Kilpatrick faces $11M debt once he leaves prison

Detroit – Creditors continue to hunt imprisoned ex-Detroit Mayor Kwame Kilpatrick, who owes $11.2 million to the city, Internal Revenue Service and others, including businessman Dan Gilbert.

A new $7.4 million civil judgment sent Kilpatrick’s debt skyrocketing, and that figure could grow.

That’s because the U.S. Securities and Exchange Commission has asked a federal judge to order the former mayor to pay $552,862, claiming Kilpatrick and others were part of a scheme to strong-arm a city pension fund businessman for $125,000 worth of private flights, Prince concert tickets, steakhouse dinners, golf trips and VIP hotel rooms in Las Vegas.

Collecting will be difficult, if not impossible. Kilpatrick, 47, claims he was broke before being convicted of racketeering conspiracy in 2013 and recently claimed to have 96 cents in his prison commissary account.

Federal prison inmates are paid 12-40 cents per hour working jobs that include food service, warehouse, plumbing, painting and groundskeeping, according to the Federal Bureau of Prisons.

“I would expect that the odds are not very good” of debtors collecting money from Kilpatrick, his lawyer Harold Gurewitz said.

Kilpatrick’s finances came into sharper focus April 19. That’s when U.S. District Judge Arthur Tarnow ended a six-year legal battle by issuing a nearly $7.5 million judgment to a firm owned by minority contractor Willie McCormick.

McCormick sued the former mayor and contractor Bobby Ferguson in 2012, alleging they ran a secret scheme to steer water department work to favored firms.

McCormick’s lawsuit mirrored allegations that were central to the racketeering conspiracy case against Kilpatrick and Ferguson. In 2013, they were convicted and sentenced to 28 years and 21 years, respectively, in federal prison.

Kilpatrick, Ferguson and former mayoral aide Derrick Miller never responded to the civil lawsuit and McCormick received a default judgment in 2016. A federal magistrate judge in March issued a recommendation that McCormick receive $7,477,874, which represents lost profits on three Detroit Water and Sewerage Department contracts.

McCormick’s lawyer did not respond to messages seeking comment.

The McCormick lawsuit was filed the same year as a separate civil complaint filed against Kilpatrick and others, including former Detroit Treasurer Jeffrey Beasley.

The SEC alleged the city officials received extravagant gifts in exchange for approving pension fund deals pitched by Detroit businessman Chauncey Mayfield, whose firm reaped millions in fees tied to about $115 million in investments made by the city’s pension funds.

Kilpatrick and Beasley never responded to the civil lawsuit and a judge later issued an approximately $700,000 default judgment against the pair.

Last month, the SEC’s lawyers asked U.S. District Judge Victoria Roberts to issue a final judgment. If approved, Kilpatrick would be required to pay $552,862 while Beasley would have to pay $292,862.

Beasley, 49, was sentenced to 11 years in federal prison in 2015 for pocketing bribes while serving on the city’s pension fund boards.

Beasley was the lead defendant in a widespread corruption case that provided insight into a system of businessmen bribing pension trustees for their vote on investments that were supposed to raise money for retiree benefits. Instead, two Detroit pension funds lost more than $95 million in corrupt deals.

On April 16, six years after the SEC filed the lawsuit, Kilpatrick responded and asked to have the judgment set aside.

Kilpatrick wrote that he did not recall anything about the lawsuit and was preoccupied with the criminal corruption case.

In a letter sent from federal prison in Oklahoma, Kilpatrick asked the judge for an “opportunity to zealously and vigorously defend myself.”

In response, the SEC blamed Kilpatrick for ignoring the lawsuit, a copy of which was served on the former Detroit mayor at his rental home in May 2012 in Texas.

“Although he indisputably knew about the complaint, Kilpatrick never answered, pled, appeared, or otherwise defended the SEC’s charges,” the commission’s attorney Timothy Leiman wrote in a filing.

The judgments serve as a form of insurance.

“The goal is essentially if the person wins the lottery, what or if they write a best-selling novel, then you can go and recover the money,” said Peter Henning, a Wayne State University law professor and former federal prosecutor. “These judgments last either forever or until the person goes into bankruptcy.”

The SEC and McCormick judgments add to Kilpatrick’s multimillion dollar debt.

The debt includes:

■$1,520,654 in restitution to the city water department from the city hall corruption scandal.

■$854,062 in restitution to the city stemming from the text-message scandal that ended his political career. Kilpatrick hasn’t made a payment since before being sent to prison.

■$650,000 in attorney fees.

■$240,000 in loans from Compuware co-founder Peter Karmanos Jr. and businessmen Roger Penske, Dan Gilbert and James Nicholson.

■$195,000 in federal taxes.

■$53,577 in student loan and credit card debt.

rsnell@detroitnews.com

Twitter: @robertsnellnews