Behind the scenes of an intricate FBI sting

The pay-to-play investigation that snared political power broker John H. Estey involved an elaborate FBI sting in which agents created a fake Florida recycling company and spent lavishly on lobbyists and campaign contributions to push the firm's agenda in Harrisburg, according to an Inquirer review of records and interviews with sources close to the case.

As that phase of the sting unfolded between 2009 and 2011, legislation was even drafted to help the bogus firm and sped through the state Senate, passing unanimously. Its chief sponsor was a senator who later died awaiting trial on unrelated corruption charges.

On paper, the company, Textbook Bio-Solutions L.L.C., said it wanted to buy textbooks to give to "impoverished nations," or to recycle into pellet fuel as an alternative heating method.

In reality, it was a front for the FBI, tracing back to a mail drop in a strip mall near Fort Lauderdale - and to an address that had been used before in another federal sting.

But the scam worked, bringing the firm and its undercover agents in close contact with other prominent officials.

One was State Senate President Pro Tempore Joseph Scarnati, who became a cosponsor of the bill to advance the firm's agenda. Scarnati, a Jefferson County Republican, took a $5,000 campaign contribution from the agent posing as the top executive of Textbook Bio-Solutions.

Another was Rep. Dwight Evans, a Philadelphia Democrat and then-majority chair of the powerful House Appropriations committee. The agent gave his campaign $10,000.

The fake firm spent $135,000 on lobbying fees, including hiring Estey, the former chief of staff to Gov. Ed Rendell, as well as one of Harrisburg's leading lobbying firms, Long Nyquist & Associates, public records show.

Estey, in turn, gave generously to other politicians, including three legislators from the Philadelphia area.

Scarnati said Friday that he was unaware that he had been dealing with a "fabricated business" and that he has never been contacted by federal authorities. He said he had dealt with the firm and accepted the campaign money in good faith, but would now donate the contribution to charity.

Evans, who last month became the Democratic nominee and overwhelming favorite to win a Philadelphia-based U.S. House seat, did not return numerous calls seeking comment. An Evans adviser, Michael Dineen, fielded questions about the donation, but then never called back.

Much of what occurred as part of the investigation - hiring lobbyists, giving out campaign donations, pushing legislation - is legal. Prosecutors bring charges when donors and lawmakers cross the line and strike explicit bargains to exchange money for official action.

It's unclear if additional such charges are looming. Federal prosecutors in Harrisburg have declined to discuss details of a probe they only broadly describe as focused on "lobbying in the Pennsylvania General Assembly."

But the sources and records suggest the case could become the most complex and far-reaching corruption investigation in Harrisburg in a decade, one sending shock waves across Pennsylvania political and business circles.

Along with Estey, the probe already snared former state treasurer Rob McCord, who sources have told the Inquirer agreed to cooperate in return for leniency and secretly recorded his conversations for the FBI.

Estey, an Ardmore lawyer who held key roles in Philadelphia City Hall, the governor's office, and the private sector, also began cooperating.

He agreed to wear a body wire - a hidden recording device - and to record conversations among his vast array of contacts in Pennsylvania's political, legal, charitable, and business communities, sources said.

On Tuesday, he is due in court to plead guilty to wire fraud - a crime that took root more than seven years ago in a strip mall not far from the Florida Everglades.

'A good proposal'

In May 2009, records show, someone registered Textbook Bio-Solutions as a new business in Davie, Fla., just west of Fort Lauderdale.

A company website went up, too. "Pioneering advances in biomass fuels and helping to educate developing countries!" it read. The website, now inaccessible, touted offices in the cities of Miami and Chicago and Harrisburg.

Textbook Bio-Solutions' corporate address - 15751 Sheridan St. - actually traces back to Pak Mail, a mailing and shipping business operating in a strip mall. It listed the names of five executives, none who now appear to have been real people.

The address - or concept - wasn't new to federal agents. It had been used by 2005 and 2008 as a front for a company called Gideon Development, a sting used to nab commissioners and other public officials in two rural Florida counties on bribery charges, court records show. Textbook Bio-Solutions wasted little time in making itself known in Pennsylvania's Capitol.

Its goal: passage of a law to require schools statewide to use so-called "certified" recycling centers to dispose of unwanted textbooks. Textbook Bio-Solutions would be a contractor providing such centers.

A three-man team from the recycling company fanned out across Harrisburg, secretly taping their conversations, sources said. One, who went by the name John Miles, played a button-downed and low-key executive, while the other two posed as venture capitalists providing the financial backing.

A source who worked on the legislation with them but who asked not to be identified discussing an ongoing case said the men kept asking "fake naive" questions about the political process.

"These guys are kind of goofy," the source recalled thinking. But the company's pitch also sounded legitimate. "Who could be against recycling textbooks?" the source said.

At one point, the firm also created a Philadelphia address, also a mail drop: a business at 2 Penn Center across from City Hall that offers "virtual office" space. A mailbox goes for $75 a month.

In July 2009, lobbying disclosure records show, John Miles - the undercover agent - reported hiring the Long Nyquist firm to advocate for his firm in Harrisburg.

Michael S. Long and Todd R. Nyquist are two former senior aides to Republican leaders in the state Senate with strong ties to Scarnati. Textbook Bio-Solutions' initial payment: $15,000.

In an interview Thursday, Long, founder of Long Nyquist, said his firm never had any inkling that the company was bogus or a sting. The company's recycling plan seemed sound, he said.

"In fairness to us - and in fairness to legislators - the proposal sounded like a meritorious one. . . . It seemed like a legitimate company with a good proposal," Long said.

He said his lobbying company had stayed well within ethical and legal limits in representing Textbook Bio-Solutions. He also said his firm advised all clients that corporate donations were banned in Pennsylvania and that Textbook Bio-Solutions hadn't seemed to want to test that.

"We were never offered corporate contributions to be used for political purposes," Long said, adding that no one from Long Nyquist has been contacted by federal authorities.

He said his firm had not tied any contributions from its own PAC to the passage of any legislation.

Scarnati on Friday acknowledged that he had once met with the executive who called himself John Miles. The firm told the senator it would open a distribution center in his district, Scarnati said.

Not too long after connecting with Long Nyquist, recycling firm members had a dinner meeting in Miami with another potential lobbyist: Estey.

He agreed to join their team.

Money and bills

In Estey, the FBI had a line on a very big fish.

In 2009, he had just returned to the private sector - newly registered as a lobbyist and working for the Ballard Spahr law firm in Philadelphia after serving as Rendell's gubernatorial chief of staff for five years. The well-connected, 53-year-old Democrat also has variously served as chair of the Delaware River Port Authority, the Philadelphia Regional Port Authority, and the Independence Visitor Center.

Over a two-year period, Textbook Bio-Solutions spent $135,000 on lobbying, state disclosure records show, but they do not break down how the money was spent.

But the agents' campaign contributions are clearer. In June 2010, records show, Miles donated $5,000 to Scarnati, the Senate's president pro tempore.

Two days later, Miles and Estey each gave donations to Evans, the veteran Democrat who led the committee that controlled state spending. Miles, listing the Florida mail drop address, donated $10,000. Estey gave $5,000.

Those contributions landed just weeks after Sen. Raphael Musto, a Democrat from Carbon County, introduced the bill to require the recycling of textbooks. Scarnati was among its cosponsors.

In an interview, Richard Fox, a former aide to Musto, recalled that Musto was urged in part to introduce the bill by the Long Nyquist firm, who had a client promoting "a business model where they recycled old textbooks."

The measure passed the full Senate in October. The vote was 49-0.

The chamber broke into a standing ovation upon passage of the bill, in tribute to Musto. It was one of Musto's last legislative successes; he had announced his retirement at the end of the session, doing so after news broke that the FBI had raided his house.

He died two years ago while awaiting trial on graft charges unrelated to the recycling measure.

John E. Riley, Musto's lawyer in the corruption case, said he had never heard of Textbook Bio-Solutions. Riley also said his client had not been a government cooperator.

The bill never made it to a vote in the House, possibly because it was too late in the legislative session. But, with help from Estey and the other lobbyists, it was reintroduced anew in the Senate early in 2011.

Estey's efforts on behalf of the company were outlined in court documents filed late last month in connection with his plea agreement.

That year, they show, Estey urged Textbook Bio-Solutions to make $20,000 in campaign contributions to get the bill passed.

Estey admitted recommending that the firm give $5,000 each to three lawmakers and $5,000 to a leadership caucus. The documents do not name the recipients.

Textbook Bio-Solution gave Estey the money to give to lawmakers - out-of-state companies are barred from making such donations - but Estey actually paid out only $7,000 and secretly kept the rest for himself.

Prosecutors did not reveal who received the campaign funds. But public records show that Estey gave $1,000 to Evans on April 28, 2011 - the very day that the government says Estey gave Textbook Bio-Solutions his campaign-spending advice.

That year, Estey also made campaign donations to three senators: $2,000 to Vincent Hughes and $1,000 to Lawrence Farnese, both Philadelphia Democrats; and $500 to John Yudichak, who had assumed Musto's old seat. And Estey gave $2,500 to the campaign fund of then-Rep. Josh Shapiro, a Democrat from Montgomery County.

Through a spokesman, Hughes said "any and all contributions that I received were done through normal fund-raising efforts." He also said he has not been contacted by federal authorities.

Shapiro, who became the Democratic nominee for attorney general last month, could not be reached for comment Friday. Farnese could also not be reached for comment.

As for the Long Nyquist firm, its political action committee gave Scarnati $17,500 on April 29, 2011 - among the largest of its many contributions to the senator in recent years. Like Musto before him, Yudichak reintroduced the recycling measure that year, at the start of a new session. Scarnati again was among the cosponsors. This time, the bill never left committee.

In interviews, Yudichak and Fox said they had simply dusted off the Musto bill because it seemed worthwhile.

Yudichak said he could not recall meeting or talking with Estey. He said the $500 donation likely reflected Estey's support for leading Democrats.

In any event, he said he, too, was astounded to learn that the firm was an FBI front.

"I'm at the mercy of some very unfortunate circumstances," he said. "If a constituent or a citizen of Pennsylvania walks in the door and says, 'Can you help me with this idea?' I have to assume the best of intentions. I can't imagine they are law enforcement."

cmccoy@phillynews.com

215-854-4821 @Craigrmccoy