EAST CHICAGO | East Chicago Mayor George Pabey has been indicted on federal corruption charges alleging he embezzled city funds and illegally used city workers to remodel a house he bought with his daughter in Gary's Miller Beach neighborhood in December 2007.
Pabey, 59, and city worker Jose Camacho, 52, were charged in a grand jury indictment Wednesday in Hammond federal court with conspiring to divert city money and resources toward improving Pabey's Gary property.
Camacho, a former engineering department division supervisor who now works at the city's marina, is also charged with trying to persuade other city workers to lie to federal investigators about work the laborers allegedly did on the house while they were on the clock for the city.
Camacho and Pabey, a two-term mayor and former city police chief, are expected to surrender to authorities today to face an initial appearance before a judge.
City spokesman Damian Rico issued a statement on Pabey's behalf Wednesday, saying the mayor did "nothing improper or illegal." The statement says Pabey cooperated with federal investigators. Pabey plans to fight the charges and clear his name of the "false allegations," according to the statement.
"I am shocked beyond expression that these allegations have been made by the government," Pabey said in the statement.
"I will not be distracted by this event in continuing to conduct the business of my office on behalf of the people of East Chicago."
Camacho, of East Chicago, could not be reached Wednesday for comment.
The indictment is consistent with rumors that have proliferated since December 2008, when FBI agents started asking city employees about the house at 8530 Locust Ave. in Gary.
"They questioned a ton of people," said a source with direct knowledge of the investigation who asked not to be identified while talking about the pending federal prosecution.
"They went throughout the city," the source said.
Pabey, who lives at 4206 Hidalgo Lane in East Chicago, bought the modest brick home on an out-of-the-way hillside in Miller Beach with his daughter, Maria Lisette Pabey, in December 2007 for $67,000. The previous owner lost the home to foreclosure, according to county records.
Federal authorities claim that between late 2007 and August 2008 a crew of four "skilled laborers" supervised by Camacho worked on the home. The laborers and Camacho, who made a $62,896 yearly salary as of 2009, poured concrete, painted and installed new appliances and furnishings, occasionally under Pabey's supervision, according to the indictment.
The indictment alleges Camacho spent more than $5,000 in taxpayer money on materials for the project at Menards and The Home Depot in Hammond and Joseph's Hardware in East Chicago. Drawing on an engineering department account, Camacho bought a 40-gallon water heater, a bathtub, bathroom fixtures, doors and other items, prosecutors said.
Once FBI agents starting poking around the city, Camacho told the other workers to either keep quiet or lie to the agents, according to the indictment.
Pabey faces two counts, a conspiracy charge and a charge that specifically accuses him of illegally diverting the city resources. Camacho faces the same charges and two counts of witness tampering.
Shortly after the investigation first made news in December 2008, Pabey spokesman Rico acknowledged work had been done on the house, but he said it was not done during work hours by employees on the clock for the city.
While federal investigators were wrapping up their inquiry, Pabey and his daughter were trying to sell the house for a $72,000 profit over the purchase price. The home was put on the market in September 2009, first at $149,000, according to realty records. The asking price dropped to $139,000 on Jan. 22, according to realty records. The house was last assessed for tax year 2008 at $122,600, according to county tax records.
Two Times reporters toured the house recently as part of a newspaper investigation into the federal inquiry and the alleged illegal work. The home, a 1951-vintage Cape Cod-style 1 1/2-story brick house perched on a slope within walking distance of Lake Michigan, boasts new appliances and a finished basement with a sizable wooden wet bar, big-screen television and a bathroom outfitted with a whirlpool tub. A frontroom coat closet contains a frame holding a newspaper clipping announcing a Pabey electoral victory.
One real estate listing proclaims: "This Newly Remodeled 1 1/2 story brick home with full basement is located in a beautiful secluded neighborhood! This home comes with a newly remodeled finished basement, new high efficiency furnace, new electric air cleaner, new C/A, new flooring, new hot water heater, new full bath with whirlpool tub in basement, remodeled bath on the upper and main levels, new washer, dryer, kitchen appliances and newer windows. There are 2 Large bedrooms upstairs with 1/2 bath and 1 bedroom on the level. As an added bonus, ALL FURNITURE, FURNISHINGS and APPLIANCES STAY!!"
Shortly after the investigation became public, The Times used open-records requests to obtain from the city receipts detailing purchases made at Menards and The Home Depot drawing on engineering department accounts in summer 2008. Many of the items clearly pertain to kitchen and bathroom remodeling projects. Attempts to work with East Chicago city officials to pinpoint the current locations of those items have been unsuccessful.
County records indicate that $4,180.52 was paid in taxes on the house in tax year 2008, payable in 2009.
If Pabey is convicted, prosecutors seek a forfeiture order on any property in the house that could be considered proceeds of the alleged crimes.
Pabey's is the second consecutive East Chicago city administration saddled with federal charges accusing city officials of diverting public funds toward personal projects.
Shortly before Pabey wrested control of the mayor's office from Lake County Democratic titan Robert Pastrick, the 33-year mayor's administration was rocked by indictments against the Sidewalk Six, a group of city officials eventually convicted in a scheme to sway voters in the 1999 Democratic primary by paying $24 million in public funds to improve private properties.
Pastrick, now upwards of 80 and reportedly in failing health, was never charged, but the state of Indiana filed a landmark civil suit accusing Pastrick of running the city as a corrupt enterprise. Pastrick and aide James Fife III defaulted on that suit, and Hammond federal Senior Judge James Moody has yet to issue his judgment as to how much, if anything, the men will have to pay.
Pastrick's political decline crossed with Pabey's upward political trajectory. Pabey, a retired city policeman and former city councilman, dislodged Pastrick in a complicated series of electoral fights.
In the spring 2003 primary, Pabey beat Pastrick narrowly, but Pastrick took the election back with absentee ballots. The Indiana Supreme Court ordered a new election after finding massive vote fraud was perpetrated in the first primary. Pabey won that contest, and he was sworn in just before the start of 2005, promising in an inaugural address to "unravel the years of secret back-room deals and corruption." Pabey won again in 2007.
Pabey has cut the vast army of city staff by hundreds - inspiring many courtroom accusations of political firings - and his supporters have touted the city's many redevelopment projects and budget-tightening efforts. Critics claim Pabey continues to waste the funds of a cash-strapped city while tossing favors toward friends.
Acting U.S. Attorney David Capp, who helped with many of the political corruption prosecutions led by former U.S. Attorney Joseph Van Bokkelen, said in a written statement that Wednesday marked "another indictment in the ongoing federal effort to investigate public corruption."
"Our office will continue to investigate allegations of corruption, and we will follow the evidence wherever it leads," said Capp, who has been nominated to fill the U.S. attorney post permanently, and awaits U.S. Senate confirmation.
