The president of Verizon Pennsylvania struck a secret "gentleman's agreement" with State Sen. Vincent J. Fumo under which the phone company agreed to pay millions to a law firm of Fumo's choosing, according to court testimony Monday.
As part of the deal, prosecutors allege, Fumo would drop his push to break up the giant phone company.
Fumo (D., Phila.) initially lobbied Verizon to hire his own law firm, Dilworth Paxson, but Verizon rejected that because it "would result in money directly into Fumo's pocket," the firm's general counsel told the FBI, according to testimony at a pretrial hearing in Fumo's federal indictment.
Verizon eventually agreed to give work to the firm of another Fumo ally, former City Controller Thomas A. Leonard, according to testimony.
At the same hearing, Fumo's private eye, Frank D. Wallace, spoke in public for the first time and said his sleuthing for Fumo had been "one-third Senate business, one-third political, and one-third personal."
Wallace also disclosed that he had performed electronic "sweeps" of Fumo's legislative offices and home, as well as of offices and homes of Fumo allies, but had balked at continuing to do them once he became aware that a federal investigation was under way. He said he told a top Fumo aide, "I thought it would be obstruction of justice" to continue.
Fumo faces federal charges of misusing his Senate staff and the funds of two charities. The trial is not expected to begin until early next year.
But a flood of new details on Wallace's private-eye work and Verizon's dealings with Fumo emerged during a hearing on the federal government's attempts to disqualify Fumo's lawyers, Sprague & Sprague. The hearing is expected to conclude Tuesday.
Prosecutors have been seeking to have Sprague & Sprague disqualified as Fumo's attorneys because they believe the firm has too many conflicts.
Prosecutors have said Fumo used his power to extract $17 million from Peco Energy Co. to fund his South Philadelphia charity, Citizens Alliance for Better Neighborhoods.
In the indictment, prosecutors disclosed that they had investigated Fumo for possible extortion in his dealings with Peco and Verizon.
FBI Agent Vicki Humphreys, who along with Agent Kathy McAfee investigated Fumo for four years, took the stand and read the accounts of three Verizon representatives involved in the Fumo dealings: former Verizon president Daniel J. Whelan; the firm's former top lawyer, Julia Conover; and lobbyist Stephen R. Wojdak.
Fumo's talks with Whelan took place in 2001, after the state senator had joined a political effort to break up Verizon on the grounds that doing so would foster competition and lower phone rates.
As talks proceeded, prosecutors say, Fumo offered to drop his fight and pushed Verizon to give $15 million to Citizens Alliance.
Unlike Peco, Verizon refused to do that. But according to the testimony given Monday, Whelan did agree to give an unspecified amount to the Philly Pops - orchestra conductor Peter Nero and Fumo are close friends - and to hire a law firm designated by Fumo.
Wojdak, serving as a liaison between Whelan and Fumo, told the FBI that Fumo first asked Verizon to hire Dilworth Paxson, which employs Fumo. That firm has paid Fumo as much as $1 million a year to serve as a "rainmaker" to get clients, The Inquirer has reported.
Conover, then Verizon Pennsylvania's chief counsel, told the FBI that Whelan was adamant that Dilworth not get the work, Humphreys testified.
Fumo's next pick: Sprague & Sprague. Whelan rejected that idea, too.
Whelan told the grand jury about the suggestion that he hire Sprague & Sprague:
"I have to admit, I started laughing at that one. Sprague and Fumo have been close friends and allies for a number of years."
Fumo then urged Verizon to use veteran lawyer Thomas Leonard of the Obermayer, Rebmann, Maxwell & Hippel firm. Fumo and Leonard are longtime political allies.
Verizon agreed, people involved with the matter said Monday.
Conover told the FBI that her boss originally agreed that Verizon would pay $500,000 a year for five years, but later increased the amount to $1 million for three years.
It was not clear how much the Obermayer firm received as a result.
Eric Rabe, a spokesman for Verizon, said Monday that the firm would neither confirm nor deny that Whelan struck such a deal with Fumo. "I'm just not going to answer that question," he said.
Rabe did say Verizon had been using Leonard and the Obermayer firm before the 2001 negotiations with Fumo. Asked whether Leonard got more work as a result of the deal, he declined to respond.
Leonard and Conover could not be reached for comment. Wojdak declined to comment. Whelan, a former member of the School Reform Commission, left Verizon at the end of 2002. He and Nero could not be reached for comment.
Fumo's dealings with Peco and Verizon did not result in charges. Prosecutors contend that Fumo's destruction of documents - he also is charged with obstruction of justice - prevented them from finding out whether Fumo's negotiations amounted to extortion.
In seeking to have Sprague & Sprague disqualified as Fumo's lawyers, prosecutors say that the firm has represented both Fumo and Citizens Alliance, which the prosecution says is a victim in the case.
In his testimony, Wallace, a former Philadelphia police inspector who headed the department's organized crime squad, said he worked as a private eye for Fumo from 1997 to 2006. His contract paid him $45,000 annually from Senate funds.
According to Wallace, he started to become unsettled about his long relationship with Fumo when he was asked to continue conducting electronic sweeps even though he knew that a federal investigation was under way.
He said Fumo's aide told him that Fumo's lawyer, Richard A. Sprague, had advised that it was legal to keep conducting such sweeps.
Asked about that after the hearing, Sprague said any citizen had a right "to see if Uncle Sam or anyone else had put in a bug or wiretap."
The key question, Sprague said, was what a person did once a bug was found. Sprague left his question unanswered.
On cross-examination, Sprague, one of the city's most respected and feared lawyers, still sharp and probing at age 81, asked Wallace, "You didn't charge the Senate for personal and political [investigative] work?"
Replied Wallace: "That's incorrect. I did charge them."
Sprague then confronted Wallace with the FBI's notes of an interview, quoting him as saying he was upset at having to conduct private and political investigations "free of charge."
Wallace said that the notes were inaccurate and that Fumo aides had instructed him several years ago not to itemize his services on bills.
Fumo lawyer Mark Sheppard declined to comment on Monday's hearing. He is expected to challenge the government's version of events when the hearing resumes Tuesday morning and he cross-examines Humphreys.
Sheppard and Assistant U.S. Attorney Robert Zauzmer are expected to offer closing arguments to Senior U.S. District Judge William H. Yohn Jr.