Jay Doherty and the City Club of Chicago Under Fire

CLUB JAY: Has the powerful lobbyist Jay Doherty, the president of the City Club of Chicago, transformed that venerable organization into a means to enrich his clients—and himself? The Illinois attorney general is investigating. But the answer may not be so black and white

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Percentage of City Club speakers from 2007-2011 in positions to benefit Doherty's clients
SOURCES: Chicago Board of Ethics, City Club of Chicago, Illinois Secretary of State

In the summer of 2008, according to Posner, Dave Cameron, the club’s executive director at the time, came to her with questions about Doherty. Cameron had checked the club’s frequent-diner account with Lettuce Entertain You Enterprises, which owns Maggiano’s, and learned that someone had been cashing in tens of thousands of dollars’ worth of gift certificates accrued by the club. Because the account was in Doherty’s name and the gift certificates were redeemed at establishments near his condo—such as the Elizabeth Arden Red Door Spa—Cameron wondered whether the club president was responsible.

Such use posed a potential legal problem. In Illinois, all charities that fall under Section 501©(3) of the tax code, including most nonprofits, are required to disclose to the attorney general’s office (and to the IRS) how much their officers, board members, and employees earn. Since Doherty and club board members were unpaid, Cameron feared that the certificates might be deemed an “excess benefit.” In cases where the IRS determines an excess benefit has been derived, it can revoke an organization’s nonprofit status and/or assess a tax penalty.

According to e-mails submitted to the attorney general, when Doherty learned from his assistant that Cameron had been snooping into the Lettuce certificates, he became enraged. Cameron backed off, and in October 2008 he resigned.

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GRAPHIC: THE CONNECTOR »
Jay Doherty, his clients, and the City Club speakers

By then, Posner had learned other details about Doherty from a young part-time staffer who split her time working for the City Club and for Doherty’s lobbying firm. For example, she told Posner that Doherty had been using club employees and resources for his work as a consultant to the Alliance to Protect the Illinois Constitution, which opposed a ballot initiative calling for a constitutional convention. Internal club e-mails later suggested that Doherty was using the club’s staff, office, and membership database—with its valuable information about thousands of the city’s political and business elite—to assist his client.

Over the next few months, Posner sent e-mails to the club’s private Google Group, raising questions about budgets, operations, and tax disclosures. She voiced concerns about Doherty’s alleged use of the Lettuce gift certificates, warning of possible IRS audits and penalties.

But the board, it turned out, couldn’t have been more satisfied with Doherty. While the top officers at most of the city’s civic-oriented nonprofits earned six-figure salaries, Doherty worked for the City Club for no pay. The luncheons were regularly selling out, membership was on the rise, and from 2004 to 2009 the club (according to its tax filings) saw its annual income nearly double, to $757,800. “The board was happy to defer to Jay,” recalls one former executive director, who requested anonymity. “Jay worked tirelessly, and when there was a success, they all looked better for doing absolutely nothing.”

That may have been part of the problem. “The board was completely marginalized,” explains the executive director. “The internal controls we had in that place were awful.”

The board grew increasingly irritated with Posner’s e-mails. Responding to one she sent on February 18, 2009, Frank Paul, a board member close to Doherty, posted to the club’s Google Group: “[W]e could never provide you [Doherty] with enough compensation whether it be in the form of dollars, [Lettuce] certificates, or City Club coffee mugs. The leadership and sweat equity you have provided to this venerable institution is invaluable.”

Doherty had had enough. According to Posner, he called her and delivered a furious tirade that “scared me half to death. That’s when I went to the AG’s office.”

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On February 22, 2009, Posner sent a letter and documents she had obtained to Katherine Kelly, an assistant Illinois attorney general. Kelly encouraged Posner to keep gathering information, which her surrogate, the young part-time staffer in the City Club office, did. (The staffer declined multiple interview requests.)

Two months later, Therese Harris, the chief of the attorney general’s Charitable Trust Bureau, asked Doherty to meet with investigators. On May 12, he and lawyer Michael Hayes did so and pledged their cooperation. Afterward, the young staffer reported to Posner that Doherty had ranted about her as if he knew she had ratted him out. Posner immediately e-mailed Kelly. “I am very scared now,” she wrote.

“Please try not to be scared,” Kelly replied. “We NEVER reveal the identity of our complainants, NOR do we allow anyone to see the complaint or our investigation materials.”

Later in May, the staffer told Posner that Doherty had assigned her a new project: to build a database using City Club files for Christopher Kennedy, the president of the Merchandise Mart, who was gearing up for a primary run for the U.S. Senate (he later decided not to run). And she mentioned a new face around the office: John Lanctot, the son of Thomas Lanctot, an executive at William Blair & Company and a prominent Democratic supporter. According to the staffer, John Lanctot was put to work on the Kennedy database, gathering personal data from City Club’s files as well as from other political organizations.

Posner’s concerns mounted. Chicago’s interviews and e-mails from Doherty’s City Club account and computer files indicate that Doherty frequently used the luncheons to supplement his lobbying efforts, regularly comping his clients’ visits. He personally selected nearly all of the speakers and oversaw where people sat. “The tables were handpicked by Jay,” says the former executive director. “Often [Doherty] would position his clients in a good light, often across from the speaker, so there was plenty of interaction.”

In one e-mail, sent on May 21, 2009, the young staffer informs the club’s executive director that Doherty wanted his client Lionel Rabb, the president of Omicron Technologies, to sit next to Michael Scott, then president of the Chicago Board of Education. Rabb’s company, a Chicago Public Schools vendor, was paying Doherty $6,500 a month and seeking tech contracts from the school board, among other things.

Before that, a March 2009 memo from Doherty’s files submitted to the attorney general shows that another client, Tyco Electronics, wanted to “uncover [contract] opportunities within the City of Chicago.” That included meetings at a club lunch between a Tyco sales manager and city officials, among them Alderman Ed Burke, the chairman of the City Council’s finance committee. In earlier e-mails discovered by Chicago, the sales manager also asks Doherty if he can arrange a meeting with Montel Gayles, the city’s chief procurement officer. Club records show that the sales manager attended a March lunch featuring Burke—and sat at the same table as Gayles.

Meanwhile, City Club board members loyal to Doherty began damage control. E-mails show that in June 2009, the board member Chris Robling circulated a letter in support of Doherty that he asked other members to sign. “We will release only if KP [Posner] attacks in the press,” Robling explained.

At a meeting with the attorney general’s office on June 18, 2009, the AG’s investigators spelled out the allegations to the full board. The board met again the next day and formed a three-member committee—which would be assisted by Hayes, an outside auditor, and a private investigator—to look into the allegations.

On June 25, despite Kelly’s assurances to Posner, the attorney general’s office turned over to Hayes portions of the records that Posner had provided, though it had redacted details that would identify her or the young staffer. (The attorney general’s office says that it released the documents to Hayes to assist with the club’s internal reforms.)

On July 6, the staffer’s City Club e-mail was shut off, and two days later she received a layoff letter from Doherty. The board, he explained, had decided to close the club for the summer. “While we cannot predict the length of your layoff or guarantee your return to work,” the letter went on, “it is anticipated that the office may re-open sometime after August 15, 2009.” The staffer later discovered that she had been laid off permanently, while the rest of the small staff had been rehired.

Because of the attorney general’s investigation, the City Club’s board, according to meeting minutes, met about every other week during the summer. The minutes reflect the members’ recognition that they had been too hands-off. But they also show that the board spent much of its time sniping about the whistleblower’s betrayal. “Someone basically blew up the City Club,” Paul Green, the club chairman, fumed at an August meeting. “If we can find out who did it, that person or persons should be culpable.”

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