Day 47: Gambling, losing and shafting the IRS

Bernard Kilpatrick reaped millions during his son’s tenure, was a heavy-duty gambler and a tax cheat, according to testimony Thursday in the City Hall corruption trial.

The trial returned from a 12-day Christmas break with a detailed examination of Kilpatrick’s finances and spending habits, which included big bills at an area liquor shop and gambling jags at Detroit and Las Vegas casinos.

Testimony from an IRS agent addressed allegations in the City Hall corruption indictment that Kilpatrick filed false tax returns.

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Bernard Kilpatrick

Bernard Kilpatrick

Bernard Kilpatrick, saddled with huge gambling debts and allegedly unreported income, failed to pay the IRS more than $184,000 in taxes, according to testimony.

An IRS special agent who analyzed Kilpatrick’s financial records and gambling losses concluded he owes the money from 2004, 2005 and 2007.

Prosecutors allege Kilpatrick extorted contractors during his son’s tenure as Detroit mayor and filed false tax returns.

During that time, Kilpatrick had unusual drains on his income.

In 2004, Kilpatrick spent $28,594 at Tunnel Liquor on E. Jefferson, IRS Special Agent Rowena Schuch said Thursday. Previous testimony indicates Kilpatrick played the lottery at the liquor shop — often on credit.

He also spent $19,400 on credit card cash advances and $51,000 repaying loans.

The IRS agent also shot down a defense suggestion that some of Kilpatrick’s unexplained income in 2004 was an inheritance.

Kilpatrick received a $50,000 inheritance from a step-brother, Schuch testified.

But not in 2004.

Kilpatrick got the money two years earlier.

Bernard Kilpatrick

Bernard Kilpatrick

Bernard Kilpatrick reaped millions in consulting fees during his son’s tenure as mayor, but lost big gambling in Detroit and Las Vegas, according to testimony Thursday.

Kilpatrick posted net losses of almost $218,000 between 2004 and 2007, an IRS special agent testified.

The gambling losses were unveiled as  prosecutors focused on allegations Kilpatrick filed false tax returns and under-stated his income.

MGM Grand

MGM Grand

Kilpatrick gambled in multiple states, according to testimony.

He gambled at Greektown Casino and MGM Grand in Detroit. In Las Vegas, he favored Wynn Las Vegas and Caesars Palace.

“Were there any winnings for those years that would have generated taxable income?” Assistant U.S. Attorney Jennifer Blackwell asked IRS Special Agent Rowena Schuch.

“All winnings would have been offset by his losses,” Schuch said.

Bernard Kilpatrick

Bernard Kilpatrick

Bernard Kilpatrick’s consulting firm, created when his son took office as Detroit’s mayor in 2002, generated millions in income until Kwame Kilpatrick resigned in 2008.

Between 2002 and 2008, more than $2.23 million was deposited into Maestro Associates’ bank accounts, an IRS agent testified today.

Prosecutors allege Bernard Kilpatrick extorted Detroit contractors and participated in a racketeering conspiracy with his son and the ex-mayor’s close friend Bobby Ferguson.

Separately, prosecutors allege Bernard Kilpatrick deposited more than $1.4 million into various personal and business accounts in 2004 and 2007.

Kwame Kilpatrick flanked by ex-mistress Christine Beatty and Derrick Miller, one of the ex-mayor's most trusted aides.

Kwame Kilpatrick flanked by ex-mistress Christine Beatty and Derrick Miller, one of the ex-mayor’s most trusted aides.

Breaking news: Star witness Derrick Miller, a former member of Kwame Kilpatrick’s inner circle, is expected to testify as early as Monday in the City Hall corruption trial, The Detroit News has learned.

Miller is arguably the most highly anticipated witness during the trial. He is expected to testify about alleged bribes, including a $10,000 payoff delivered to Kilpatrick inside a restaurant bathroom in fall 2007.

Miller struck a plea deal with federal prosecutors and was spotted by The News outside the U.S. Attorney’s office in downtown Detroit last year.

Ex Kilpatrick aide Derrick Miller (at left with attorney Byron Pitts) was spotted outside the US Attorney's office in May after agreeing to cooperate with the City Hall corruption probe.

Ex Kilpatrick aide Derrick Miller (at left with attorney Byron Pitts) was spotted outside the US Attorney’s office in May after agreeing to cooperate with the City Hall corruption probe.

Bernard Kilpatrick sits behind his son during Kwame's sentencing on state charges in 2008.

Bernard Kilpatrick sits behind his son during Kwame’s sentencing on state charges in 2008.

Bernard Kilpatrick’s lawyer tried to explain away large cash deposits by suggesting ex-Mayor Kwame Kilpatrick’s dad inherited money.

Defense lawyer John Shea didn’t explain the alleged inheritance, identify the dead benefactor or offer any details Thursday.

Shea was questioning tax preparer Cassandra Jones, who testified about the political consultant’s taxes. Prosecutors allege Bernard Kilpatrick filed false tax returns after pocketing kickbacks from city contractors.

Shea focused on 2004, when bank records indicate Bernard Kilpatrick deposited more than $123,000 cash. The cash was not reported on Kilpatrick’s tax return, according to testimony.

“Are you aware if he received an inheritance in approximately 2004?” Shea asked.

“No,” Jones said.

“If he had received an inheritance, would that have had any tax impact?” Shea asked.

“Usually, no,” Jones said.

Bernard Kilpatrick leaves federal court Aug. 8.

Bernard Kilpatrick leaves federal court Aug. 8.

Bernard Kilpatrick pocketed more than $500,000 early into his son’s tenure as Detroit mayor but failed to report large cash deposits to the IRS, a witness testified Thursday.

In 2004, Kilpatrick failed to document more than $123,000 in cash deposits on his tax return, witness Cassandra Jones testified. Jones prepared Kilpatrick’s tax returns between 2000 and 2008.

The cash deposits were shown by prosecutors, who allege Kilpatrick filed false tax returns during his son Kwame Kilpatrick’s tenure as Detroit mayor.

Assistant U.S. Attorney Jennifer Blackwell

Assistant U.S. Attorney Jennifer Blackwell

In 2004, Bernard Kilpatrick’s income was $336,625. The next year, his income was $220,259, Jones testified.

“Were you aware that more than $123,000 was deposited into his personal bank account?” Assistant U.S. Attorney Jennifer Blackwell asked.

“No,” Jones said.

“Would his tax liability have changed for 2004?” the prosecutor asked.

“Yes,” Jones said.

“How?” Blackwell asked.

“It would have increased,” Jones said.

Bernard Kilpatrick’s defense lawyer suggested his client, who owned a consulting firm called Maestro Associates, was a sloppy record keeper who accidentally mingled personal and business income.

Prosecutors allege Bernard Kilpatrick extorted Detroit contractors and participated in a racketeering conspiracy with his son and the ex-mayor’s close friend Bobby Ferguson.

An IRS agent testified Thursday that Kwame Kilpatrick’s fraternity brother and former aide made large cash withdrawals around the time he allegedly paid kickbacks to the ex-mayors’ dad.

Former Kilpatrick aide Marc Andre Cunningham

Former Kilpatrick aide Marc Andre Cunningham

From fall 2006 to fall 2007, former Kilpatrick aide Marc Andre Cunningham withdrew $34,000 cash from his various bank accounts, IRS Special Agent Ron Sauer testified Thursday.

The agent’s testimony was aimed at bolstering Cunningham’s testimony Friday.

Cunnigham testified he paid kickbacks to Bernard Kilpatrick in return for getting a $30 million investment from two city pension funds.

Marc Andre Cunningham, who faces up to 37 months for his role in the alleged bribery scheme, said he gave Bernard Kilpatrick roughly $15,000 in cash.

Kwame Kilpatrick (Cartoon by Henry Payne)

Kwame Kilpatrick (Cartoon by Henry Payne)

A federal judge Thursday said she will let an FBI agent testify during the City Hall corruption trial about bypassing airport security with $90,000 strapped to his body to counter a defense argument about an alleged Kwame Kilpatrick bagman.

Federal prosecutors strapped $90,000 to an FBI agent last fall and had him go through Detroit Metropolitan Airport security 100 times to prove the bagman could have flown across the country and delivered illicit money to Kwame Kilpatrick.

Bobby Ferguson

Bobby Ferguson

The News described the security tests, which were held at Detroit Metropolitan Airport last fall to counter defense claims that security measures — and common sense — make it unlikely courier Mahlon Clift delivered the cash to Kilpatrick in 2008.

Clift, a longtime friend of the former mayor, testified in September that co-defendant Bobby Ferguson gave him a bag stuffed with $90,000 and told him to deliver it to “Black” — his nickname for Kilpatrick.

Clift flew to Chicago and hid the money — $100 and $50 bills — in a vacuum cleaner before delivering the cash to Kilpatrick in Texas and Detroit. The cash was Kilpatrick’s cut of racketeering activity, prosecutors allege.

Defense lawyers said Clift’s clothes would have been bulging like the “Michelin Man,” and metal threads woven into the currency would have triggered airport metal detectors.

Kilpatrick lawyer James C. Thomas

Kilpatrick lawyer James C. Thomas

During a videotaped test conducted by a U.S. Department of Homeland Security official, FBI Special Agent Joseph Jensen walked through a metal detector 100 times.

The metal detector didn’t chirp one time.

On Thursday, Kilpatrick lawyer James C. Thomas said the test was misleading. The FBI agent hid $90,000 along his waistband. Clift testified he stuffed the cash in his pockets.

Thomas said it is not clear whether the metal detector settings used during the test accurately replicated settings in place in 2008.

Christine Beatty outside federal court in downtown Detroit.

Christine Beatty outside federal court in downtown Detroit.

Kwame Kilpatrick’s former chief of staff and ex-mistress Christine Beatty made her $500 monthly restitution payment to the city Wednesday, the third such payment since filing bankruptcy.

Beatty, a recurring figure during the City Hall corruption trial, agreed to pay more than $100,000 restitution following the text-message scandal. She owes $83,817, according to Wayne County court records.

The restitution is a “high priority” for Beatty, her lawyer said.

“She is not trying to discharge or alter in any way her restitution obligations,” Beatty lawyer Jeffrey Morganroth told The News last month. “She has not, and will not, make any request to alter her restitution obligations in connection with her bankruptcy proceedings. She has made, and will continue to make, each of her monthly restitution payments. This is a very high priority to her.”

Until recently, Beatty was a $102,250-a-year business consultant and raising her two daughters in a $375,000 Atlanta townhouse (seen below.)

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If Dec. 25 was his “Last Christmas” as a free man, Kwame Kilpatrick celebrated in style: New kicks for the kids, a sumptuous spread and a family reunion with his divorced mom and pop. The alleged racketeer even binged on “Boardwalk Empire’s” fictional racketeers.

Carlita Kilpatrick

Carlita Kilpatrick

Here’s how Kilpatrick spent Christmas break:

Dec. 24: Kilpatrick busts his ball-bearing-based diet:

Dec. 25: He marvels at “snow” outside his 5,000-square-foot home in Grand Prairie, Texas.

Dec. 25: Santa made it to the Kilpatrick house on time — unlike the ex-mayor’s November restitution payment.

Santa brought Kilpatrick's kids gifts that included new shoes and keyboard.

Santa brought Kilpatrick’s kids gifts that included new shoes and keyboard.

Dec. 25: The troubled Kilpatrick clan, including co-defendant dad Bernard, bankrupt sis Ayanna and mom Carolyn, reunited for a Christmas photo.

Kwame family xmas

Dec. 29: Kilpatrick whiles away the final days before the trial resumes in Detroit.

Robert Snell
Robert Snell is the Detroit News federal courts reporter. He can be reached at rsnell@detnews.com or (313) 222-2028.