Former Harrisburg, Pa., Mayor Stephen Reed was arrested Tuesday on 17 charges and nearly 500 counts related to use of municipal bond proceeds and public money during his 28 years in office, during which the capital city's finances plummeted toward insolvency.
"Mayor Reed used taxpayer money to further his own interests. His conduct is at the root of the fiscal issues that continue to plague the city of Harrisburg today," Pennsylvania Attorney General Kathleen Kane said at a
According to Kane, the criminal prosecutions section of the office presented evidence to a Pittsburgh-based statewide grand jury, which recommended the charges filed against Reed, 65. He held office from 1981 to 2009.
The grand jury found several instances in which Reed used money available in the municipal market, notably debt for an incinerator retrofit project, to create opportunities to raise money and divert funds to purchase artifacts for personal use, said Kane.
"This grand jury finds that then-Mayor Stephen Reed, abetted by associates in government and the professional community, exploited the availability of capital in the municipal debt market to raise money for purposes utterly unrelated to the civic project for which a given bond was issued," said the presentment.
The grand jury alleges this practice of using the expenditure proceeds from public debt touched several entities, including the Harrisburg Authority public works agency; the Harrisburg School District; the Harrisburg Civic Baseball Club; and the Harrisburg University of Science and Technology, among others.
She said the investigation will continue. "Reed was the mastermind, but I can tell you that I feel very confident there will be more charges. I can't tell you who or what."
The grand jury has been extended until Jan. 31.
Kane's office charged Reed with:
- Two counts of corrupt organizations;
- Two counts of dealing in proceeds of unlawful activities;
- Two counts of theft by deception;
- 20 counts of theft by receiving stolen property;
- 20 counts of theft by unlawful taking or disposition;
- One count of theft by deception;
- Seven counts of bribery in official and political matters;
- 29 counts of theft by receiving stolen property;
- 29 counts of theft by unlawful taking or disposition;
- Three counts of theft of services;
- One count of theft by deception;
- 110 counts of theft by receiving stolen property;
- 110 counts of theft by unlawful taking or disposition;
- 158 counts of misapplication of entrusted property and property of government or financial institutions;
- One count of deceptive business practices;
- Three counts of criminal solicitation; and
- One count of tampering with or fabricating physical evidence.
Earlier in the day, Reed reported to Dauphin County Majesterial District Judge William Wenner in Lower Paxton Township, Pa., outside the capital city, for his arraignment. "I am concerned that misperceptions and politics are very much intertwined in these accusations," Reed told reporters, with defense attorney Henry Hockeimer alongside.
Hockeimer, the practice leader of Philadelphia firm Ballard Spahr LLP's white collar defense and internal investigations group, said he would investigate for possible leaks to the media.
"This was a grand jury-protected process," Hockeimer said. "Our understanding is that everybody in government should respect the grand-jury process and not leak information, and it's unfortunate if that happened here."
Kane herself could face charges from a Montgomery County grand jury, which has recommended her arrest on charges of perjury, official oppression and other offenses for leaking confidential investigative material to a newspaper.
Mark Schwartz, a Bryn Mawr, Pa., solo practitioner who represented the Harrisburg City Council in its failed bankruptcy filing late in 2011, also counseled Reed this week.
"Whether it's Steve Reed as a potential defendant or Kathleen Kane as a potential defendant, I'm against the politics of personal annihilation," said Schwartz, a former bond lawyer and investment banker who has studied the incinerator bond deals. "I'm as critical as anybody about the incinerator bond financing. But Steve Reed did not put a gun to the heads of any of these bond lawyers."
The Harrisburg Authority owned the incinerator, which became ground zero in the city's debt crisis. The city averted bankruptcy late in 2013 by selling the incinerator to neighboring Lancaster County, crafting a long-term lease of its parking assets and extracting concessions from creditors, including Dauphin County and Assured Guaranty Municipal Corp.
Over time, according to Kane, Reed -- who she said had a hand in all of these entities as mayor -- used this public money at his discretion partly to obtain thousands of artifacts, which she said violated Pennsylvania's criminal code. The artifacts, which include such items as a life-sized sarcophagus, or ancient stone coffin; a full suit of armor; and a "vampire hunting kit" — were bought as Reed made several trips throughout the country, allegedly at taxpayers' expense.
The artifacts and other memorabilia purportedly were destined for several museums Reed planned for the city, notably a Wild West museum that never materialized. On June 2, agents representing Kane's office raided Reed's home on 212 Cumberland St., six blocks from the state capitol building, and removed saddles, antiques and other western artifacts.
Evidence presented to the grand jury also showed Reed made attempts to sell at least 20 city-owned firearms on consignment. Reed allegedly made trips to Gettysburg, Pa., for this purpose after investigators conducted the search of his office. The weapons have since been recovered.
Furthermore, evidence presented to the grand jury showed Reed allegedly offered to bribe at least one city official, a former City Council President, by offering him a yet-to-be-created position with the Harrisburg Senators, a minor league baseball team. Testimony before the grand jury alleged the exchange was a “quid pro quo” designed to control City Council votes.
"Today's developments mark another important step along the path to the City of Harrisburg's recovery," said Eric Papenfuse, Harrisburg's mayor since January 2014. "We, as a region, through exorbitant parking fees and sky-high trash disposal rates, continue to pay dearly for Mayor Stephen Reed's financial misdeeds."
Chris Papst, a television journalist and author of the book: "Capital Murder: An Investigative Reporter's Hunt for Answers in a Collapsing City," said Harrisburg citizens will finally realize justice.
"That doesn't necessarily mean Steve Reed has to go to jail or will be convicted. It means people are going to find out what happened," said Papst, who covered the debt crisis for WHP-TV in Harrisburg and now works for Washington station WJLA-TV. "The city went bankrupt either through bad decisions or illegal means."
