Priest Linked to Kickback Suspect
He OK'd Payments, Court Papers Say

By Mike Tobin
Plain Dealer
August 19, 2006

A high-ranking priest in the Cleveland diocese approved creating a secret investment account and $270,000 in payments to Joseph Smith, the former financial officer charged in an elaborate kickback scheme, according to court documents.

There were no formal entries of the payments in diocesan records and the diocese did not report the payments to the Internal Revenue Service, prosecutors said. Investigators consider the account to be part of a conspiracy to defraud the IRS.

A memo stated the special not-for-profit account was designed to "handle sensitive items impacting the diocese." The account was really used for Smith's personal expenses and given to him in addition to his regular salary, according to the indictment filed this week.

The payments were designed to keep Smith, who served as the diocese's chief financial officer, from taking a more lucrative job in the private sector. Smith used the money to buy stocks and pay for personal expenses until August 2002, when the money ran out, prosecutors said.

The account and payments raise questions about who else - if anyone - knew about what prosecutors said was a scheme between Smith and Anton Zgoznik to enrich themselves off diocesan money.

The indictment against Smith and Zgoznik identifies the priest who approved the payments only as the "financial and legal secretary" in March 1996.

A spokesman for the diocese refused to say who served in that capacity, but Zgoznik's lawyer identified the person as the Rev. John Wright.

"Father Wright is the key to all this," said Robert Rotatori, Zgoznik's lawyer. "We want to know what he did and who else knew what he did. We think there's a lot of questions about who knew what."

Wright, 62, was appointed financial and legal secretary of the diocese in 1991. He is now director of the Catholic Cemeteries Association and serves at St. Timothy Church in Garfield Heights.

Only Wright and Smith were authorized to use the investment account, which was set up using the diocese's tax-identification number at Fidelity Investments.

Wright declined to comment on the matter.

"You have to believe the diocese knew, or they were criminally negligent," attorney Jay Milano said. The FBI and IRS investigation into the diocese's finances started in 2004 after Milano turned over records and checks that were sent to him anonymously.

Smith, 49, and Zgoznik, 39, are scheduled to be arraigned Wednesday in U.S. District Court on charges including conspiracy, money laundering, mail fraud and tax evasion. Lawyers for both men said they will plead not guilty and expect to be exonerated.

Rotatori said Zgoznik transferred diocesan money with Wright's approval.

"[Wright] authorized the payments from these off-book accounts," Rotatori said. "As a result, my client thought nothing was wrong when he was authorized to make the payments he did."

Smith, formerly of Avon Lake, worked at the diocese for 21 years. He became the highest-ranking lay employee when promoted to chief financial officer in 1994.

Zgoznik, of Kirtland Hills, also did work for the diocese, both as an employee who reported to Smith and by handling financial work that was outsourced to three different companies he owned.

In addition to the $270,000 in the secret investment account, prosecutors claim Smith steered $17.5 million worth of consulting work to Zgoznik's companies and approved payments that were wildly inflated. In return, Zgoznik approved $784,000 worth of "consulting work" to two companies owned by Smith. Prosecutors claim those payments were kickbacks.

Smith was suspended by the diocese in January 2004, when Milano turned over the documents to federal prosecutors and the diocese. Milano has a hard time believing Smith and Zgoznik were the only people aware of the scheme.

"Seventeen million lost empties a lot of collection plates," Milano said. "There was a duty to guard the money, to see that it went where it was supposed to go."

A Columbus bishop said in 2004 that Smith's bosses in Cleveland recommended him for his next job even after his questionable dealings were made public.

Seven months after being suspended by the Cleveland diocese, Smith was picked as CFO for the Columbus diocese. Robert Tayek, the Cleveland diocesan spokesman, said no one in Cleveland was consulted on the hiring, but then-Columbus Bishop James Griffin disagreed.

"The fact is that prior to hiring Mr. Smith, I spoke to Bishop Pilla," Griffin said in 2004.

Griffin said that he also discussed Smith with Auxiliary Bishop James Quinn, who "strongly and positively recommended" Smith for the Columbus job.

Bishop Anthony Pilla, who retired earlier this year, declined to comment on the case.

To reach this Plain Dealer reporter: mtobin@plaind.com, 216-999-4128