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How Main Line political insiders made millions placing billions in public funds with outside firms

For decades, millionaire Main Line businessmen Richard Ireland and Brian McElwee have plied politicians with campaign money while landing government contract after contract.

For decades, millionaire Main Line businessmen Richard Ireland and Brian McElwee have plied politicians with campaign money while landing government contract after contract.

None of it has provoked much attention. But now the two little-known partners are drawing scrutiny beyond political circles.

In the latest probe into "pay to play" in Pennsylvania, federal prosecutors and the U.S. Securities and Exchange Commission have subpoenaed a host of documents from the businessmen.

Prosecutors have deployed a former Pennsylvania treasurer against them. Before Rob McCord pleaded guilty last year to corruption charges, he secretly recorded Ireland as they talked over contracts, according to people familiar with McCord's undercover work.

Investigators have even gone back 15 years, to a watershed moment in Ireland and McElwee's business history.

That's when another state treasurer, Barbara Hafer, dramatically increased state business given the two men - after each, on the same day, made a $150,000 campaign contribution to her.

For connecting Treasury to an investment firm they once owned, the two men eventually pulled in $2 million a year in finder's fees for that single placement alone.

Their donations to Hafer were the biggest one-day donation she ever received from anyone.

A detailed look at McElwee and Ireland's thriving business model - an operation marked by $3 million in campaign donations since 2000 - shows how the clubby culture has benefited select businesses and political figures in Pennsylvania.

In the lexicon of high finance, Ireland and McElwee are known as "finders." They have been paid big finder's fees for serving as middlemen, connecting financial professionals with government officials who control public money and where it is invested.

The two men also have earned millions in finder's fees for helping financial advisers win contracts to manage billions of dollars in public money, including funds from Bucks, Chester, Delaware, and Montgomery Counties, the Pennsylvania Turnpike Commission, and SEPTA - all the while contributing to politicians who were influential for each entity.

Critics, such as the SEC, good-government groups, academics, and others, have long worried that the pay-to-play culture means financial advisers nationwide aren't being selected on merit to manage public money, but because of political juice.

Craig Holman, a finance expert with Public Citizen, a national government-watchdog organization, said that when pay-to-play becomes business as usual, some firms avoid government contracting because of the corruption taint, and taxpayers get less for their money.

"I've seen more pay-to-play scandals in Pennsylvania than any other state," Holman said. "It hurts government, it hurts taxpayers, and it hurts legitimate businesses."

Some also question the millions in fees paid middlemen like Ireland and McElwee for their work in brokering deals.

A spokesman for Ireland and McElwee said last week that the money paid the finders had no impact on taxpayers.

But Joseph Torsella, the Democratic candidate for Pennsylvania treasurer this year, rejected this. If finders were forbidden, Torsella said, officials could "drive a harder bargain for the underlying fees that we pay."

Torsella wants to ban finders from doing business with the Treasury. His Republican opponent, Otto Voit, stopped short of calling for an official ban but said he would not meet with finders. "I don't need their pitch," he said.

In a statement, Henry E. Hockeimer Jr., a lawyer for Ireland and McElwee's firm, said that the men were fully cooperating with the federal probe. Ireland and McElwee "have nothing to hide," Hockeimer said.

In a statement, Ireland and McElwee called McCord a dishonest "extortionist" who had "dragged" them into the investigation "in a futile effort to save his own skin."

Prosecutors in the Middle District of Pennsylvania declined comment on their long-running probe to shine new light on how insiders target their campaign donations as they hunt for public contracts.

Of the two millionaires, McElwee is the more public.

McElwee, 67, who earned a business degree in 1972 from Drexel University, has been a booster of Leadership for Catholic Schools, which helps needy students pay tuition.

Ireland, 79, whose family operates a 160-acre horse farm in Chester County, put himself through La Salle College, graduating in 1959. He, too, has backed charities that help children.

For much of their careers, the businessmen have been tightly associated with Valley Forge Asset Management Corp., a firm with a small staff of registered financial experts. Ireland founded it in 1969 after several years with Merrill Lynch.

In 2000, Ireland, McElwee, and other owners of Valley Forge Asset, in King of Prussia, sold the company for about $16 million to Susquehanna Bancshares, a Lancaster County bank holding company. But the two men's relationship with Valley Forge remained extraordinarily close.

Even after the sale, the businessmen were to share in Valley Forge profits for several years, corporate filings show. Valley Forge Asset said the continued payments would "induce them to continue contributing" to the firm's success.

The men operate out of an office across a parking lot from Valley Forge Asset. They and Valley Forge share a post office box. For more than a decade after the sale, Valley Forge Asset still kept its books in Ireland and McElwee's office, according to SEC documents.

If investors or regulators had questions about the books, Valley Forge Asset listed contact information - Ireland and McElwee's phone number.

While the businessmen have financially backed dozens of officials, no politician was the recipient of more campaign money than Hafer, elected treasurer as a Republican in 1996 and again in 2000. In all, Ireland and McElwee showered her with more than $475,000. (Her lawyer, John A. Knorr, said Hafer would have no comment for this article.)

The giving came after Pennsylvania had overhauled - and greatly loosened - the freedom that treasurers had to invest public money.

Until this 1998 change in Pennsylvania law, state treasurers since the Great Depression could put taxpayer money only into fixed-return, short-term instruments. The overhaul permitted more remunerative, if potentially more risky, choices.

With that liberalization, business boomed for Ireland, McElwee, and Valley Forge Asset, which was awarded its first treasury contract by Hafer in 2000.

The following year, on Aug. 31, 2001, Ireland and McElwee each gave $150,000 to her campaign fund. That summer, Hafer was mounting what turned out to be an unsuccessful campaign for governor.

Three months after that, Ireland and McElwee's firm began increasing its cut from the investment houses that had hired it.

According to documents on file with the Treasury Department, it sharply increased its fee to another investment firm, Weaver C. Barksdale Associates, that was also doing work for Treasury. Weaver Barksdale agreed to pay it 50 percent of all Treasury payments, up from 33 percent.

Valley Forge Asset also paid the two men the same 50/50 split over the years. Those fees ended in 2010.

Industry experts, such as Donna DiMaria, the chair of a trade group for finders, said they were surprised by the fee. "I've never heard of a 50 percent fee," DiMaria said.

Equally bemused was Brian Fitzgibbon, a 30-year veteran of the trade and a member of DiMaria's group, the Third Party Marketers Association. "Normally, it would be 20 percent of their fee on an ongoing basis," he said.

Ireland and McElwee, in a filing with government officials, have acknowledged that their fee was high - twice their typical fee.

And while many finders are paid only once for landing a client, Ireland and McElwee have struck deals involving governments that called for them to be paid for multiple years.

Treasury Department records show that Hafer rapidly boosted the amount of money overseen by Valley Forge Asset. It climbed from $1.1 billion in 2003 to nearly twice that by Hafer's last year in office, which in turn boosted fees to Ireland and McElwee.

After Hafer stepped down, the next treasurer, Democrat Bob Casey, looked favorably upon the firm, increasing business given it and a sister firm.

Ireland and McElwee's giving to Casey was modest, just $2,500. Their support for a Casey ally, then-State Sen. Vincent J. Fumo (D., Phila.), was more generous.

Ireland has said that Fumo - who benefited from $150,000 in campaign donations from the two business partners - helped him obtain contracts in the Casey years. Ireland described Fumo's role in a 2009 letter asking for a lenient sentence for Fumo after his corruption conviction.

"It's not even pay to play," Fumo said last week. "A constituent asks for an introduction, and you do it."

He added, "I always viewed everyone in the state as part of my constituency, because, believe me, they all came to my door."

Through a spokeswoman, Casey said last week that he could not recall ever talking with Fumo about giving state investment business to Ireland.

When Casey resigned the office in 2007 after being elected U.S. senator, investment firms tied to Ireland and McElwee were overseeing $3.4 billion in treasury funds, a quarter of all money the department had to invest.

Then came the fall.

Gov. Ed Rendell, a Democrat, appointed Robin Wiessmann to fill out Casey's term. At the time, Rendell was at political odds with Ireland friend and supporter Fumo.

Wiessmann quickly slashed Valley Forge's contract, leaving only $386 million under management. (She, too, declined to be interviewed.)

Under the next treasurer, McCord, a Democrat, Valley Forge Asset saw its fortunes improve. Its agency money under management almost doubled.

In a statement, a spokesman for Ireland and McElwee said the investment firms that they had recommended had turned in "better than average [performance] at a minimum."

Ireland, McElwee, and their associates were big McCord boosters. In 2012, McElwee donated $25,000. The following year, two of Ireland and McElwee's top executives gave McCord's fund $50,000 apiece.

McCord is awaiting sentencing for his corruption conviction, hoping his undercover cooperation will reduce his sentence.

As for Valley Forge Asset, it was bought last year as part of the sale of Susquehanna Bancshares to BB&T, a national bank headquartered in North Carolina.

In Valley Forge Asset's latest disclosures, it said it was managing about $2 billion in assets, with only about $200 million from the Pennsylvania treasurer - far less than in its boom years with Hafer, and later Casey and McCord.

Even if the federal investigation and McCord's undercover tapes produce no charges, Ireland and McElwee will likely face tougher times with their advising business.

In 2011, in an effort to eliminate pay-to-play corruption, the SEC banned financial firms like Valley Forge from making campaign contributions to officials who select investment advisers.

After years of paying finders who have made massive political contributions, Valley Forge Asset now says that it is "never appropriate" to make campaign donations to "improperly influence the actions of public officials," and it tells its staffers not to make them, according to a firm disclosure to the Treasury.

As for the finders, a new SEC rule will kick in this fall that effectively bars them from making donations, too.

It could bring an end to the millions of dollars in donations from middlemen like Ireland and McElwee.

Staff writer Angela Couloumbis contributed to this article.