Kickback Scheme Evidence Lacking; Jury Acquits Diocese Officer

By John Caniglia
Plain Dealer Reporter

July 4, 2008

A federal jury on Thursday acquitted the former chief financial officer of the Cleveland Catholic Diocese of skimming $784,000 from the church through an elaborate kickback scheme.

The jury did, however, convict Joseph Smith of lesser charges for failing to pay taxes on $171,000. Prosecutors claimed the money was proceeds from the scheme, while Smith said the income was legitimate compensation.

The verdict came after a six-week trial that examined the diocese's financial controls and featured testimony from former Bishop Anthony Pilla.

Smith sat motionless during the reading of the verdicts, his reading glasses at the bridge of his nose and his hands on the defense table.

U.S. District Judge Ann Aldrich will sentence Smith, 52, on Oct. 3. He faces a maximum of 20 years in prison, but is expected to get far less.

His attorney, Philip Kushner, said Smith was pleased with the acquittal on the kickback charges and would look at his options later with defense attorneys.

The case focused on Smith, who had worked at the diocese for 20 years, and Anton Zgoznik, who ran companies that did accounting work for the diocese.

Federal prosecutors John Siegel and Jerrod Patterson said Smith steered $17.5 million in church business to Zgoznik between 1997 and 2003. Zgoznik then made payments to two companies Smith owned and ran from his Avon Lake home. Prosecutors contend those payments were a kickback to Smith for funneling the work to Zgoznik's companies.

In January 2004, a tipster sent anonymous letters to the diocese, attorneys and The Plain Dealer about the payments. When confronted about them, Smith lied and said the money was from consulting services he performed for Zgoznik, Siegel said.

Smith later left the diocese and became the financial offi cer of the Co lumbus dio cese. He left that job when he and Zgoznik were indicted in 2006.

The case ended a decades-long friendship with Pilla, who entrusted Smith with the diocese's daily business operations. Pilla testified he was stunned when the allegations surfaced.

In motions before the trial, Kushner leveled several allegations that church officials had dozens of hidden bank accounts used to funnel payments to whomever they saw fit. Kushner did not bring up those claims during the trial.

Zgoznik went to trial last year and was convicted by a jury on all 15 charges, including conspiracy, mail fraud, tax charges and obstruction of justice. He will be sentenced in September.

Kushner told the jury that the payments between Smith and Zgoznik were legitimate, not a covert kickback conspiracy.

He said during the trial that the Rev. John Wright, the diocese's financial officer who preceded Smith, knew of the payments and approved them to supplement Smith's income.

In testimony during the trial, Wright admitted approving a one-time payment of $250,000 to Smith to keep from taking a job in the private sector. Wright testified Pilla did not know about that payment, and Wright denied approving any other payments to Smith.

In a statement Thursday, the diocese said it accepts the jury's decision, "but it remains the Diocese's position that no one knew of or approved the payments to Smith by Anton Zgoznik's firm."

The diocese said it has strengthened internal controls by hiring more financial officers and has turned to well-respected professional firms.

Jurors said Thursday that they had hoped to hear from Zgoznik during the trial, but he was never called to testify. They said they had no idea he was convicted of any crimes.

They said there was not enough evidence to convict Smith on the kickback scheme.

"It was very complicated, very detail-oriented trial with a lot of things going on," said juror Kathryn Carpenter of Elyria. "There was a lot of evidence on the tax issues."

Smith was convicted of six tax-related charges out of a 23-count indictment. Aldrich, the judge, threw out eight money laundering charges at the end of the trial.

The jury cleared him on nine charges, including conspiracy and fraud.

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