Authority.
Neither Mr. Grattan nor Mr. Viehbeck could be reached for comment.
PrimeSolutions provides financial services, primarily to private businesses, said its president, Thomas J. Santone, who also is board chairman at the Community College of Allegheny County.
The referral agreement ensured that if PrimeSolutions referred a new customer to Bank Pittsburgh, PrimeSolutions would get a monthly payment based on the account balance. It was signed by Mr. Santone, and by Bank Pittsburgh Executive Vice President Gregory G. Maxcy.
At the time, PrimeSolutions and Bank Pittsburgh both had offices at 225 Ross St., a building owned by Mr. Santone that sits a few blocks from the County Courthouse and the City-County Building. The building often serves as a headquarters to local political campaigns.
"Pittsburgh Home Savings Bank was a tenant in our building, and we signed an agreement with them to originate business," said Mr. Santone. "The nature of the agreement was such that we received a referral fee from the bank ... And the specific understanding was that it would never affect the [terms of the] accounts."
Mr. Santone said he did not personally market Bank Pittsburgh to the sheriff's office, and did not know which of his associates at the time did so. He said Mr. Viehbeck stopped working with PrimeSolutions more than five years ago, while Mr. Grattan has continued to be a consultant to the firm on a project-by-project basis.
"Bank Pittsburgh negotiated [account terms] directly with the sheriff's office, without any intervention on our part," said Mr. Santone. "Whatever those two moving parties decided, we were fine with."
Mr. Maxcy, whose business card is taped to Bank Pittsburgh promotional materials still on file at the sheriff's office, could not be reached for comment.
In 2002, the sheriff's office shifted $6 million from another bank, where a portion of that balance was earning 3.04 percent interest, into a Bank Pittsburgh account, according to an internal memo prepared on Sheriff Mullen's orders. For three and a half years, the office placed into the account funds deposited by businesses filing foreclosure actions, and paid foreclosure costs from the account. The balance remained fairly stable, suggesting that PrimeSolutions' referral fee remained at around $30,000 annually, though Mr. Santone said he doesn't "remember it being that high."
Sheriff's office files reviewed by the Post-Gazette contain no document describing the terms of the account, but the internal memo indicates that the interest rate in 2004 and 2006 was 2.1 percent. In 2006, another sheriff's office account was earning 4.67 percent. Down the County Courthouse hall from the sheriff's office, Treasurer John Weinstein was getting, through a competitive process, around 5 percent interest on accounts with similar balances.
"We could be getting a higher rate and not be paying anybody," Sheriff Mullen said he told his staff. On his orders, the office switched to a National City Bank account earning 4.85 percent.
The annualized difference of $165,000 in interest is "a significant amount of money," said Sheriff Mullen. "What it meant was that we had more money for our budget, more money for equipment, training."
Mr. Weinstein said he was not aware of the arrangement until 2006. "Paying some entity a fee on that account reduces the amount [of interest] that would've gone into that account and back to the taxpayers," he said.
Mr. DeFazio, who retired in 2006 after pleading guilty to one count of soliciting campaign contributions from employees, denied any knowledge of the rationale behind the shift of funds to Bank Pittsburgh. "I don't know why they did that," he said. "I didn't handle none of that stuff." The person who handled such matters, Executive Assistant Michael M. Mullen Jr. -- no relation to the current sheriff -- has retired and could not be reached for comment.
Sheriff Mullen in 2006 transferred management of the account to Mr. Weinstein's office. Interest rates nationwide have collapsed and the county is now earning virtually nothing on its deposits.
First Published September 12, 2010 12:00 am