Rep. Chaka Fattah, Pennsylvania Democrat, and four associates were indicted Wednesday on racketeering and conspiracy charges, which prosecutors said came from a scheme aimed at enriching themselves and their political campaigns.
Federal prosecutors have charged Mr. Fattah, 58, with participating in a wide-scale racketeering conspiracy that involved bribery, concealment of unlawful campaign contributions, and theft of charitable and federal funds, the Justice Department said.
The charges were made public Wednesday in a 29-count, 85-page indictment against the congressman and lobbyist Herbert Vederman, 69, Bonnie Bowser, 59, Robert Brand, 69, and Karen Nicholas, 57.
One scheme involved Mr. Fattah borrowing $1 million from a wealthy supporter for his failed 2007 campaign for mayor of Philadelphia, which he divided into two parts and tried to disguise as a loan to a consulting company, prosecutors said.
“After he lost the election, Fattah allegedly returned $400,000 to the donor that the campaign had not used, and arranged for Educational Advancement Alliance (EAA), a nonprofit entity that he founded and controlled, to repay the remaining $600,000 using charitable and federal grant funds that passed through two other companies, including one run by Brand,” Justice Department documents state.
“To conceal the contribution and repayment scheme, the defendants and others allegedly created sham contracts and made false entries in accounting records, tax returns and campaign finance disclosure statements,” Justice said.
The conspirators devised the elaborate cover up to conceal that the repayment funds Mr. Fattah provided to the donor came from a pot of money that included charitable donations from Sallie May and a federal grant from the National Aeronautics and Space Administration — money that had been given to EAA for educational purposes, according to the indictment.
“These educational funds could not lawfully be used to repay the debt of a political campaign, as the conspirators knew,” the indictment states.
Mr. Fattah denied the accusations in a statement. He said he does not intend to give up his congressional seat over the “misguided campaign” by Justice Department officials to link his public service career to “some form of wrongdoing.”
“As I have previously stated, I have never participated in any illegal activity or misappropriation of taxpayer dollars as an elected official,” he said. “For the last 21 years, I have represented the people of Philadelphia in Congress with honor and dignity … I will proudly continue to serve my constituents and look forward to helping millions more.”
That defiant statement came as no surprise to former federal prosecutors.
“At this point, there is no reason for someone who has alleged misconduct to give up his job,” said former assistant U.S. attorney Steven Levin. “He still has a job. He still has a family to feed.”
Among the many actions listed by federal prosecutors in the indictment, one accuses Mr. Fattah of a particularly crafty way of hiding his campaign debt after he lost the mayoral election.
Prosecutors say that Mr. Fattah sought to get rid of $130,000 in campaign debt owed to a political consultant by agreeing to steer federal grant funds to the consultant, the indictment charges. Mr. Fattah directed the consultant to apply for a $15 million grant on behalf of a then-nonexistent nonprofit entity, according to a Justice Department statement.
The consultant did not receive the grant, but agreed to forgive Mr. Fattah’s debt in exchange for his efforts to arrange the award of the funds to the nonprofit, the Justice Department said.
The indictment also charges Mr. Fattah with misappropriating $23,000 of funds from his mayoral and congressional campaigns to repay the student loan debt his son, Chaka Fattah Jr., accumulated between 2007 to 2011, which was more than $100,000. The congressman allegedly funneled Fattah for Mayor and Fattah for Congress campaign funds through Mr. Naylor’s political consulting firm, Sydney Lei & Associates, the consulting company of his former congressional staffer Gregory Naylor, to pay down the debt owed to Drexel University and Sallie Mae.
During that time, his son was the owner and founder of various entrepreneurial business enterprises and committed illegal actions to garner the support of financial institutions for his business endeavors, according to prosecutors.
Federal prosecutors separately indicted Mr. Fattah Jr. in 2014 on charges of preparing false federal income tax returns for his business and using those returns to submit “false and fraudulent applications for lines of credit from financial institutions in Philadelphia.”
Once Mr. Fattah’s son was able to secure the funding, he spent it on other things, according to 2014 court documents.
He “used the funds from the business lines of credit primarily for personal expenses, including car payments, food, restaurant and club expenses, utilities, clothing, electronics, retail purchases, charitable donations, jewelry, entertainment, legal fees, and personal credit card expenses, rather than working capital and other business expenses as required by the loan agreements.”
The latest family scandal comes just weeks after Mr. Fattah was a guest on President Obama’s Air Force One and flew to Philadelphia for the National Association for the Advancement of Colored People convention.
White House deputy press secretary Eric Schultz said the president was not aware that Mr. Fattah’s indictment was imminent when the lawmaker flew with Mr. Obama on Air Force One to Philadelphia earlier this month.
Political operatives in Philadelphia have been anticipating Mr. Fattah’s indictment for more than a year. If the lawmaker resigns or is forced from office, some observers are expecting Mayor Michael A. Nutter, another Democrat, to campaign for the seat.
The two-term mayor is term-limited, and his tenure ends this year. Mr. Nutter lives in Mr. Fattah’s congressional district.
There’s also been speculation that Democratic District Attorney Seth Williams would be a candidate for the seat.
Mr. Fattah, the ranking member on the House Appropriations Subcommittee on Commerce, Justice, Science and Related Agencies, stepped down from the position in the wake of the indictment, said House Minority Leader Nancy Pelosi, who called charges “deeply saddening.”
Assistant Attorney General Leslie Caldwell of the Justice Department’s Criminal Division touted the indictments as a strike against public corruption.
“When elected officials betray the trust and confidence placed in them by the public, the department will do everything we can to ensure that they are held accountable,” she said. “Public corruption takes a particularly heavy toll on our democracy because it undermines people’s basic belief that our elected leaders are committed to serving the public interest, not to lining their own pockets.”
But federal prosecutors still need to prove to a judge that Mr. Fattah purposely engaged corrupt activity, Mr. Levin said.
The burden of proof in a white-collar case, like this one, often comes down to whether or not the individual accused of committing a crime did so “with the specific intent to commit fraud,” he said.
“The government may be able to prove that the money was diverted, but they still have to prove that the defendant diverted the money with the specific intent to commit fraud, and that’s often where the battle lies.”
⦁ Dave Boyer contributed to this report.