Lawyer Says Priest Duped by Associates

By Mike Tobin
Plain Dealer
August 24, 2006

The priest who supervised the men at the center of the Catholic Diocese's financial scandal was duped by them, the priest's lawyer said.

The Rev. John Wright approved a $270,000 payment to Joseph Smith but did not authorize the secret fund that Smith used to hide the money from the Internal Revenue Service or any kickbacks between Smith and Anton Zgoznik, attorney Kevin Spellacy said Wednesday.

"Father Wright unfortunately placed his trust in individuals that abused that trust," Spellacy said. "He didn't give Smith a raise and then say, 'Go put it in a secret fund and don't tell anybody about it.' "

Wright worked as the diocese's legal and financial secretary, where he supervised Smith and Zgoznik until 2000. Smith served as chief financial officer. He succeeded Wright as legal and financial secretary, serving until 2004, when he was suspended. Zgoznik worked for the diocese both as an employee and as a consultant who handled financial and computer matters.

Smith and Zgoznik pleaded not guilty Wednesday in U.S. District Court to multiple charges, including conspiracy, money laundering and mail fraud.

In addition to not reporting the $270,000 payment, prosecutors claim Smith steered work to companies owned by Zgoznik and approved payments of inflated bills. Zgoznik's companies got $17.5 million from the diocese between 1996 and 2003, prosecutors said. In return, Zgoznik paid $784,000 to companies owned by Smith. Those payments were kickbacks, prosecutors said.

Lawyers for both men have denied the charges and said their actions were approved by supervisors at the diocese, including Wright and retired Bishop Anthony Pilla.

Diocesan spokesman Robert Tayak said in a written statement that those accusations are false.

"Any suggestion that the Diocese of Cleveland or its leadership approved or knew of the conduct alleged in the indictment is flatly wrong and inaccurate," Tayek said. "The diocese is the victim of a fraud and is taking steps to recover the lost funds."

In 1996, Wright approved paying Smith $270,000 in addition to his salary to keep Smith from taking a higher-paying job. Smith used the money, which was not reported to the IRS or noted in diocesan records, to buy stocks and pay for personal expenses, prosecutors said.

Smith used the $784,000 in kickbacks to pay for personal expenses including tuition for his children, mortgage payments on a Florida condominium and resort fees there, prosecutors said.

Smith, 49, and Zgoznik, 39, are free on $50,000 bonds. Smith is required to wear an electronic monitor on his ankle until the start of his trial, which is scheduled for November.

U.S. Magistrate Judge Nancy Vecchiarelli ordered Smith to wear the ankle bracelet, which keeps tabs on his whereabouts, because she is concerned that he had several addresses. Smith lives in suburban Columbus during the week, where he works as CFO for the Columbus Diocese, and returns to Avon Lake on the weekends.

"It's the multiple residences I've seen in the report, it's the unknown assets," Vecchiarelli said. "There's too much I don't know about Mr. Smith."

Much of the money that prosecutors said was stolen came from the collection baskets of the 233 parishes in eight counties that make up the Cleveland Diocese.

The diocese has taken several steps to strengthen oversight since learning about Smith and Zgoznik's dealings in 2004, Tayek said. Those steps include hiring more financial personnel and reorganizing the financial and legal officers under separate leadership, he said.