"Ex-Mayor Daley's son pockets $700K on airport Wi-Fi contract, newspaper reports"

Monday, June 6, 2011

Former Mayor Daley's son profited after airport Wi-Fi deal 
BY TIM NOVAK & CHRIS FUSCO
The Chicago (IL) Sun-Times


For years, City Hall maintained that Mayor Richard M. Daley's son, Patrick
Daley, had no financial stake in the deal that brought wireless Internet
service to city-owned O'Hare Airport and Midway Airport.
 
But it turns out that the younger Daley still reaped a windfall of $708,999
when Concourse Communications was sold in 2006, less than a year after the
Chicago company signed the multimillion-dollar Wi-Fi contract with his
father's administration, company documents obtained by the Chicago Sun-Times
show.
 
Concourse disclosed its investors to the city, as required. Patrick Daley
wasn't one of them.
 
But he still had a stake in Concourse's success, the company documents show,
and profited as a result when the company was sold after winning the city
contract.
 
Daley's role was as a middleman who lined up investors for Concourse. Among
them: M. Blair Hull, the millionaire commodities trader who mounted an
unsuccessful campaign for the Democratic Party's nomination for U.S. Senate
in 2004.
 
On June 27, 2006, nine months after it signed the potentially lucrative city
contract for airport Wi-Fi service in Chicago, Concourse was sold - at a 33
percent profit - to Boingo Wireless Inc. for $45 million.
 
Three days later, Patrick Daley got his first payment as a result of the
sale, the documents show - for $164,789. 

Over the next 17 months, with Daley now serving in the U.S. Army, he got
four more payments resulting from the sale, totaling $544,210, the documents
show, for a total of $708,999.
 
Shortly after Patrick Daley received the last of those payments, his
father's City Hall press secretary, Jacquelyn Heard, told a Sun-Times
reporter in a Dec. 3, 2007, interview, that Patrick Daley "has no financial
interest with the Wi-Fi contract at O'Hare."
 
Exactly how the deal was structured isn't clear. Neither Patrick Daley nor
his father replied to interview requests. But the amount that Patrick Daley
was paid was linked to the sale price of the company, a source with
knowledge of the arrangement said: The more the company was sold for, the
more Patrick Daley would be paid.
 
The elder Daley - who left office May 16 after deciding not to seek
re-election - is now in business with his son. The two Daleys are working
out of offices on Michigan Avenue on international business deals.
 
Patrick Daley's Wi-Fi windfall was part of $1.2 million he was paid as a
result of deals he had with Cardinal Growth, a Chicago venture-capital firm
that invested in Concourse and other businesses. Among those businesses was
a sewer-inspection company that got millions of dollars in no-bid
city-contract extensions.
 
In addition to Patrick Daley, Cardinal Growth also has had business dealings
in which it made payments to two of his cousins, Robert G. Vanecko and
Richard J. "R.J." Vanecko. 

Patrick Daley's payments from the sale of Concourse Communications ended in
March 2009 - four months before Cardinal Growth received a subpoena from a
federal grand jury investigating his and Robert Vanecko's roles in the
sewer-inspection business. 

The sewer company's president has since been indicted on federal charges
that accuse him of minority-contracting fraud. Patrick Daley and Robert
Vanecko haven't been charged with any crime. Nor have Cardinal Growth or its
owners been charged with any wrongdoing.
 
Cardinal Growth is owned by Robert Bobb, who's a lawyer and former federal
prosecutor, and Joseph McInerney, an accountant. The firm has raised
millions of dollars from private investors and, with those investments in
hand, has been able to borrow $50 million from the U.S. government to use in
its projects. 

Among the businesses that Bobb and McInerney acquired with that money:
Concourse and the sewer company, Municipal Sewer Services. 

Six of the businesses now are facing forced liquidation by the U.S. Small
Business Administration, which is trying to recover $20 million it's still
owed from the $50 million in loans it made to Cardinal Growth.
 
Patrick Daley, now 35, began working with Cardinal Growth in 2002 as an
unpaid intern for the firm, while he also he worked on the master's degree
in business administration he would obtain from the University of Chicago
Booth School of Business. After his internship, he continued working with
the firm, helping Bobb and McInerney find people to put money into Cardinal
Growth's investments.
 
Among the investors Patrick Daley brought in was Hull. Patrick Daley
previously had worked for Hull, who was seeking then-Mayor Daley's
endorsement in the 2004 Democratic U.S. Senate race around the same time he
agreed to invest with Cardinal Growth in Concourse Communications. Mayor
Daley decided not to endorse anyone in that race, which was won by future
President Barack Obama.
 
Hull was among the bigger investors in Concourse Communications, which was
one of nine companies that submitted proposals to the city in 2003 to
install Wi-Fi at O'Hare and Midway. At the time, Concourse had won deals to
build wireless Internet networks at airports in New York City and
Minneapolis. 

During the time the city was evaluating the O'Hare and Midway Wi-Fi
proposals, Patrick Daley graduated with honors from U. of C.'s business
school in June 2004. 

About two months later, then-Mayor Daley's city aviation commissioner, John
Roberson, and a panel of unidentified city employees decided to recommend
that City Hall award the contract to Concourse.
 
In November 2004, Patrick Daley announced he had enlisted in the Army. He
left Chicago for basic training the next month.
 
In September 2005, while Patrick Daley was in the Army, City Hall signed a
10-year contract with Concourse that also included two renewal options for
three years each.
 
Under that deal, Concourse charges a fee that allows anyone at O'Hare or
Midway to connect wirelessly and go online.
 
The contract guarantees the city a minimum of $1 million a year. 

If Concourse takes in $7 million from Internet users at O'Hare and Midway,
the city's take on the deal becomes 35 percent - $2.45 million from the $7
million.
 
Roberson told the Sun-Times in an interview shortly before the contract was
signed in 2005: "Patrick Daley has no involvement in this at all."
 
But though he wasn't listed among the investors, Patrick Daley still
benefitted as Concourse built its business with the help of the O'Hare and
Midway city contract. With that deal completed, Concourse then provided
wireless Internet service at 12 of the busiest airports in North America,
making it an attractive takeover target.
 
Nine months after the Chicago contract was signed, Cardinal Growth sold
Concourse to Boingo Wireless at a 33 percent profit, while also becoming a
minority shareholder in Boingo.
 
Soon after came the first of five payments to Patrick Daley.
 
In addition to the $708,999 from those payments linked to the Concourse
sale, Cardinal Growth made numerous other payments to Patrick Daley,
totaling $543,127, between July 10, 2002, and Oct. 31, 2009, company records
show. It isn't clear what those payments were for.
 
Bobb and McInerney declined interview requests.
 
Patrick Daley still has business ties with two companies that have received
private and government funding through Cardinal Growth: Certi-Fresh Foods
LLC, a shrimp-distribution company in Los Angeles, and TWG Capital, an
insurance-services company in Indianapolis. They are among the six Cardinal
Growth companies facing forced liquidation by the SBA. 

For years, Patrick Daley maintained a rent-free office at Cardinal Growth's
headquarters, on the 55th floor at 311 S. Wacker. Also, he has two
sport-utility vehicles registered at that office, which Cardinal Growth
recently left after its landlord sued to evict the firm.

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