SEC Files Suit Against Ex-Detroit Mayor Kwame Kilpatrick

Former Detroit Mayor Kwame Kilpatrick and the city’s ex-treasurer were sued by the U.S. Securities and Exchange Commission, which accused them of steering pension-fund business to a firm that provided them with $125,000 in gifts.

Chauncey Mayfield, whose firm managed real estate for Detroit’s pension funds, paid for the officials’ hotel rooms, private jet trips, and entertainment, including $2,174 for tickets to a Prince concert in Las Vegas, the SEC said today in a civil lawsuit filed in U.S. District Court in Detroit. Kilpatrick and Treasurer Jeffrey Beasley were on the boards of the pensions, which invested $117 million in Chauncey’s firm, it said.

“It is a disappointing day when pension fund trustees such as ex-Mayor Kilpatrick and others corrupt the investment process by selling out hardworking police officers, firefighters and other municipal employees,” Robert Khuzami, the director of the SEC’s Division of Enforcement, said in a statement.

U.S. federal and state regulators have been cracking down on public officials trading favors in return for a share of the more than $2.6 trillion held in public retirement funds.

Former New York State Comptroller Alan Hevesi pleaded guilty in 2010 to trading gifts for access to pension business. Last month, former chief executive of the California Public Employees’ Retirement System, the largest U.S. public pension, was sued the SEC over claims he defrauded an investment firm into paying $20 million in fees to a friend’s employers.

Firm Named

The SEC’s lawsuit against the former Detroit officials also names Mayfield and his firm, MayfieldGentry Realty Advisors LLC, as defendants.

James Thomas, an attorney for Kilpatrick, didn’t immediately return a phone call. Walter Piszczatowski, a lawyer for Beasley, also didn’t immediately respond to a message. Eric Yaffe, who represents Mayfield, declined to comment. Peter Zeidenberg, a lawyer with MayfieldGentry, declined to comment.

The SEC lawsuit is the latest legal challenge to Kilpatrick, a Democrat who became mayor the Michigan’s largest city in 2001. He left office in 2008 after pleading guilty to lying about an extramarital affair while on the witness stand and was released from prison last year.

The investment firm at the center of the Detroit case, MayfieldGentry, had managed city pension money since 2002. The SEC said the pensions were the firm’s largest source of income.

‘Clear the Air’

The Detroit mayor’s administration began soliciting favors from Mayfield after he supported Kilpatrick’s unsuccessful opponent in the 2005 election, according to the complaint. Beasley, a former college fraternity brother of Kilpatrick whom he appointed to the treasurer’s job, in 2006 offered to help Mayfield “clear the air” with Kilpatrick and later went on to solicit gifts from the adviser, the SEC said in the lawsuit.

Among the items paid for by Mayfield were a $62,922 trip to Las Vegas for Kilpatrick, Beasley and their associates, which included VIP suites at the Venetian Resort Hotel Casino, $2,712 for golf outings and $2,175 for a midnight performance by Prince, according to the lawsuit.

In another instance, Mayfield paid for private flights for Kilpatrick, Beasley and family members who traveled to Bermuda, where the mayor mingled with members of the band Earth, Wind & Fire, according to the lawsuit. The adviser allegedly also picked up bills on trips to Charlotte, North Carolina and Tallahassee.

The SEC said the gifts created a conflict of interest that should have been disclosed and wasn’t. From 2008 through 2010, Mayfield’s firm earned almost $3 million from a real-estate fund it set up, primarily because of Detroit’s investments, according to the lawsuit.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net;

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net;

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