The former chief executive officer of Redflex, a major red light camera (RLC) vendor, has been indicted on federal corruption charges stemming from a contract with the City of Chicago.

On Wednesday, in addition to former CEO Karen Finley, government prosecutors also indicted John Bills, former managing deputy commissioner at the Department of Transportation, and Bills’ friend Martin O’Malley, who was hired as a contractor by Redflex.

According to the indictment, O’Malley himself was paid $2 million for his services as a contractor, effectively making him one of the company’s highest paid workers. Much of that money was then funneled to Bills, who used it for personal gain. Via Redflex employees, Bills also acquired a Mercedes and a condominium in Arizona. In December 2013, Ars reported on red light cameras nationwide, and in particular, Redflex's four cameras in the central California town of Modesto.

A May 2014 affidavit written by an FBI special agent suggests that Bills likely used some of this money to purchase and store a boat, buy a car, pay for an addition to his Michigan cabin, pay for his girlfriend’s mortgage, pay his own mortgage, pay his kids’ schools, and hire a divorce attorney over the course of several years.

A 2013 Redflex document states that two employees “paid for vacation-related expenses” for Bills “for at least 17 different trips from 2003 through 2010,” which included “hotels, flights, rental cars, golf games and meals” and a computer, for a total value of around $20,000. Karen Finley was vice president of operations at Redflex from 2001 until late 2005, and then was promoted to CEO from 2006 until February 2013.

The three named defendants face 23 counts of mail fraud, wire fraud, bribery, and other charges. They could each be sentenced to decades in prison if convicted: each fraud count carries a maximum sentence of 20 years in prison, while the other counts have lesser penalties.

The city had hired Redflex to provide automated enforcement cameras, known formally as its Digital Automated Red Light Enforcement Program (DARLEP), from October 2003 until February 2013. That was when Mayor Rahm Emanuel dropped Redflex and its 384 cameras after Bills was shown to have accepted a hotel room that Redflex paid for—but city officials believe that the corruption ran far deeper. In October 2013, Chicago selected Xerox ACS to replace Redflex as its new RLC operator.

The May 2014 criminal complaint against Bills states:

According to individuals at Redflex, the Chicago contract was the most important contract for the company, both because of the revenues it generated as well as the name recognition it gave to Redflex. By 2010, the Chicago red light program was the largest red light camera program in the United States and encompassed 20% of the total camera systems that Redflex operated in the U.S.

In July 2014, the Chicago Tribune reported that at least 13,000 Chicago motorists were cited with undeserved tickets thanks to malfunctioning Redflex RLCs.

Because of failed contract, Redflex has lost over $1 million

Further Reading Faulty red light cameras produced thousands of bogus traffic tickets

The Chicago scandal has had a profound impact on the company’s bottom line. As per the company’s own financial disclosure documents , since losing the Chicago contract, Redflex’s pre-tax profits in its North American division (its corporate parent is an Australian company) have plummeted over 33 percent—from $3.4 million in the first half of 2013, to $2.28 million in the second half. During the second half of 2013, it removed its 141 cameras from Chicago and 54 from other cities, while adding 24 new ones—a net loss of 171 cameras. The company estimated that in the first half of 2014, it spent around $1 million as part of its own legal costs and internal investigation resulting from the Chicago contract, which eventually reached $124 million.

Redflex's US operations took a hit in 2013 as the company installed 54 new systems—but removed 101. Redflex’s 2013 fiscal report (PDF) shows that its after-tax net profits in a six-month period have dropped by half: plummeting from $7.1 million in the first half of 2012 to $3.6 million in the first six months of 2013.

“The board has commissioned a third party strategic review,” the Fiscal Year 2014 half-year financial report states. “The retain and sustain strategy in the USA, established whilst we handled the effects of the Chicago and related disclosures, will change as the company moves forward. Whilst it is difficult to reliably forecast the effects of above, the board expects that the Group will likely break-even at best in H2 FY2014.”

Redflex did not respond to specific questions about Finley’s activities, and only sent a statement and a 2013 company document summarizing the company’s internal investigation, which did not name any names.

“Last year we announced aggressive leadership changes, industry leading compliance policies and procedures, and a distinction between our past and present,” Jody Ryan, a spokeswoman, wrote to Ars. “Redflex Traffic Systems is moving forward. Since we announced these changes we have signed, renewed, or executed over 100 contracts. Redflex has cooperated fully with the investigative authorities while maintaining the integrity of our customer programs. Our focus is on making a life-saving difference in the communities we serve across the country.”

Just following orders

According to the government indictment, the story begins in late 2002, when a former company vice president, whom the government names as “Individual A,” gave a presentation to Bills regarding Redflex’s services. The indictment identifies Individual A as the former “Vice President of Sales and Marketing for Redflex.”

Earlier this week, the Chicago Tribune identified this person as Aaron Rosenberg, who was fired as a result of the Chicago scandal.

As the Tribune reported earlier this year on Rosenberg:

Redflex fired Rosenberg and sued him for damages in Arizona court in February [2013], largely blaming him for the company's wrongdoing in Chicago. In a counterclaim filed in October, Rosenberg disclosed that he provided information to local and federal investigators as well as to the outside attorney who conducted a damaging private investigation of the company. "I don't think it would come as a surprise to anyone involved in this case that my client is cooperating with federal authorities," James Burr Shields, who represents Rosenberg in a civil lawsuit against his former employer, told the Tribune in January 2014.

Rosenberg then sued Redflex in a Los Angeles County court in February 2014 for wrongful termination. The case was briefly transferred to federal court months later, but earlier this month was sent back to the state court.

Neither Rosenberg’s Arizona or California-based attorneys responded to Ars’ request for comment.

In Rosenberg’s February 2014 lawsuit, he said that he was merely following orders:

Throughout his employment with Redflex, Plaintiff [Rosenberg] received outstanding performance reviews. Among the key factors in Redflex’s positive assessment of Plaintiff’s job performance was his success in building relationship with government employees and officials in his jurisdictions in which Redflex did or sought to do business. From the outset of his employment with the company, Redflex management instructed him and otherwise made clear to Plaintiff that one of the ways in which he was to build such relationships was through the use of entertainment, gifts and other inducements to government employees and officials. At no time prior to late 2012 did Redflex provide Plaintiff with any training regarding the legal limitations on the use of such entertainment, gifts, or inducements. Rather, Plaintiff repeatedly was instructed and encouraged by his supervisors to do whatever was necessary to build and maintain positive relationships with government employees and officials.

Wining and dining

According to the new indictment , Rosenberg gave a presentation to Bills about Redflex in late 2002, and then Rosenberg attended a pre-bid meeting at the Chicago Department of Transportation for vendors interested in potentially working for the city. Bills then contacted Rosenberg, asking for a hotel room in Los Angeles, which he received.

By February 2003, then-VP Finley, Rosenberg and other company officials met Bills, who told the company that he could “get Redflex the contract not only by voting for Redflex himself, but by influencing fellow [Digital Automated Red Light Enforcement Program, or DARLEP] committee members to vote for Redflex.”

The Chicago Tribune described this February 2003 meeting this way, in a February 2014 article:

As the assembled team from Redflex Traffic Systems Inc. sipped wine at a table in the Signature Lounge atop the John Hancock Center and enjoyed an iconic view of the city, Bills explained the reason they had all been called there that night, software engineer Michael J. Schmidt told the Tribune in a recent interview. "Essentially, he spent two hours coaching us on how to win the contract, telling us how to behave, what things were going to work and what wouldn't," Schmidt said. At the end of the February 2003 meeting, Schmidt said, Bills told them they would need to pretend it had never happened when he saw them the next day at a key City Hall meeting.

Later, according to the indictment, in May 2003, Rosenberg and then-CEO Bruce Higgins (whom the government identifies as “Individual B”) met with Bills “outside of his City office in order to make Bills a ‘Redflex expert’ so that he could convince the City’s evaluation committee to recommend that Redflex be awarded the contract.”

Later that month, Bills took Rosenberg to his office after hours, where, according to the indictment, they:

reviewed red light photographs taken during the pilot phase by Redflex and its competitor and selected photographs that showed Redflex cameras working well, and the competitor’s cameras working poorly. Bills said that he planned to show the selected photographs the next day during the evaluation committee’s meeting, and would pretend that the photographs were chosen randomly. It was further part of the scheme that, while in the [Chicago Department of Transportation] office after hours, defendant Bills wrote out name placards for each member of the committee and arranged the seating in a particular way to control the voting order so that committee members Bills knew would support Redflex would vote first, and these votes would influence the members who would vote later in the process.

The next month, to celebrate the evaluation committee’s unanimous decision to award the contract to Redflex, over dinner in Los Angeles, Bills told Rosenberg “It’s time to make good,” which Rosenberg “understood to mean that Bills wanted and expected to be paid for helping Redflex win, maintain, and grow the Chicago DARLEP contract."

"Our reputation for excellence"

In October 2003, Redflex trumpeted:

A clear win in this city by Redflex builds on our reputation for excellence, proven ability to deliver and experience as the right partner for the City of Chicago. The Redflex photo enforcement business is enjoying strong growth in both revenues and new clients with the USA installed base being approximately 80% greater (187 installed) when compared to the same period last year. Similar growth is planned over the coming year.

The indictment goes on to say that Bills suggested that the way he could be compensated for his efforts was through the company’s newly created Chicago-based “customer liaison” post. Finley organized the advertisement of “Account Manager for Redflex’s City of Chicago” contract in a local newspaper, and Bills told O’Malley “to look for and respond to the advertisement.”

Once hired in December 2003 (which was backdated to the previous month), “Bills informed O’Malley that O’Malley would give Bills a portion of the commissions that O’Malley was to receive under the O’Malley contract.” That contract stipulated a base salary of $2,300 paid twice per month ($55,200 annually), plus $10,000 in annual bonuses, plus commissions based on RLC installations and an increase in the fee Redflex charged Chicago for maintenance of its cameras. The indictment also states that the “bulk of [the contract’s] value” was derived from these commissions.

In total, the government alleges, O’Malley was paid over $2 million from 2003 to 2011. At Bills’ instruction, O’Malley handed over $570,000 in cash, $80,000 of which was used to pay for “personal expenses” for his then-wife and then-girlfriend. O’Malley also apparently wrote Bills $17,900 worth of checks for “personal debts and expenses,” $5,500 “to a political organization,” and bought Bills a condominium in Arizona. A May 2014 affidavit also states that Bills ordered his Mercedes to be transported from his Chicago home to Arizona.

By the time Bills retired from his position at the city in June 2011, he told Redflex that he wanted a job with the company. However, rather than a job at Redflex, according to the Chicago Tribune, Bills was given a job as a consultant to a Chicago political adviser, who then was paid to establish the non-profit Traffic Safety Coalition, which advocates for RLCs nationwide.

The Chicago newspaper first broke the story of possible Redflex malfeasance in October 2012, which prompted the sale of the Arizona condo and a fraying of the relationship between O’Malley and Bills.

“Rooting out public corruption remains one of the FBI’s highest priorities,” said Robert J. Holley, a Chicago-based FBI agent, in a statement. “[The] indictment underscores our commitment to work in a collaborative effort to promote honest and ethical government at all levels and to prosecute those who allegedly violated the public’s trust.”

The defendants are set to be arraigned in early September in federal court in Chicago.