Trial begins in New Orleans
Sewerage & Water Board bribery case

Prosecution says ex-official paid to promote company's interests Lawyer says loans didn't buy support

05/20/02

By Stephanie Grace
Staff writer/The Times-Picayune

HOUSTON -- The sometimes boring and laborious world of privatization is coming more vividly into focus in a Texas courtroom where federal prosecutors last week began telling a tale of a "greedy and corrupt" contractor and a public official who allegedly accepted cash and favors in exchange for promoting a company's interest in a deal to run New Orleans' sewage treatment plants.

Katherine Maraldo, a former member of the Sewerage & Water Board in New Orleans, is on trial on bribery-related charges along with three officials who worked for Houston-based contractor Professional Services Group, including former Louisiana legislator and New Orleans City Attorney Sal Anzelmo.

With the board in the midst of a wrenching debate over whether to enter a separate, far more extensive contract to privatize the city's entire water and sewer systems, the case is -- depending on whom you ask -- either an aberration or a cautionary tale of what can happen when the profit motive runs amok.

One thing that's not debatable is that the timing is awkward for privatization advocates. They contend that contract management would be a boon for the city, leading to quicker repairs, lower-than-projected rate increases and guaranteed savings that would finance some of the federally mandated sewer-system repairs expected to total $450 million over 10 years.

But any takeover has been put on hold until Mayor Ray Nagin, thought to be more skeptical about privatization's benefits than was his predecessor, Marc Morial, makes his intentions clear.

The bribery charge is a particularly sensitive topic for one of the bidders, USFilter Operating Systems, because the company is affiliated with PSG and now operates the contract at the heart of the trial.

USFilter is not accused of any wrongdoing, and, in fact, was a competitor of PSG in the mid-1990s, when the alleged bribery scheme unfolded. USFilter was acquired by Vivendi, parent company to PSG and its holding company Aqua Alliance in 1999, and afterward started running the two New Orleans plants as part of the ongoing contract. Although the contract's initial term has expired, the board has extended the deal until it makes a decision on systemwide privatization.

Maraldo, Anzelmo, the company's Louisiana attorney, and their co-defendants, former PSG President Michael Stump and former company Vice President William Gottenstrater, have all pleaded not guilty to the 10 charges against them.

All four are charged with one count of conspiracy, four counts of interstate travel in aid of racketeering, four counts of mail fraud and one count of wire fraud. Each count carries a maximum penalty of five years in prison and a $250,000 fine, although defendants with no criminal history generally receive lesser sentences.

A fifth defendant included in the 2001 indictment, H. Grant Simmons, shot himself to death outside his eastern New Orleans home in October. Simmons, who also went by the name Henry, is described in the indictment as "at various times a PSG vice president, employee, and/or consultant in New Orleans," who sometimes operated under the corporate name Resource Technology Group Inc.

There already have been two guilty pleas in related cases. Aqua Alliance, which has cooperated with the government since the beginning, has agreed to pay a $3 million fine. And former PSG employee Floyd Hill has admitted funneling PSG's money to Maraldo's business partner and falsifying internal records.

The trial is expected to last several weeks.

In his opening argument, Justice Department attorney James Cooper said the alleged scheme entailed a complicated series of transactions that fit together like a "100-piece jigsaw puzzle," adding up to a frightening picture.

The story starts in 1991, when the board, under pressure from the Environmental Protection Agency to upgrade anti-pollution measures, sought outside contractors to take over the two plants. Although the contract is small potatoes by today's standards, back then, big-city privatization was new in the United States, and the New Orleans contract was one of the most prestigious in the country, Cooper said.

PSG emerged victorious, and in 1992 began work on a five-year contract with five one-year options to renew. As the option to renew approached, things got interesting. PSG, Cooper said, hoped to solidify its position in New Orleans, and use that toehold to expand into neighboring markets, by landing one five-year extension rather than a year-by-year renewal. Key to that scheme was Maraldo, an unpaid appointee of former Mayor Sidney Barthelemy and chairwoman of the board's sewer and water committee.

Cooper painted Maraldo as a friend and advocate of PSG from the beginning. To the company's chagrin, he said, she was removed from the board in late 1992 as part of a political dispute between Barthelemy and another board member, and was replaced as committee chairwoman by the late City Councilwoman Dorothy Mae Taylor, "PSG's enemy if there was one," Cooper said. Later testimony indicated that Taylor favored another potential contractor.

Maraldo sued, seeking reinstatement, and hired state Rep. Peppi Bruneau to represent her. Though successfully reinstated, Maraldo never paid Bruneau's bill, $9,092. Instead, Bruneau received a check for exactly that amount from Simmons' company, entered on PSG's books as "legal support for Louisiana marketing," Cooper said. Bruneau is not accused of any involvement in the alleged scheme.

The payment to Bruneau was one of several favors that motivated Maraldo to function "essentially (as) PSG's double agent," Cooper said, not because the company wasn't doing a good job but because it needed "that extra political boost."

Another alleged favor to Maraldo from PSG involved the Oak Harbor development south of Slidell. In 1994, Maraldo and a business partner purchased property in the development for $402,000, with the intention of "flipping it" and more than doubling their money, Cooper said. But because the parcel was not zoned for residential use, the pair couldn't get the price they wanted.

So after Maraldo appealed to Stump, Cooper said, the company stepped in to help her out. It started funneling money to meet the monthly $2,651 payments to Maraldo's partner, first in monthly $1,500 increments that eventually grew to $5,200. Floyd paid some of them out of pocket and then reimbursed himself by filing false travel expense reports. The payments lasted from 1994 to 1996, and totaled nearly $72,000.

PSG paid its own lawyer, Anzelmo, to research zoning issues related to the development, with the apparent aim of overturning restrictions and making the property more valuable, Cooper said. And it sought, unsuccessfully, to line up buyers for the property, including a company affiliated with PSG. Maraldo and her partner later kept raising the asking price, eventually arriving at $3.2 million, Cooper said, and no deal was ever struck.

Anzelmo's name cropped up a second time in Cooper's opening arguments as an agent for a company Maraldo and another man put together to sell the property. Anzelmo, Cooper said, billed PSG for the work.

In return, he said, Maraldo introduced action in her committee to extend the contract for the full five years. When the board's attorneys initially said that would be illegal, she kept pushing -- as did Anzelmo, as a lobbyist. The sewer and water committee and executive committee approved the measure, leading to a full board vote in October 1996. But by then, PSG lawyers had gotten wind of the payments and started an investigation. In August, Stump went on administrative leave, and in September the checks to Maraldo's partner stopped. Cooper said Maraldo was so angry that she stopped pursuing the change. It was deferred and never came up again, and the company has since sought and received all five one-year extensions and been paid a total of $92 million.

Maraldo's attorney, Martin Regan, has not yet rebutted that tale. He plans to present his opening argument after the government rests. But attorneys for the other defendants put far different spins on the story in their opening arguments.

An attorney for Stump, the second central figure in the scheme, did not dispute that PSG money went to Maraldo through her partner. Maraldo and his client had a close personal relationship and would often socialize together with their spouses, attorney David Gerger said, adding that Stump will testify to "what was on his mind six years ago when he made these loans as a favor for a friend he knew well."

"He was not intending to buy a friend, to buy a vote, or to bribe a friend," Gerger said. "It is only a bribe if the intent is corrupt." Stump urged that the records be falsified, Gerger said, because he knew the payments might not look good.

Moreover, Gerger said, Stump believed he had Maraldo's support not because of any favors, but because the company was doing a good job. In addition to Maraldo, he pointed out, the rest of the board's executive committee -- including then-City Council members Jim Singleton, Peggy Wilson and Troy Carter -- voted in favor of the five-year extension, at the urging of a key staffer. The board deferred, he said, not at Maraldo's urging but at Morial's, because Morial thought it unwise to enter a long-term contract while negotiating a settlement with the EPA.

Gerger described the payments as loans that would be paid back, with interest. The indictment notes that Maraldo, through her partner, paid PSG more than $78,000 in October 1996, after the payments were discovered. The indictment also says that it is a violation of Louisiana law for a public official to accept loans from a contractor.

Unlike Stump, attorneys for Anzelmo and Gottenstrater described their clients as peripheral players. Gottenstrater was following his boss's orders, his attorney said, and knew that treating payments as travel expenses was a convenient way to balance the books. Once the payments had gone too high, the attorney said, Gottenstrater suggested the company write a promissory note to Maraldo's partner.

Anzelmo, now 82 and a longtime fixture on the New Orleans political scene, did not know enough to be part of any conspiracy, his attorney argued.

Attorney Dan Cogdell described Anzelmo as "an old-school Louisiana lawyer" who knows all the right people and knows how to get things done. Yes, Anzelmo did work for Maraldo, Cogdell said, but "it's not a crime to represent more than one client." So when Maraldo and her partner didn't pay Anzelmo's legal bill and because Stump had floated him money in the past, Anzelmo approached PSG for payment. Anzelmo believed PSG was doing a favor for him, not Maraldo, Cogdell said.

Cogdell said Anzelmo advised against PSG considering an investment into Oak Harbor, then figured any consideration of help had ended. Had he been a conspirator, Cogdell said, "don't you know he would have known about the loan all along?"

05/20/02

The Times-Picayune. Used with permission.