Texas jury finds pair guilty in S&WB case

PSG paid chairwoman to push contract extension, ruling says

06/09/02

By Stephanie Grace
Staff writer/The Times-Picayune

A former member of the Sewerage & Water Board of New Orleans and the ex-president of the company that once operated two city sewage-treatment plants have been found guilty on federal bribery-related charges, stemming from the company's attempt to land a five-year extension of its multimillion-dollar contract.

A jury in Houston convicted Michael Stump of using money from Professional Services Group, Inc. to buy the support of water board member and fellow defendant Katherine Maraldo, who was chairwoman of a committee with oversight of the contract. The defense did not dispute that money changed hands, but argued that the payments amounted to a loan between friends, not an attempt to corrupt a public official.

But the jury came close to clearing another high-profile defendant, former state representative and city attorney Sal Anzelmo, who was PSG's local lawyer when the scheme unfolded in the mid-1990s. The jury acquitted Anzelmo on seven charges, but remained undecided on a single conspiracy charge. Anzelmo's fate is in the hands of Texas Southern District Court Judge Kenneth Hoyt, who may void the charge at the request of Anzelmo's attorneys. If Hoyt refuses, the government can try Anzelmo again, although several legal observers said Saturday that that's unlikely to happen

The fourth defendant, former PSG Vice President William Gottenstrater, was cleared on all eight counts.

Tough decision

The verdict came down close to midnight Friday, after the jurors had sent out three separate notes declaring themselves deadlocked. Each time, Hoyt sent the jury back to try again.

Stump and Maraldo, whom prosecutor James Cooper likened to "a double agent" for PSG, were both found guilty on one count of conspiracy and three counts of mail fraud, and acquitted on three counts of interstate travel in aid of racketeering and one count of wire fraud. Each count carries a penalty of up to five years in prison and $250,000 in fines, although first-time offenders rarely receive the maximum sentence.

The additional two counts against all four in the indictment, one for mail fraud and another for interstate travel in aid of racketeering, were dismissed.

Sentencing is scheduled for Sept. 19. In the meantime, Maraldo and Stump remain free on $20,000 bond. Both defendants will ask Hoyt to set the verdict aside, Maraldo's attorney Martin Regan said. He also said the defendants plan to appeal if the judge denies the request.

The verdict comes at a particularly sensitive time for the water board, which is considering whether to enter a much larger privatization contract to operate the city's water and sewer systems for up to 20 years, and for one of the bidders, USFilter Operating Systems, which is affiliated with PSG and operates the treatment plant contract at the center of the criminal case.

USFilter, which was not accused of wrongdoing, was acquired by Vivendi, parent company to PSG and its holding company Aqua Alliance, in 1999, and started running the New Orleans plants as part of the contract.

Changing the rules

Last year, Aqua Alliance pleaded guilty in a related case, paid a $3 million fine and agreed to cooperate with the prosecution. Floyd Hill, a former PSG employee who admitted to falsifying internal documents to obscure the money trail, also pleaded guilty and was a key government witness.

The water board renewed the contract in question one year at a time, not as a five-year lump as PSG wanted, and the contract remains in effect pending the board's decision on systemwide privatization.

Compared to the high six-figure deal under consideration, the original sewer-treatment plant contract, which has totaled $92 million in 10 years, seems relatively unimportant. At the time, however, it was among the most lucrative prizes in the emerging field of big-city public works privatization.

PSG landed the five-year deal in 1992, with the possibility of five one-year renewals. As the initial term drew to a close, the prosecution argued, PSG sought to change the rules, and enlisted Maraldo's help to do so.

Starting in 1995, PSG paid nearly $72,000 to Maraldo's partner in a pricey real estate project they were having trouble selling, and disguised some payments as employee travel reimbursements, according to the indictment. The company also tried to find a buyer for the property at an inflated price, paid Maraldo's legal bills in a personal lawsuit against the board, and paid Anzelmo to provide legal help in Maraldo's attempt to unload the property in the Oak Harbor development near Slidell, the government charged.

In exchange, Maraldo used her position as chairwoman of the board's sewer and water committee to push for a five year extension, the prosecution said. The proposal had the support of the board's staff and passed Maraldo's committee, but never gained the support of the full board.

Low-key trial

Maraldo did not take the stand, but Stump testified that he authorized the monthly transfers -- not a gift, but a loan at 10 percent interest -- because Maraldo was a personal friend. While he conceded that the arrangement probably violated Louisiana's ethics law, he said he had no motive to commit bribery to get the contract renewed because he believed PSG's qualifications and track record spoke for themselves.

Stump also said that Anzelmo had advised him against helping Maraldo, and did not know that he had done so, courtroom observers said.

In 1996, Maraldo reimbursed PSG $78,482. Prosecutors argued that she made the payment because she knew the scheme had been discovered by PSG's internal investigators.

The four-week trial was relatively low-key for a public corruption case. No past or present water board members testified, and the only public official to take the stand was state Rep. Peppi Bruneau. Bruneau, an attorney in private practice, represented Maraldo in 1993 when she successfully sued the board after being removed in a political dispute. His $9,092 bill was paid by a PSG consultant and described as "legal support for Louisiana marketing" in books.

Other than that, the prosecution spent much of its 10 days outlining a complicated paper trail. The defense lasted a day and a half, with only three witnesses testifying: Stump, a friend of Maraldo's and a real estate agent.

Stephanie Grace can be reached at sgrace@timespicayune.com or (504) 826-3383.

06/09/02

The Times-Picayune. Used with permission.