By Chuck Neubauer and Tom Hamburger
Los Angeles Times Staff Writers
April 27, 2008
"WASHINGTON — After an unsuccessful campaign for Congress in 2000, Illinois state Sen. Barack Obama faced serious financial pressure: numerous debts, limited cash and a law practice he had neglected for a year. Help arrived in early 2001 from a significant new legal client -- a longtime political supporter.
Chicago entrepreneur Robert Blackwell Jr. paid Obama an $8,000-a-month retainer to give legal advice to his growing technology firm, Electronic Knowledge Interchange. It allowed Obama to supplement his $58,000 part-time state Senate salary for over a year with regular payments from Blackwell's firm that eventually totaled $112,000.
A few months after receiving his final payment from EKI, Obama sent a request on state Senate letterhead urging Illinois officials to provide a $50,000 tourism promotion grant to another Blackwell company, Killerspin.
Killerspin specializes in table tennis, running tournaments nationwide and selling its own line of equipment and apparel and DVD recordings of the competitions. With support from Obama, other state officials and an Obama aide who went to work part time for Killerspin, the company eventually obtained $320,000 in state grants between 2002 and 2004 to subsidize its tournaments.
Obama's staff said the senator advocated only for the first year's grant -- which ended up being $20,000, not $50,000. The day after Obama wrote his letter urging the awarding of the state funds, Obama's U.S. Senate campaign received a $1,000 donation from Blackwell.
Obama's presidential campaign rejects any suggestion that there was a connection between the legal work, the campaign contribution and the help with the grant. "Any implication that Sen. Obama would risk an ethical breach in order to secure a small grant for a pingpong tournament is nuts," said David Axelrod, Obama's chief political advisor.
Business relationships between lawmakers and people with government interests are not illegal or uncommon in Illinois or other states with a part-time Legislature, where lawmakers supplement their state salaries with income from the private sector.
But Obama portrays himself as a lawmaker dedicated to transparency and sensitive to even the appearance of a conflict of interest.
Recently, Obama expressed regret over a property deal with Illinois power broker Tony Rezko after Obama was elected to the U.S. Senate in 2004. In an interview this spring with the Chicago Sun-Times, Obama said his regret was not just because the real estate and restaurant entrepreneur was under criminal scrutiny, but because he was "a contributor and someone doing business before the state."
Obama spokesman Robert Gibbs, who provided The Times with details of Obama's compensation from EKI, said Obama did nothing wrong acting on behalf of Killerspin. He said the state senator simply wrote a letter backing a worthy project developed by a constituent.
Killerspin's owner, Blackwell, was a political supporter and friend as well. Both men lived on Chicago's South Side. Blackwell, a savvy and successful entrepreneur, was one of the first donors to Obama's early campaigns, including the state senator's failed bid for a congressional seat in 2000. In the presidential race he is credited on Obama's website with committing to raise $100,000 to $200,000 for Obama's campaign.
When Blackwell sought backing for his table tennis tournament in 2002, other politicians, including U.S. Sen. Richard J. Durbin (D-Ill.) and Chicago Mayor Richard M. Daley, offered support for the event. But Obama was the only one who provided a letter that became part of the initial application for state funds, state records show. In addition, he wrote a state Senate proclamation heralding the first tournament and an official letter that welcomed “table tennis friends” to the 2004 contest and thanked spectators for helping to "make Chicago the table tennis capital of this nation."
Initially, the idea of table tennis receiving funds from a state tourism program -- designed to encourage overnight visits to Illinois -- was met with skepticism by one Republican state official. But the funding was granted at the $20,000 level that first year, grew to $200,000 in 2003 and totaled $100,000 in 2004.
High-dollar tourism grants from the state are often reserved for events like the Breeders' Cup, an internationally known horse race that brought 50,000 to the Chicago area in 2002. But Blackwell and his allies promised good attendance, hotel bookings and international attention. Today, Illinois Tourism Director Jan Kosner lauds the state's decision to support the table tennis tourneys and dismisses the role that letters from politicians play in the grant-making process.
Unofficial estimates place 3,000 to 6,000 spectators in the 8,000-seat University of Illinois-Chicago arena during some table tennis events. Blackwell said in a statement that "the 2002 and 2003 events were among the largest-ever table tennis events held on U.S. soil in terms of attendance."
Blackwell deployed high-wattage showmanship that put an international spotlight on his tournaments and his brand of table tennis equipment, DVDs and sportswear. Under a plan developed by Blackwell, the 2003 and 2004 tournaments were filmed at Killerspin's expense for occasional broadcast later by ESPN. The cost to Killerspin for the broadcast, laced with promotions for the company as well as Illinois tourism, was in effect defrayed by the state aid.
Blackwell said the grants -- which paid only part of the cost his company had to bear -- provided the state with "thousands of hours of domestic and international exposure via ESPN. . . . Additionally, hundreds of hotel rooms were occupied all three years that the state supported the event."
'A very dry period'
In his book "The Audacity of Hope," Obama tells how his finances had deteriorated to such a point that his credit card was initially rejected when he tried to rent a car at the 2000 Democratic convention in Los Angeles. He said he had originally planned to dedicate that summer "to catching up on work at the law practice that I'd left unattended during the campaign (a neglect that had left me more or less broke)."
Six months later Blackwell hired Obama to serve as general counsel for his tech company, EKI, which had been launched a few years earlier.
The monthly retainer paid by EKI was sent to the law firm that Obama was affiliated with at the time, currently known as Miner, Barnhill & Galland, where he worked part time when he wasn't tending to legislative duties. The business arrived at an especially fortuitous time because, as the law firm's senior partner, Judson Miner, put it, "it was a very dry period here," meaning that the ebb and flow of cases left little work for Obama and cash was tight.
The entire EKI retainer went to Obama, who was considered "of counsel" to the firm, according to details provided to The Times by the Obama campaign and confirmed by Miner. Blackwell said he had no knowledge of Obama's finances and hired Obama solely based on his abilities. "His personal financial situation was not and is not my concern," Blackwell said. "I hired Barack because he is a brilliant person and a lawyer with great insight and judgment."
Obama's tax returns show that he made no money from his law practice in 2000, the year of his unsuccessful run for a congressional seat. But that changed in 2001, when Obama reported $98,158 income for providing legal services. Of that, $80,000 was from Blackwell's company.
In 2002, the state senator reported $34,491 from legal services and speeches. Of that, $32,000 came from the EKI legal assignment, which ended in April 2002 by mutual agreement, as Obama ceased the practice of law and looked ahead to the possibility of running for the U.S. Senate. .
Blackwell said that "Barack worked extensive hours advising the company on compliance and human resource issues," negotiated contracts, reviewed confidentiality agreements and provided reports on topics requested by the company's senior management. Obama was not involved in soliciting city or state contracts for EKI, Blackwell said, and there was an agreement that he would not contact any government agencies.
Illinois ethics disclosure forms are designed to reveal possible financial conflicts by lawmakers. On disclosure forms for 2001 and 2002, Obama did not specify that EKI provided him with the bulk of the private-sector compensation he received. As was his custom, he attached a multi-page list of all the law firm's clients, which included EKI among hundreds. Illinois law does not require more specific disclosure.
Stanley Brand, a Washington lawyer who counsels members of Congress and others on ethics rules, said he would have advised a lawmaker in Obama's circumstances to separately disclose such a singularly important client and not simply include it on a list of hundreds of firm clients, even if the law does not explicitly require it. "I would say you should disclose that to protect and insulate yourself against the charge that you are concealing it," Brand said.
An Illinois ethics advocate who worked with Obama to pass state ethics reforms, Cynthia Canary, said she was not troubled by Obama's handling of the Blackwell business. She said his listing of all the law firm's clients "was a more complete disclosure than you see 80% of the time in Illinois." Further, she said that Obama's letter on behalf of the table tennis tournament did not "rise to the level of a conflict of interest" because Obama did not have decision-making authority over the grant.
Obama's spokesman said that listing all clients was appropriate and that doing so allowed the public to see any and all potential conflicts for Obama and his law firm colleagues. "He was especially mindful of this responsibility as a leader of ethics reform," said Gibbs, his chief campaign spokesman.
Obama's wife, Michelle, then a member of the Commission on Chicago Landmarks, reported her husband's work for EKI on a city of Chicago financial disclosure form obtained by The Times. Gibbs said she had identified EKI on her form after consulting with her husband. Gibbs said the questions on the city form were different from the state's and required different answers.
Gibbs said the letter Obama wrote on behalf of the Killerspin-backed tournament was appropriate and entirely unrelated to any payments by Blackwell's other firm for Obama's legal services.
"He wrote the letter on behalf of a constituent" with a worthy cause, Gibbs said, noting that the contest was broadcast internationally, reaching as many as 200 million viewers in 156 countries.
Though Obama's formal efforts for Killerspin consisted of writing a letter and a proclamation, the nitty-gritty of obtaining state grants fell to a former state Senate and campaign aide to Obama, Dan Shomon.
Shomon, working part time for Obama's campaign and for Killerspin, helped prepare Killerspin's initial grant application in 2002. Still working part time with Obama, Shomon helped Killerspin secure a $200,000 grant for its 2003 tournament and a $100,000 grant for its 2004 tournament.