THE BLOG
09/27/2014 05:42 pm ET Updated Nov 27, 2014

Rauner Still Silent on Ohio Racketeering Lawsuit

Fallout from Illinois GOP gubernatorial nominee Bruce Rauner's private equity firm's ownership and operation of Trans Healthcare, Inc., a nationwide nursing home chain, continues to dog the challenger's campaign. The trial which started this week in U.S. Bankruptcy Court in Tampa, Florida, is raising even more disturbing questions about Rauner's involvement in the now insolvent nursing home business.

Guys like Rauner, accustomed to operating their whole lives largely under the radar in the world of private equity, are just not accustomed to the kind of scrutiny a big political campaign brings. You can see it all the time in Rauner's stunned reaction to even the mostly softball questions from reporters about his business dealings.

The fear of heightened public disclosure may be the reason why Rauner's firm GTCR decided to settle a civil racketeering lawsuit back in 2006, shortly after the federal judge set a trial date for the case.

As Rauner was chairman of GTCR at the time, we can probably safely assume he had to personally sign-off on a decision to settle a big racketeering case.

I wrote about the details of that racketeering lawsuit back in May. The terms of the settlement remain confidential, but a reference to the case in court filings in other Trans Healthcare litigation suggests the amount was easily in the millions.

The lead plaintiff in the 2006 case was Aegis Services, Inc. ("Aegis"), a landlord which leased land and facilities to defendants for use in their nursing home business throughout Ohio.

Aegis claimed defendants had been ignoring their rent obligations because they were engaged in a "massive and wholesale pattern of wrongful and fraudulent conversion" of nursing home monies which defendants were unlawfully diverting to themselves. Those nursing home monies of course included tax dollars in the form of Medicare and Medicaid reimbursements.

All of this exposes yet another lie by Rauner. As the current trial proceeds in Florida, Rauner attempts to bamboozle gullible reporters into thinking this is all new and that his company has never been accused of wrongdoing before. Of course it's all hogwash. The Ohio racketeering case is just one example evidencing that this "bust-out" model was Rauner's common practice and not some isolated event.

Aegis's suit included not only civil racketeering claims -- as in the Racketeer Influence and Corrupt Organizations statute, or "RICO" -- but also other federal and state civil claims including allegations of mail fraud, wire fraud, fraudulent transfer, unlawful conversion of assets, and intentional submission of false financial information. Those allegations sound like they could also have been brought criminally, but we find no evidence that the matter went beyond Aegis's civil claims.

The main defendants were the GTCR-created-and-controlled Trans Healthcare, Inc. and Trans Health Management, Inc. While Rauner was not personally named, GTCR Fund VI, L.P. (one of GTCR's investment funds) was a named defendant due to its ownership and control of Trans Healthcare.

Two of Rauner's then-fellow GTCR principals, Edgar Jannotta, Jr. and Thomas Goldberg were also personally named. Also named as defendants were Trans Healthcare's Chairman Thomas Erickson, and its President and CEO W. Bradley Bennett - both were officers installed by GTCR.

Anyone following the trial going on now in Florida will note many of the same players.

More importantly, if Pat Quinn had once settled a RICO case, does anyone honestly think it wouldn't be front page news? And Rauner's campaign would get another million or two from his billionaire pal Ken Griffin to guarantee every voter in Illinois knew about it.

But when it comes to Rauner, almost everyone is silent.

Finally, I'll note Bruce Rauner earns a distinction even disgraced former governor Rod Blagojevich can't claim. Recall the Feds actually dropped racketeering charges against Blagojevich.

Granted, in Blagojevich's case we are talking about the criminal side of the federal RICO statute. The suit Aegis brought was a federal civil RICO case and the standard of proof is lower, and obviously the penalties are quite different. Nevertheless, it's a very serious matter and the fact remains Rauner's firm decided to settle a civil RICO case instead of going to trial.

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Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.