A closer look at Bob Mellow's plea deal

Former State Sen. Robert J. Mellow may be disgraced, cast from power and marking time until he is sentenced on a federal corruption charge, but he may still come out a winner financially.

As detailed in his guilty plea agreement Wednesday and in a report from the state Ethics Commission, federal and state investigators focused on Mellow's ownership of a office building outside Scranton that served as his legislative office.

The weathered building was nondescript, but thanks to seven years of rent payments by taxpayers, it was a cash cow for Mellow.

Despite a state ethics rule that bans lawmakers from renting to themselves, Mellow did not disclose his family's co-ownership of the building in Peckville and profited as it took in $244,000 in taxpayer-paid rent and utility payments between 2001 and 2008. Mellow's campaign fund also paid rent, as did his accounting firm.

Even so, Mellow agreed in March to pay only $21,000 to resolve the official complaint from the Ethics Commission.

As part of his separate federal case, he agreed to pay an additional $31,748 in taxes that he illegally avoided when he finally sold the office building.

The dirctor of the state Ethics Commission, John Contino, acknowledged that the $21,000 payment was relatively small. But he said his panel was undermined by its weak statute.

"Unfortunately we were hamstrung in the case," he said. "I'd love to see the Ethics Act strengthened. I think we did as good a job as we could under the circumstances."

The problem, he said, was that the act only permits action on misdeeds dating back five years or less. But Mellow first engineered the rent payments to himself many years before that. After that, the rent was automatically renewed.

This has left Harrisburg gadfly Gene Stilp frustrated and annoyed.

"It's not acceptable. It doesn't even cover the cost of the Ethics Commission's investigation. There's no penalty. It's minimal restitution, maybe 10 percent of the money involved. They let ex-Sen. Mellow slide by a very weak plea agreement."

It was Stilp who filed the citizen's complaint in 2009 that triggered the Ethics Commission inquiry. He drew in part upon a lengthy Inquirer investigative article that detailed the Mellow rental deal after Mellow was forced to reveal it in the fallout from his divorce. Mellow attorney Sal Cognetti did not return a call seeking comment.

On Wednesday, Mellow, 69, for 11 years the leader of state Senate Democrats, became the latest in a string of top lawmakers to be convicted of crimes. They include former State Sen. Vincent J. Fumo and former Republican House Speaker John Perzel, both from Philadelphia; and former House Democratic Leader Bill DeWeese, of Greene County.

Their cases and others had one thing in common with Mellow's: Each involved charges of illegally using state money and legislative staff to campaign for office.

Prosecutors also accused Mellow of filing a false tax return, dodging taxes owed when he finally sold the office building in 2008. As part of his guilty plea, Mellow has already paid the $31,748 to cover the unpaid tax, plus interest and penalties.

In federal court Wednesday, Mellow pleaded guilty to one count of conspiracy to defraud, a charge that covered both the campaign activity and the tax cheating. He faces a maximum sentence of five years in prison, plus fines and restitution.

Mellow retired from office while under federal investigation and began collecting a $139,000 yearly pension.

The state pension system must now decide whether to revoke that pension. Not all state lawmakers convicted of federal crimes have lost their pensions. That only happens if the system decides the federal crimes were akin to state offenses listed in the state law governing pension forfeiture.

The Ethics Commission's 16-page report that accompanied its deal with Mellow, made public April 26, provides by far the most public accounting of his rental maneuvering.

For his first two decades in the Senate, the 1970s and 1980s, Mellow had his office in Scranton.

Then, in 1990, he moved it to Peckville, his hometown, renting space in a building owned by an aide. The taxpayer rent payments in the 1990s were enough to pay off the building's mortgage, the Ethics Commission found.

In 2001, Mellow's wife, Diane, became half-owner. Her payment: $1.

For years, Mellow kept silent about his wife's stake, even though the ethics rule forbidding self-rentals had been issued to the Senate lawyer who worked for him in the role of counsel to the majority leader, the Ethics Commission said. Nor did he reveal that the payments to his wife were deposited into a joint bank account that paid their living expenses, the commission said.

The ownership was kept secret until the Mellow's marriage came undone.

When the divorce was made final in 2007, Mellow finally disclosed to the Senate that he had assumed his wife's building share as part of a split-up of their assets the previous year. As a direct owner, he had no choice but to reveal the ownership in his annual income disclosure form.

In response, the Senate clerk ordered him to either move his office out of the building or sell his stake.

Mellow finally did sell—16 months later. During those months, taxpayers paid $41,000 more in rent to the partnership owned by Mellow and his aide.

The $21,000 payment extracted by the Ethics Commission means he has to pay back his share of this post-2007 rent. Contino said the 2007 disclosure was viewed as an "overt act" under the Ethics Act, permitting the panel to go after Mellow from that time forward.

When Mellow finally unloaded the property, his share of the sale proceeds was $130,000.

This was a nice profit, considering that the report says the Mellow family had bought into the property seven years earlier for the $1.

The sale was sweetened by one last round of assistance from the taxpayers. The buyer was granted a six-year lease by the Senate — and a doubling of rent payments.

Contact Craig R. McCoy at 215-854-4821 or cmccoy@phillynews.com.