In the past decade, a Chicago political insider’s company has raked in hundreds of millions of dollars through a state of Illinois program.
Now, a newly unsealed lawsuit alleges the company also schemed to “avoid paying Illinois income taxes” on the profits from its highly lucrative arrangement with the state.
The accusations target Vendor Assistance Program LLC, a Chicago company led by lawyer and lobbyist Brian Hynes. He got his start in politics as an aide to recently indicted former Illinois Democratic boss Michael Madigan, and Hynes also has close ties to disgraced ex-Chicago Ald. Danny Solis.
VAP has thrived as by far the biggest player in a program that allows a small group of state-certified companies to buy up debt from Illinois’ once-mountainous pile of unpaid bills.
VAP and the other companies in the program front unpaid state contractors 90% of what Springfield owes them — but later pocket late-penalty payments from the state, which pile up at a rate of 1% each month.
Illinois has forked over late-payment penalties totaling more than $294 million to VAP between July 2018 and February, according to state records.
And documents obtained by WBEZ show Hynes and the other investors in VAP have enjoyed net income of more than $23 million in a year.
But that windfall business model now is under threat. The state comptroller is calling for phasing out the program entirely.
And VAP also will have to fight the civil lawsuit filed in Cook County Circuit Court. The suit alleges VAP investors created two out-of-state companies and made “secret and illegal” transfers of much of the debt they purchased from the state to those other entities.
VAP allegedly created the two other companies in Florida and Puerto Rico “for purposes, at least in part, of avoiding the payment of Illinois taxes on the income gained from its participation in the Program,” according to the lawsuit.
In a statement to WBEZ, a spokeswoman for the company denied the charges: “VAP has never violated any terms or conditions of the Vendor Payment Program and has accurately reported all income it has received from the Program.”
The plaintiff in the case against VAP is the Chicago law firm of Forde and O’Meara LLP. The firm’s managing partner is Michael Forde, who was former Chicago Mayor Rahm Emanuel’s personal attorney and is a board appointee of Democratic Gov. JB Pritzker.
Forde filed the suit under seal more than a year ago as a “relator” — essentially serving as a whistleblower on behalf of the state. But the complaint was unsealed only on Feb. 24, after the Illinois attorney general’s office reviewed it and decided to pass on the opportunity to take over the case itself.
Forde alleges VAP and its two related companies violated the Illinois False Claims Act, which lets whistleblowers allege that the state is being victimized by fraud and share in the proceeds of a lawsuit. According to the complaint, “The State has been damaged in a substantial amount to be more fully determined at trial.”
Forde declined to comment. But his attorney in the case, Michael Leonard of Chicago, told WBEZ he estimated the amount at stake in the litigation to be “tens of millions of dollars.”
“They are vultures or the proverbial pigs at the trough,” Leonard said of VAP. “They’re taking advantage of the state’s inability to pay and making outrageous profits off that system.
“What they’re doing is creating other companies – I would argue shell companies – to take their place in the program, unbeknownst to the state, and then avoid taxation on the millions of dollars they’re making from the state program,” Leonard said.
As whistleblower in the VAP case, Forde’s firm would be entitled to 30% of whatever the suit manages to recover from the company. The other 70% of the money would go into the state’s coffers.
“Connected private lenders profiting off the state’s financial problems”
A spokeswoman for the attorney general’s office said officials “diligently” investigated the allegations in the whistleblower complaint but it was “rare” for the attorney general to get involved in such cases.
“Declining to intervene is not reflective of the merits of the case,” she said. “We will continue to closely monitor the case.”
Illinois Attorney General Kwame Raoul’s political fund received a total of $10,000 in 2018 from two of the VAP-linked entities named in the new lawsuit, according to state campaign finance disclosure documents.
A spokeswoman for Raoul’s campaign told WBEZ on Friday that the attorney general was returning both contributions “out of an abundance of caution, to avoid any appearance of a conflict.”
Asked about the lawsuit against VAP, a Pritzker spokeswoman said the governor “has spent the last three years cleaning up the fiscal mess left behind by the last administration and strongly believes that any vendor who avoids paying taxes should be held accountable to the fullest extent of the law.”
The case in Cook County comes as Illinois Comptroller Susana Mendoza has called for ending the program that permits VAP and other private companies to buy state debt, noting that Springfield’s once-enormous backlog of unpaid bills has shrunk considerably, from more than $16 billion under Gov. Bruce Rauner to just over $3 billion now. Bills are also regularly paid within 30 days.
The program to speed payments to state vendors began in 2011, under then-Gov. Pat Quinn.
“This program has allowed private lenders to loan money to state vendors, then rake in the 12% [annual] interest that state taxpayers were on the hook for,” Mendoza said at a state legislative hearing in February. “Happily, the days of connected private lenders profiting off the state’s financial problems can and should be over.”
But Mendoza herself got a lot of campaign cash from VAP and its investors, who are the largest players in the state program that she now wants to end. In 2019, during Mendoza’s unsuccessful campaign for Chicago mayor, she said she would give away more than $60,000 in political contributions that she had received in the previous year from companies tied to VAP.
Mendoza gave away the campaign cash after news surfaced that Solis had served as a mole for federal investigators. Hynes was a longtime Solis supporter, and the ex-alderman’s sister, Patti Doyle Solis, co-founded VAP with Hynes.
Doyle Solis — who was a top aide to Hillary Clinton — sold her stake in the company in 2016, records show.
Asked about the newly filed lawsuit, Mendoza said in a statement, “I’m supportive of any effort that aims to ensure taxpayers are not harmed from actions by those who already made millions in taxpayers’ money at a time when the state was fiscally broken.
“If the allegations in this lawsuit are proven true, that these lenders fraudulently avoided giving back to the state for the hundreds of millions of dollars they received, they should be held accountable in paying their fair share of taxes like it is required of other taxpayers.”
A $6.2 million judgment against VAP investors
The accusations in the new whistleblower lawsuit in Chicago echo a civil lawsuit filed by former investors in VAP in Philadelphia in 2018.
In that case, in federal court in Pennsylvania, the former VAP investors alleged partners in the deal hid money earned in Illinois in the “front companies” set up in Florida and Puerto Rico to rob them of their fair share of profits from Illinois.
The plaintiffs in that case also claimed Florida-based Bluestone Capital Markets LLC and Blue Stone Finance LLC of Puerto Rico were set up to perpetrate “a sham designed to avoid taxes” in Illinois.
As in the pending whistleblower suit in Cook County, the plaintiffs in Philadelphia accused VAP of breaking the state’s program rules by allegedly failing to tell officials about the transfer of the debt from VAP to Bluestone Capital Markets and Blue Stone Finance.
In an interview with WBEZ in 2019, Hynes said the allegations in Pennsylvania were “absurd” and he said VAP was fully compliant with the state’s rules for the debt-purchasing program.
But the federal judge in the Philadelphia case issued a ruling of more than $6.2 million in the plantiffs’ favor in December 2019. Court records show the parties reached a confidential settlement last year.
Hynes and VAP also suffered a legal setback in Philadelphia when they opposed WBEZ’s efforts to win the release of sealed documents in the case.
Lawyers for VAP, the two other related companies and Hynes argued that the documents sought by WBEZ contained “highly confidential and competitively sensitive business records” belonging to them. They argued that WBEZ “clearly has a hidden agenda … seeking to harass Mr. Hynes in particular by subjecting him to an unwarranted fishing expedition through the release of his confidential business documents, bonus, and salary information.”
But lawyers from the Washington-based Reporters Committee for Freedom of the Press and the Saul Ewing Arnstein & Lehr LLP firm represented WBEZ in its efforts to unseal the court files. And the judge ordered their release, writing that “the public clearly has a valid interest in the records at issue.”
VAP’s cast of politically connected players
According to a confidential audit filed in the Philadelphia case, VAP and the other two related companies enjoyed net income of nearly $23.1 million in 2017.
The documents obtained by WBEZ also show Hynes received “bonus” payments totaling about $5 million between 2016 and 2018, in addition to being a “beneficial owner” of VAP and the other two related companies.
And according to the transcript of a deposition in 2018, VAP CEO David Reape said the Florida and Puerto Rico companies were set up for “tax benefits.”
The court files also detail the many political figures with connections to VAP.
Reape testified that the company employed Marisol Solis, a daughter of the then-alderman, and had hired former State Sen. Chris Nybo, R-Elmhurst, to do legal work.
“Chris Nybo did a whole bunch of things for us,” Reape said in his deposition, citing the ex-lawmaker’s work in devising an employment agreement.
Nybo, who lost his re-election bid in 2018, declined to comment about his legal work for VAP. Marisol Solis did not reply to messages.
Reape also testified about the campaign contributions from VAP investors to Mendoza.
“Who brought the idea of making donations directly to Susana Mendoza’s campaign to your attention?” the lawyer for the plaintiffs in the Philadelphia case asked Reape.
“It was probably Brian [Hynes] that made the suggestion,” Reape replied.
Reape and a major VAP investor who also was deposed in the Pennsylvania case both testified about the role played in the company by Malcolm Weems — a former top aide in the Quinn administration.
Weems was in charge of the state agency that cleared the way for VAP to do business with Springfield’s creditors and later worked as a lobbyist for the company, state records show.
Weems also was a board member of Bluestone Capital Markets, and he described VAP as his “primary client” after he left state government and became a consultant, court records show.
But in a filing in his divorce case in 2020, Weems’s lawyer said his income fell into “steady decline” because of the notoriety from the legal dispute in Philadelphia.
“Although the allegation of fraud was unrelated to the business that Malcolm did with the company, on February 11, 2019, an article was issued by WBEZ News regarding the lawsuit, which publicly associated Malcolm with Brian Hynes,” Weems’ lawyer wrote in the filing. “Since the article was published, which publicly associated Malcolm with Brian Hynes, Malcolm’s ability to gain clients and do business has diminished.”
Weems said his company had earned him an income of more than $211,000 in 2016. But after the 2019 story, he created a new company, TEQuity Partners LLC, “in an effort to rebuild his business,” according to the divorce records.
Weems’s ex-wife countered that she believed he actually was making more than $300,000 a year.
Before becoming a lobbyist for VAP, Weems was Quinn’s director of the state agency that permitted VAP to become the first “qualified purchaser” of Springfield’s debt in 2012.
Last year, state auditors reported that the agency, Central Management Services, “could not tell us who specifically made the decisions to approve entities seeking to become qualified purchases and … had not maintained documents to support how qualified purchasers for the Program were selected.”
Weems did not return messages.
According to state records, VAP’s current Springfield lobbyists are former top Madigan aide Liz Brown-Reeves; Nancy Kimme, who had close ties to former Republican Gov. Bruce Rauner; and Victor Roberson, a high-ranking official in ex-Gov. Rod Blagojevich’s administration. Brown-Reeves, Kimme and Roberson did not return messages.
Hynes’ ties to Madigan and Solis
Hynes grew up a block away from Madigan’s home on the Southwest Side and now lives in Chicago and Puerto Rico.
But after becoming a lawyer and lobbyist, Hynes developed arguably his closest political ties to Solis, the former 25th Ward alderman now at the center of City Hall and Springfield federal corruption cases.
Hynes’ name pops up repeatedly in court documents pertaining to Solis, who wore a wire to help build federal criminal cases against former Illinois House Speaker Madigan and once-powerful 14th Ward Ald. Edward Burke. Madigan and Burke are fighting the federal charges and deny wrongdoing.
Solis received a “deferred prosecution” deal from the office of John Lausch, the U.S. attorney for northern Illinois, despite admitting “he solicited campaign contributions from a real estate developer in exchange for taking official actions as the [City Council’s] Zoning Committee Chairman,” court records show.
Hynes told WBEZ in 2019 that he was confident he had nothing to worry about with regard to the federal investigations roiling Chicago and the Illinois Capitol.
And despite all of the attention on their relationship, it appears the federal corruption scandals did not end the bond between Hynes and Solis — at least not immediately.
A few months after Solis’ cooperation with the feds was revealed publicly in 2019, he and his family attended Hynes’s wedding at a Ritz-Carlton resort next to the Caribbean Sea, in Dorado, Puerto Rico.
Dan Mihalopoulos is an investigative reporter on WBEZ’s Government & Politics Team. Dave McKinney covers Illinois politics and government.