The city of Atlanta could spend about $100,000 in legal fees to investigate a nonprofit’s $40,000 payment to cover luxury airfare for former Mayor Kasim Reed and several staffers who traveled to South Africa last year.
Records obtained by The Atlanta Journal-Constitution and Channel 2 Action News show the city was billed nearly $60,000 for work performed from May 4 to May 16 by international law firm Sidley Austin, which was retained that month for a review of the nonprofit Partners for Prosperity. But the probe into the airfare payment soon stalled, and Sidley Austin withdrew after city officials balked at high legal fees.
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Mayor Keisha Lance Bottoms’ office recently retained a new outside firm, Cobb County-based McFadden Davis, to restart the investigation. McFadden Davis was retained June 26 at rates of up to $350 per hour — a fraction of Sidley Austin’s hourly rates — and fees are capped at $40,000.
Bottoms launched the probe in April after the AJC and Channel 2 uncovered the unusual transaction that saw taxpayer money donated to the city-tied charity and then returned to the city to cover the airfare. Bottoms said the review was necessary to determine whether city officials’ conduct was appropriate.
Some on City Council have raised questions about the high fees charged by outside law firms for recent legal matters.
But officials say the matter deserves independent scrutiny. In April, a federal grand jury investigating corruption at City Hall issued a subpoena for records related to the charity and Eloisa Klementich, the CEO of Invest Atlanta, who serves as chief financial officer of the nonprofit.
“You’re going to end up spending 100-grand to investigate a $40,000 problem,” said Atlanta City Councilman Howard Shook, who represents Buckhead. But he said city needs to get to the bottom of the matter.
“I want all these shoes to drop at the same time so we can know who did what, have a very clear idea of what needs to be fixed, and who needs to go (so that) we can start looking to the future more than we’re able to do now,” Shook said.
“We look forward to McFadden Davis LLC’s independent review of the matter and a documented record of the events as they transpired,” Bottoms’ office said in a statement. The new firm “will not be starting from scratch in their examination” and Sidley Austin is “cooperating in the transition,” the statement said.
Partners for Prosperity is part of a cloud of controversy that’s kicked up since Reed left office in January.
In March, the GBI opened a criminal investigation into City Hall’s handling of open records requests. A federal subpoena in April, meanwhile, sought records including documents related to spending by Reed on his city-issued credit card.
The Partners for Prosperity review stems from a controversial trip Reed and several staffers took to South Africa in spring of 2017.
Reed took nine employees and most flew business class to South Africa to learn about filmmaking, urban agriculture and to recruit jobs. Reed caught flack for the trip’s overall $90,000 price tag and promised to find nongovernmental funds to pay the $40,000 difference between coach and business-class airfare.
The AJC and Channel 2 found in April that Partners for Prosperity, a charity formed by Invest Atlanta in 2015 to help create jobs and promote affordable housing, covered the airfare difference. It was the first check the charity ever wrote.
But the money originated from the city.
In December, City Council approved a $40,000 donation to the charity upon the recommendation of Reed’s office from an account that held salary Reed had deferred. But the Reed administration didn’t inform council that the money would be used to pay for airfare he promised would be covered by private sources.
On Dec. 29, days before he left office, Reed approved a new contract for Klementich, who also serves as a Partners for Prosperity director. The three-year extension pays Klementich $309,000 a year and guarantees her two-years of salary if the new mayor replaces her. The same day, the city sent $40,000 to the charity.
On March 1, then-city CFO Jim Beard sent a city invoice from his personal email address to Klementich’s seeking $40,000 from the nonprofit. Klementich signed a check dated four days later for $40,000, but Partners for Prosperity’s board didn’t formally approve the payment until early April, board minutes showed.
Reed has denied any wrongdoing. Reed’s spokesman has said the funds weren’t tax dollars, but money from a raise the former mayor earned and declined to accept. Instead, the deferred salary was devoted to charity.
Jessica Gabel Cino, a law professor at Georgia State University, said Sidley Austin’s fees of up to $875 per hour for a lead partner and $590 per hour for an associate attorney were “astronomical.”
McFadden Davis’ fees are more in line with what Cino said she would expect a smaller firm to charge for such an investigation.
But she said McFadden Davis will likely soon reach the $40,000 fee threshold for a probe she said could take months to finish.
“It’s sort of like a toxic environmental hazard,” she said. “You are going to spend more to clean it up than what you initially spent to make the mess.”
An invoice from Sidley Austin shows it assigned two attorneys to the investigation. Though the document contains some redactions for attorney-client privilege, it shows attorneys started to preserve and collect records from Invest Atlanta employees and charity board members, conducted interviews with several staffers and started assembling a timeline.
Cino said the steps are standard practice for any white-collar investigation.
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