Witness recounts Levine takeover of retirement board

A member of the Illinois Teachers Retirement System board today recalled at the trial of Antoin "Tony" Rezko how fellow board member Stuart Levine engineered a surprise takeover of the board in August 2001.

Although the coup occurred long before Gov. Rod Blagojevich came into office in 2003 -- the same time Rezko, a key fundraiser to Blagojevich, acquired his influence in state government -- prosecutors recounted the tale likely to establish that Levine was firmly in control of the board when Rezko came to power.

Prosecutors contend Rezko teamed up with Levine, who has already pleaded guilty to corruption, to extract bribes from those seeking business from the Teachers Retirement System and other state boards.

But today's testimony also benefited Rezko in some ways. Rezko's defense, attorney Joseph Duffy, contends all the bribe-taking Levine did was on his own and he only used Rezko's name to bolster his own cause and to save his skin when the law discovered him.

In that regard, board member Molly Phalen's testimony that she and other teacher representatives were completely blindsided when Levine engineered his takeover without their knowledge or consent fits with the pattern Duffy is trying to establish in regards to Levine.

Phalen, a teacher in the Rockford school system, recounted in 2001 there were four teacher representatives on the board, elected by active teachers. A fifth representative was a teacher retiree, elected by retired teachers. Four members were appointed by the governor, and the 10th member was the superintendent of education, a post appointed by the governor. Under that makeup, teachers and non-teachers were equally represented by the board.

But in 2001, the law changed to add a second teacher retiree to the board, creating 11 members. But the law hadn't passed in time to have an election for that post, so the member was to be picked by the board.

Before that selection, one of the teacher members, Scott Eschelman, retired from teaching and the board was presented with a legal opinion at the August 2001 meeting that, because Eschelman retired from teaching, he could no longer represent active teachers.

With Eschelman not able to vote, the teachers were outnumbered 4-5, and the candidates they nominated to the new retiree position, which included Eschelman, were shot down 4-5. One of the five appointed members then nominated Phil Schmidt, and he was appointed by a 5-4 vote.

Schmidt, Phalen testified, was Levine's tool.

"I can't remember a time when he didn't vote with Mr. Levine," said Phalen.

Before Schmidt's appointment, the board had been in the process of searching for a replacement for the executive director position at system, which was vacant after a retirement. The board had hired a search firm and solicited candidates nationwide. Indeed, at the very same meeting, a job candidate was waiting in the other room to be interviewed by the full board.

But in a surprise move, Levine made a motion that Jon Bauman, a system staffer, be appointed executive director, bypassing the search process that had been agreed to before. The enraged teachers protested, but to no avail.

"It basically fell on deaf ears," Phalen said. "Out of the blue … here's Jon Bauman."

"It made a lot of things suspect from that point on," said Phalen, including a new interest in private equity investments, typically a more expensive investment to investigate by the board.

Also different was the way in which the executive director's performance was evaluated, Phalen said.

Whereas Phalen had previously submitted questionnaires to all the board members to evaluate the executive, Levine now did the review and allowed Bauman to write his own evaluations, Phalen said.

Bauman, still the current executive director of the system, could not immediately be reached for comment today.