Trump's Top Candidate for N.Y. Prosecutor Angered Chicago Feds

(Bloomberg) -- President Donald Trump’s leading candidate to run the nation’s most prestigious prosecutor’s office infuriated government lawyers a decade ago by testifying as a defense witness for a former Illinois governor facing U.S. corruption charges.

It was a bizarre spectacle because the witness, Edward E. McNally, was then the top federal prosecutor in southern Illinois and criticized the work of his colleagues in Chicago. On the witness stand, McNally raised questions about the conduct of an FBI agent and prosecutors during a 2001 interview with the ex-governor, George Ryan, whom McNally had previously represented as a private attorney.

That wasn’t the only reason prosecutors were angry. The law firm defending Ryan was also involved in trying to collect a disputed six-figure debt from McNally himself related to the bankruptcy of his former employer. McNally “had a motive to curry favor” with Ryan’s law firm to influence the outcome of his personal financial dispute, prosecutors said in court papers.

The Justice Department reviewed McNally’s conduct based on a request by two U.S. senators. The probe found he acted appropriately, according to McNally’s lawyer at the time.

The 2006 testimony is likely to resurface. McNally is the frontrunner to become U.S. Attorney for the Southern District of New York, according to a White House official and another person familiar with the matter. It’s a powerful post because it covers Manhattan and handles some of the country’s highest-profile cases involving terrorism, bank fraud and insider trading.

‘Most Honorable’

“McNally’s involvement in the extensive grand jury investigation and trial relating to former Illinois Governor George Ryan was extraordinary and highly unusual,” said Patrick Collins, a prosecutor in Ryan’s case, in a statement this week. McNally “sought to undermine the credibility of the best and most honorable FBI agent I have ever known.”

McNally, 61, didn’t respond to requests for an interview. Geoffrey Klineberg, who represented McNally in the 2006 Justice Department review, said his client acted ethically and notified the department about conflicts before testifying. McNally was vindicated in the subsequent investigation requested by the senators, Klineberg said.

“As a trial witness in a difficult situation, his only motive and his sole duty was to tell the truth -- a duty with which he complied,” Klineberg said. “His testimony was straight down the middle, and he answered every question asked by each side.”

The White House didn’t respond to a request for comment. A Justice Department spokesman declined to comment.

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Lawrence Fox, who teaches legal ethics at Yale Law School, said the situation was strange, even if McNally made his conflicts known to the Justice Department.

“It’s unusual to have a situation arise where you have a lawyer from the Justice Department cross-examining another lawyer from the Justice Department,” he said. “How awkward is that?”

If selected, McNally would succeed Preet Bharara, who was fired along with 45 other Obama administration holdovers last month. Trump hasn’t named any replacements.

McNally is a partner at Kasowitz Benson Torres LLP, which has represented Trump in personal and business disputes and former Fox News host Bill O’Reilly against sexual harassment claims. A Chicago native, McNally has an eclectic background. He graduated from Yale University and Notre Dame law school and worked as a local prosecutor in Alaska, a speech writer under President George H.W. Bush, the first White House general counsel for homeland security and counterterrorism, and a private attorney, according to his firm’s website.

He also was a prosecutor under then-Manhattan U.S. Attorney Rudy Giuliani, a Trump adviser.

Ferris Bueller

There’s another reason McNally stands out: He said in a 2009 essay that he may have been the inspiration for the charming but rule-breaking title character in the 1986 movie “Ferris Bueller’s Day Off.” McNally said he grew up with the movie’s director, and once ran a car in reverse on jacks to roll back the odometer. That trick appears in the film, when Bueller persuades a pal that it’s the way to cover a misdeed.

“The Tao of Ferris,” McNally wrote, has helped his legal career. “One key lesson from Ferris is his repeated message to his despondent buddy Cameron,” he said. “Your current situation doesn’t have to be your fate. There’s always another way.”

The circumstances surrounding McNally’s testimony at Ryan’s trial are detailed in court records.

The testimony related to a Feb. 5, 2001, interview of Ryan by FBI agent Raymond Ruebenson and three prosecutors. Ryan was a target in an investigation into the sale of commercial drivers’ licenses and other misconduct. During the interview, he was represented by McNally, then a partner in the Chicago law firm Altheimer & Gray. Ryan didn’t run again in 2002 and was indicted the next year.

By then, McNally had rejoined the government after the Sept. 11, 2001 attacks. 

The Chicago law firm Winston & Strawn LLP defended Ryan at his trial and subpoenaed McNally to testify about the 2001 interview. When he took the witness stand on Feb. 16, 2006, McNally was nearing the end of a four-month stint as interim U.S. Attorney for the Southern District of Illinois. He notified Chicago prosecutors 10 days before his testimony that he would be called.

‘No Words’

On the witness stand, McNally said Ruebenson, the FBI agent, didn’t take notes during his Ryan interview. When McNally raised the issue with prosecutors, “the response was that they stared at me and spoke no words,” he testified.

Ryan’s defense sought to raise doubts about Ruebenson’s report on the interview and combat one of the charges -- that Ryan lied in the 2001 meeting. Special Agent Ruebenson didn’t return phone messages.

McNally’s testimony “failed as the jury vindicated SA Ruebenson and convicted Mr. Ryan of each of the charged false statement counts,” Collins, now in private practice, said in his statement. Ryan, convicted of racketeering, fraud and making false statements, was sentenced to a 6 1/2-year term and freed from prison and home confinement in 2013.

Ryan, in an interview, said McNally’s experience as a prosecutor was valuable to his defense team early in the investigation. He said he didn’t remember much about McNally’s testimony.

“McNally is a superb lawyer,” said Dan Webb, the Winston & Strawn lawyer who represented Ryan.

Bankruptcy Disclosure

Less than two weeks after McNally’s testimony, prosecutors learned that lawyers at Winston & Strawn -- the same firm representing Ryan -- were also involved in trying to collect a debt from McNally related to Altheimer & Gray’s 2003 bankruptcy. Neither McNally nor Winston & Strawn had disclosed the issue to prosecutors on the Ryan case, records show.

A court-appointed liquidator sought to settle claims with Altheimer’s ex-partners, and all but McNally and four others agreed. The liquidator, Jacob Brandzel, determined McNally was responsible for some Altheimer debts and offered to settle for a $140,700 payment. McNally declined, arguing he wasn’t part of the restructured firm that collapsed.

Winston & Strawn, which represented Brandzel, sued the other four partners. The firm held off suing McNally while the two sides negotiated. Brandzel, who died in 2008, said McNally’s role in Ryan’s case had no impact on his handling of the claim, court papers show.

In court, prosecutors fought to put McNally back on the stand, saying he stood to benefit financially by testifying as a defense witness. They produced an email in which McNally’s attorneys sought a two-month reprieve in repayment negotiations from Winston & Strawn by referring to his testimony in Ryan’s trial.

McNally’s “willingness to allow his past and present employment in positions of high public trust to be used in an attempt to influence the resolution of a personal financial dispute seriously undercut the image that McNally presented to the jury as a selfless public servant,” prosecutors wrote.

Separate Teams

Ryan’s lawyers at Winston & Strawn told the judge there was no quid pro quo for McNally’s testimony, adding that Ryan’s defense and bankruptcy collection were handled by separate legal teams.

Ultimately, a statement was read to jurors explaining the circumstances.

In March 2006, U.S. Senator Richard Durbin and then-Senator Barack Obama asked the Justice Department to investigate McNally’s conduct. In a letter to Durbin the following month, the agency said the matter was “under review.” Durbin’s office didn’t hear anything about the outcome of the probe, a spokesman said.

After five months, the Justice Department concluded McNally had provided proper disclosures before testifying and was not obligated to tell prosecutors about the conflicts, said Klineberg, McNally’s lawyer at the time.

McNally ultimately settled claims over Altheimer’s bankruptcy for an unspecified six-figure amount, said Richard Porter, one of his lawyers. His testimony didn’t hurt his standing in the Justice Department: He left southern Illinois to became senior counsel for the agency’s criminal division.

--With assistance from Jennifer Jacobs Tom Schoenberg and Janan Hanna

To contact the reporters on this story: Christian Berthelsen in New York at cberthelsen1@bloomberg.net, Matt Robinson in New York at mrobinson55@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Andrew Martin