The Race-Track Scandal

Political scandal is not new to Illinois,nor is it the exclusive property of one political party. In 1956 a top Republican official, Orville Hodge, was convicted of looting the statetreasury of $1,450,000; last year it was discovered that the late secretary of state, Paul Powell, a Democrat, had stashed away $800,000 in shoeboxes. Less than a year before the 1972 election, another scandal has surfaced that could severely damage the Democratic machine of Chicago Mayor Richard J. Daley.

For more than two months, draft indictments naming U.S. Court of Appeals Judge Otto Kerner and several of his former top aides have been waiting approval by U.S. Attorney General John Mitchell for submission to a grand jury. Until recently, Kerner had an impeccable reputation. He was Democratic Governor of Illinois from 1961 to 1968 and won national prominence as chairman of a presidential commission investigating urban rioting. Now, if Mitchell decides to prosecute him and a grand jury concurs, Kerner could be indicted for bribery, extortion and income tax fraud. The charges stem from sizable profits he reaped from race-track stocks while he was Governor.

Letter of Intent. In 1968 a routine audit of Kerner's tax return revealed that he had listed income from the sale of stock in a firm he called the "Chicago Company." Further investigation showed the firm was in fact Chicago Thoroughbred Enterprises, Inc. (C.T.E.), whose principal shareholder at the time was Mrs. Marjorie Everett, once known as the "queen of horse racing" in Illinois. C.T.E. owned Washington Park and Arlington Park, two race tracks near Chicago. Their suspicions aroused, Internal Revenue men checked the return of Theodore Isaacs, a Kerner crony and Illinois revenue director, who also had listed income from sale of Chicago Company stock.

After weeks of work, IRS agents put together pieces of the stock deal. In 1966, when Kerner and Isaacs were in office in Springfield, they were allowed to buy 50 shares of C.T.E. stock. Each put up $25,000. At that time the 50 shares were worth a total of $300,000, but they paid only about what the stock had been worth in 1962. In an effort to disguise the bargain, Mrs. Everett signed a "letter of intent" to sell the stock that carried a fake date of 1962.

Six months later, Kerner and Isaacs traded their C.T.E. holdings for 5,000 shares each in the Balmoral Jockey Club, another racing venture of Mrs. Everett's. In 1967 they sold the Balmoral stock for $30 a share, collecting a profit of $125,000 each on their original $25,000 investment. Government investigators also learned that Kerner and Isaacs turned a profit of $22,400 apiece within a ten-month period on stock in other Everett interests.

Racing Dates. When Mrs. Everett was called in earlier this year by Government probers and asked to explain her dealings with politicians, she promptly blew the whistle on Kerner and Isaacs. Kerner appeared twice before a federal grand jury in Chicago to insist that when he was Governor he had not intervened in the allocation of racing dates, which might have benefited Mrs. Everett. Other state officials, though, reported that Kerner had conferred with them about racing seasons. However it came about, during the tenure of the Kerner administration Mrs. Everett was able to get additional racing dates and turn Washington Park into a track for harness racing, markedly increasing her income.

The investigation was not limited to the Kerner transactions. Tax investigators uncovered a seemingly endless string of politicians, both Republicans and Democrats, who held stock in one horse-racing association or another during the 1960s. Most embarrassing to the Daley administration, besides the allegations concerning Kerner, were revelations about other pals and close political associates of the mayor who had been trafficking in race-track stocks. Among them were two former law partners of the mayor, one a federal judge, the other an Illinois circuit-court judge; a Democratic congressman and leader of the Illinois Democratic house contingent; and a high-ranking Democratic county official. This disclosure prompted Daley himself to deny owning any racetrack stock. "I never have and I never will," he said.

Both Lose. The prospect of prosecuting high-level Democrats in a state that President Nixon lost in 1960 and carried only narrowly in 1968 must seem tempting to the Administration. But Attorney General Mitchell's office so far has proceeded with so much caution that exasperated Internal Revenue investigators have leaked details of the stock deals to Chicago newspapers, notably the Tribune, in order to bring pressure on the Justice Department to act.

While Justice Department officials admit that there has been unusually slow progress, they say approval of the proposed indictments has been held up because the department moves very cautiously in prosecuting a sitting federal appellate judge. Another reason for caution may well be that both Republicans and Democrats stand to lose.

In the meantime, Illinois politicians have been making at least perfunctory efforts to clean up their own house. Ethics legislation that would require public disclosure of income by officeholders, which failed to pass in the last General Assembly session, is expected to be re-introduced next month. And there is fresh pressure on racing associations to abide strictly by a regulation requiring them to list all stockholders, including their nominees. None of this would have pleased Paul ("Shoebox") Powell, who used to tell colleagues: "There's only one thing worse than a defeated politician, and that's a broke politician."

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