Orange Beach Political Indictments

Friday, January 20, 2006
By RYAN DEZEMBER
Staff Reporter

Orange Beach Mayor Steve Russo was indicted Thursday on federal criminal charges that he violated Alabama elections laws by not reporting more than $33,000 in campaign contributions prior to his 2004 re-election and used the money to pay for vacations, casino trips, clothing, a computer and other personal expenses.

In addition, the mayor, former City Councilman Joe McCarron, City Attorney Larry Sutley and local developer Jim Brown were indicted on state charges alleging a web of bribery, conflict of interest and other ethics violations in which Russo wound up with a BMW automobile and 33 percent interest in a corporation that holds a $1.6 million beach property in Gulf Shores.

All four men were briefly jailed at the Baldwin County Corrections Center in Bay Minette on Thursday morning as they were booked on the state charges. McCarron, Sutley and Brown each were released after posting $10,000 bond while the mayor, who was also charged by the state for campaign finance violations in a separate indictment, was required to pay $20,000 before being freed, according to prosecutors.

All four declined to comment on the charges.

"Orange Beach with its ongoing explosion of development is an important asset to the state of Alabama," said Debra Mack, the FBI's Mobile-based special agent in charge. "Therefore it is vital that its public officials be held accountable for honest government."

Russo is expected to surrender to federal authorities in connection with those charges sometime next week, prosecutors said.

The nine-page, seven-count federal indictment against the mayor was originally returned by a grand jury in late December but not unsealed until Thursday. In it, prosecutors trace how the mayor wrote checks drawn from his "Steve Russo Campaign Account" -- which he reported in required court filings as being empty -- to pay credit card bills he rung up shopping in New Orleans and gambling and dining in Biloxi.

In early 2004, on an official trip to New York to meet with financial firm, Merchant Capital, regarding an upcoming municipal bond issue, the indictment alleges Russo charged personal expenses, including $800 in Broadway theater tickets and a $1,700 on-call limousine service, to a credit card owned by the company, which were later billed back to the city as part of the company's services associated with underwriting the bond.

"The indictment alleges that Mayor Russo defrauded the citizens of Orange Beach to their right to give honest services as mayor, free from self-dealing, self-enrichment and deceit," said U.S. Attorney Deborah Rhodes at a morning press conference in her Mobile office. Rhodes was flanked by Alabama Attorney General Troy King, Baldwin County District Attorney David Whetstone and Mack.

Said Whetstone: "You can't serve two masters.
"If you're going to be a public servant, if you're going to be a mayor or you're going to be on the council, you have to look out for the public good and not your personal good. And when your personal good overrides the public good, there are heavy penalties to pay under our law."

The prosecutors, who again convened for an afternoon news conference in Daphne to explain the state charges, stressed that the two-year probe is ongoing and that more indictments are possible.

Russo, 44, faces a maximum penalty of up to 20 years in prison and a $250,000 fine for each of the seven counts of fraud charged in the federal indictment. The state charges, a mix of felony and misdemeanor violations, carry varying penalties.

"You're talking about officials who are selected by the people in a town to run their town -- we don't take that lightly. We don't take coming in and accusing them of these sorts of things lightly," King said in the later news conference. "But neither can we ignore it."

Russo first came into office in 1996 as a city councilman. Two years later he became mayor in a special election held to fill the post left empty after a Baldwin County judge removed the 1996 election's winner, Bert Krages, for failing to comply with campaign financial disclosure laws.

In 2000, he handily defeated challenger William Benjamin, collecting 72 percent of the vote. In a heated contest in 2004, Russo edged single-term City Councilman Brett Holk by fewer than 200 votes to retain the post.

That contest was preceded by a frenzied campaign in which Russo and his political allies, including McCarron, 67, fought using the tools typical of big-time politics -- voter polls, high-paid political consultants and attack ads -- to retain control of the rapidly growing resort and the multimillion-dollar development decisions that came with the job.

Developer-funded political action committees raised hundreds of thousands of dollars to support the pro-growth slate. Russo, according to his campaign finance disclosures, raised or accepted in-kind contributions totaling nearly $47,000 to support his election.

Of that he reported getting $8,000 from the Beach PAC, which raised more than $104,000 -- including $35,000 from prominent developer Larry Wireman's partner Judy Ramey -- to support Russo and his allies. The entry on his campaign forms indicating that gift, which was used for advertising, is starred. Next to it a note is handwritten in the margin: "Not sure of amount have had no contact."

The Beach PAC spent nearly all of the money it raised with PMM Inc., the political marketing firm owned by PAC operator and former Roy Moore supporter Dean Young, who was appointed by Russo to an unpaid position on the city Planning Commission immediately following the August election.
Because Young reported spending nearly all of the money with his firm, specifically how the funds were allocated is blurry. But federal prosecutors said that the money Russo allegedly concealed came from individuals and local businesses and not any political action committee.

When asked whether the amount of non-cash contributions Russo reported receiving from the Beach PAC was accurate, two federal prosecutors said only that the investigation is ongoing.

Russo acknowledged in his campaign finance disclosures raising or accepting in-kind, or non-cash, contributions totaling nearly $47,000 to support his re-election to the $25,000-a-year part-time post.

In his annual campaign finance report for 2005, the mayor claimed that his account was empty after donating what remained of his funds -- $223.12 -- to the Holy Spirit Episcopal Church in Gulf Shores in September 2004, just weeks after his successful re-election. Federal prosecutors contend in the indictment, however, that Russo filed false paperwork with Baldwin County Probate Court and actually carried a $33,000 balance in his re-election account.

Instead, the indictment alleges, Russo used undisclosed campaign funds to:

Buy a $3,500 personal computer system in September 2004.

Pay cable television bills at a downtown New Orleans condo lent to him from October 2004 to May 2005 by its owner, Wireman.

Purchase $2,000 in clothing from a New Orleans store on Nov. 6, 2004.

Cover a weekend stay in Biloxi in March 2004 in which $1,000 was spent on lodging and dining at two separate casinos and $300 was spent on clothing from a Mississippi retailer.

Between October 2004 and April 2005 four drafts from his campaign account -- three checks and one phone payment -- totaling $13,567.04 were written to pay his personal credit card bill, according to the indictment. Since Russo allegedly used the U.S. mail and phone lines, he faces wire and mail fraud charges, the indictment says.
During a July 2005 City Council meeting Russo admitted that he had stayed in Wireman's New Orleans condo "on three or four occasions" and that it had no bearing on how he voted on the Caribe Resort developer's projects. Later, federal prosecutors subpoenaed the city's recording of that meeting and the indictment says that by making such statements the mayor "intended to conceal from the citizens of Orange Beach that he had used campaign funds to pay for cable television at the condominium."

Wireman, though either mentioned or alluded to in both the federal and state indictments, has not been charged.

One of the state's indictments against the mayor -- seven counts -- parallels the federal charges that he used undisclosed campaign money for personal expenses. The other indictment, though, includes 14 counts related to other alleged criminal activity.

Four of the counts relate to Russo's use of Wireman's New Orleans condo, that the mayor "intentionally solicited or received something of value ... for the purpose of influencing his official action."

That indictment further alleges that Russo used his office to obtain from Brown a $10,000 check made payable to his current wife but then live-in girlfriend, Crystal McDonald, so that she could buy a car. Brown also is charged with giving the mayor money to buy himself a BMW as well as a 33 percent stake in American Hot LLC, a corporation created to hold a $1.6 million beach property. Other ethics charges stem from Russo not revealing the business relationship and continuing to vote on Brown's developments.

Though Sutley's secretary is listed as the principal of American Hot, Sutley, Brown and Russo signed a $1.6 million mortgage used to buy a beach property in Gulf Shores, according to Baldwin County Probate Court records.

Sutley, who wrote the incorporation papers that established Orange Beach in 1984 and has worked as the city's highly visible attorney since 1998, is also charged in the state indictments with receiving a one-third share in American Hot as a bribe. Sutley is also a former assistant Baldwin County district attorney.

Brown -- whose developments include Grand Harbour at Terry Cove and Romar Villas -- faces six counts of bribery.

McCarron faces 18 counts of using his former position on the City Council and the Planning Commission in order to sway business to his insurance firm, Orange Beach Insurance Inc.

McCarron joined the council in 1998. He was appointed by then-Gov. Fob James after another council member resigned and was re-elected to the post in 2000. During the 2004 campaign, McCarron faced an uphill battle after constant allegations from residents that he should not vote from his posts on both the council and the Planning Commission, to which he was appointed by Russo and other council members, on the projects of several developers whom he insured, including Brown when McCarron voted to allow a building at Grand Harbour to exceed city height limits.

"While someone was an insurance customer of him or his agency, he intentionally voted on a project in which they had interest as owner or applicant and subsequent to the vote he received insurance business associated with that project," the indictment says.