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The attorneys proposed the naming of a special master to review all files to ensure that no victim or pivotal witness’s identity would be involuntarily disclosed. The issue was under review by the court as the year drew to a close.

THE CHRISTMAS BOMBSHELL

A central figure in the handling of Cleveland diocese finances was Anton Zgoznik, a totemic young man of six foot three who weighed nearly 300 pounds. A defensive tackle in high school football, he was a first-generation American of Slovenian descent. (His last name is pronounced Zuh-goz-nick.) Numbers sang for Anton Zgoznik. After studying business and accounting at John Carroll, he worked as a diocesan auditor in the early 1990s, then formed his own accounting and tax practice. Joe Smith outsourced lots of work: “We had a small staff for hundreds of entities doing audits and reviews. Anton’s firm grew from a three-person office to thirty people and more than $2 million annual billing of the diocese. Anton’s results were impeccable. It was all documented through our comptroller with engagement letters. Our books were regularly audited with no adjustment or review comment.”

But auditors did not see off-the-books accounts, transactions apart from normal payroll or invoiced payment by standard procedure. In a sense, the off-the-books accounts were like the little parish “slush funds,” only larger—sometimes, much larger.

The work between Smith and Zgoznik led to lunches, golf outings, the occasional dinner with their wives. Joe Smith, a dozen years older, had learned to submerge his ego around Pilla; he took some afternoons off to coach his two kids in sports, making up the hours at night. Pilla relied on Smith as a troubleshooter. When two of Pilla’s nephews tried to get lucrative business as diocesan insurance brokers, says Smith, “I told the bishop,
‘You’re gonna get killed on this.’ The commissions for a diocese of that size run half a million dollars and it’s publicly documented. Legit or not, no good would come of it for him. He thought about it, then said: ‘I don’t want anything to do with it—but you take care of it.’ I had to tell the nephews no. They weren’t happy.”

Anton Zgoznik, with an infant at home, put in marathon hours building his company. He drove his employees mercilessly, leaving a trail of people who quit or were fired. The list included the best man at his wedding, Zrino Jukic (pronounced Joo-kich). Zrino was not as tall as Anton but was nearly as large. Zrino idolized Anton. He, too, had an accounting degree, though Zrino Jukic’s work ethic was more casual. He never bothered to take the ethics portion of the CPA certification test, and he neglected to file his own tax returns for several years.
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Catholic high schools had been outsourcing their financial record keeping to Anton Zgoznik’s company. Zrino Jukic assisted the education secretariat of the diocese, as a kind of outsourced CFO. The job overwhelmed him. When Zgoznik slashed his handshake share of the company, Jukic was livid, yet he held Anton Zgoznik in a mixture of awe and fear. Zrino Jukic’s bad feelings spilled out in late December 2003 at a bar with several church employees who were also hostile to Anton. As drinks flowed, they recalled Anton’s blowout Christmas parties: work them like a tyrant all year, then turn up the friendship, booze, good tidings to all come Christmas—a sentimental boss. The guys decided to send Anton a Christmas present he would not forget.

The anonymous letter dated December 24, 2003, was addressed to Jay Milano, an attorney who had seven abuse lawsuits against the diocese. The letter criticized a pattern of “consulting payments” by an “extremely large vendor of the Diocese of Cleveland … Mr. Anton Zgoznik.” The letter listed seven corporate names Zgoznik used and also took aim at Joe Smith.

The person in charge who chooses to give the work to Mr. Zgoznik is Mr. Joseph Smith, who receives such payments under JHS Enterprises ($451,596) and under Tee Sports ($226,635) as indicated in the attached material …

[Zgoznik’s] firms have been paid a few million dollars each year for the last few years to perform services for the Diocese that
some feel are either not needed in the fashion as prepared by the consulting firm[s], totally unnecessary at all, or somewhere in the middle … [T]he Diocese has been paying the millions per year in bookkeeping/accounting/computer/consulting fees when the Diocese could easily hire employees for a small fraction of that cost. In addition, this would probably explain why there were no raises for the dedicated employees of the Diocese this year, thus further explaining why this particular consultant is so disliked by those here at the Diocese office. I understand the Diocese has been advised to make payments to Mr. Zgoznik’s companies in small enough amounts as not to raise any red flags with the auditors.
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Jay Milano knew the legal equivalent of lava when he saw it. So did Jim McCarty of the
Plain Dealer
and Bill Sheil at Fox 8: both found the same hot package on their desks after Christmas. Obligated to disclose a potential crime, Milano sent copies of everything to the U.S. Attorney and the diocese, whose documents had landed unsolicited on his desk. On January 6, 2004, the Feast of the Epiphany, Joe Smith was summoned to Pilla’s office. Sitting with the bishop were two attorneys. Steve Sozio, of Jones Day, was a former federal prosecutor who had worked closely with Smith in steering the diocese through the abuse crisis. Peter Carfagna, a Harvard Law graduate, chaired the diocesan financial council. Carfagna, formerly with Jones Day, was a corporate counsel in professional sports. His face telegraphed huge dismay. “Joe,” said Bishop Pilla, “I have something terrible to tell you.” Pilla got flustered and left the room. Steve Sozio showed Smith the documents sent by Milano and said, “I think you better get a lawyer, Joe.” Sozio hoped an internal investigation would find a reasonable resolution. Smith was suspended with pay for a month; he never returned.

The
Plain Dealer
soon reported that Joe Smith had raked in $750,000 from Zgoznik’s firms in outsourced church accounts. Smith’s Tee Sports Inc. received more than $225,000 as “a marketing firm that runs golf tournaments,” wrote McCarty and Joel Rutchick. On TV Sheil magnified the image of a diocese reeling from a sex scandal that toppled into a financial debacle.

“Smith made false representations to a member of the Diocesan Financial Advisors and a Diocese attorney,” a Jones Day attorney wrote to
a claims analyst with AIG Technical Services in New York, as the diocese sought a settlement from its crime insurance policy for “Employee Dishonesty—Joseph H. Smith.” The letter, which surfaced much later as a public document, telegraphs the strategy that emerged in the early months of 2004:

In records created for [the Cleveland diocese], Mr. Zgoznik euphemistically characterized his hundreds of thousands of dollars of payments to Mr. Smith as part of some so-called “executive compensation package” … Smith apparently will claim that at least some of the so-called “executive compensation package” was authorized by Father John Wright, who until late 1999 preceded Smith in the position of Financial and Legal Secretary of the Diocese. Father Wright categorically denies ever doing so, however.
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By then, the diocese had commissioned an Ernst & Young audit that accompanied the letter.
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Insurers do not usually pay a settlement to a financially victimized client without a verdict. Insurers will, however, in some cases pay legal fees as part of a settlement, since it takes legal work to prove theft. The church later issued statements saying it had been paid a claim, but did not say how much.
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By the agreement, AIG relinquished its right to sue guilty parties to recover the insurance loss, according to Smith. If AIG launched discovery depositions against Smith and Zgoznik, the two defendants would seek church documents by subpoena in return. Steve Sozio, wisely, did not want that.

FBI investigations of complex financial transactions often move slowly. Gathering documents is laborious; investigations on different cases can overlap. Federal attorneys want a full grasp of evidence before bargaining plea agreements (if such are to be) or distilling documents into a story line for a jury. A jury can better grasp Olympian greed if the documents fit neat patterns.

On February 27, 2004, Judge Corrigan denied WJW TV’s motion for the grand jury documents on the 145 priests, ruling that without a legal proceeding to compel the evidence, he lacked the authority on a media request.
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The next day Bishop Pilla, looking sad, held a news conference to provide data on the diocese’s handling of abusive priests. Pilla produced
numbers in accordance with the national bishops’ conference youth protection charter as adopted in 2002. That very morning in Washington, D.C., the National Review Board for the Protection of Children and Young People, made up of twelve prominent lay Catholics (including Leon Panetta and Washington attorney Robert Bennett) who had been commissioned by USCCB to research the crisis, released their report. The USCCB president, Bishop Wilton Gregory, made headlines in saying, “The scandal is history.”
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The bishops released data on perpetrators, victims, and financial losses as tabulated by the John Jay College of Criminal Justice. Pilla was giving a local report with numbers already reported to the John Jay researchers. Pilla announced that 117 priests and one deacon had been accused of sexually abusing youngsters since 1951.

Bill Sheil of Fox 8 asked Pilla how many priests with accusations he had sent to new assignments. Since 1989, said Pilla, “about three.” (Berthiaume left in 1988.) Haltingly, the bishop added, “I don’t want to misspeak.”

“He’s lying,” Charlie Feliciano told
Cleveland Free Times
. “He transferred them out of state and within the diocese.” At least fifteen priests, he said.
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Quite a story lay in the numbers. The Boston archdiocese had agreed to an $85 million settlement for 542 victims. The Cleveland diocese, for 285 people making abuse charges, said it had paid $14.4 million for “compensation, treatment and legal costs.” Three million dollars had gone to legal fees; the church did not say how much of the $11.4 million was absorbed by clergy treatment costs. Compared with the Boston abuse survivors, the Cleveland survivors received a pittance.
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Plain Dealer
columnist Regina Brett drew a bead on the 117 unnamed priests and one deacon trailed by allegations.

Where are those men now? Diocesan spokesman Bob Tayek gave me a breakdown:

• 20 are on administrative leave waiting for a ruling on whether they can return to ministry.

• 20 are in active ministry.

• 28 are deceased.

• 18 have resigned.

• 19 are priests from religious orders not under the diocese.

• One was a diocesan deacon who has resigned.

• Eight are priests not identified by their accusers.

The remaining four priests are from outside the diocese or returned to ministry when allegations could not be substantiated. That accounts for all 118 accused. Except the Cuyahoga County Prosecutor Bill Mason came up with a different number: 145. Tayek doesn’t know who those 27 are. Mason knows but by law can’t tell him.
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The cover-up under Quinn, Wright, and Pilla had recycled predators, kept most of them unprosecuted, saved the diocese major costs in providing settlements to victims, and with Judge Corrigan’s timely boost, kept most of the abusers unnamed and gave the diocese control over those still in ministry.

PAYBACK

As his public image took a drubbing, Pilla caved in to traditionalists in the chancery and punished FutureChurch. Here was a way for Pilla to prove his defense of the church; he felt no allegiance to the group. FutureChurch had grown to five thousand dues-paying members with a $260,000 budget and a small paid staff that organized Catholic groups to sponsor educational programs, prayer services about Mary Magdalene, and discussions regarding the future of priestly ministry and women’s roles in the church. After fourteen years of live and let live, Pilla announced on April 1, 2004, that FutureChurch’s activities were “not appropriate” for church facilities.
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“We are both sad and puzzled,” the group said in a response Schenk and Trivison posted. “During Pope John Paul II’s papacy, the number of priests in the world declined by 4% while the number of Catholics increased by 40%.” Restricting the priesthood to celibate males “makes celibacy more important than the Eucharist.” They called for “respectful discussion” on “systematic inequality of women in the Catholic Church.”

Through Cleveland’s aching scandal, Schenk had held back from criticizing Pilla. The promoter of Church in the City had betrayed people who had shared his vision. As the media drubbing intensified, the nun had
even written Pilla a personal letter of support. Now Pilla was making FutureChurch a scapegoat. The
Plain Dealer
in covering the story published a leaked e-mail Schenk had sent her board. She was blunt. If pastors refused to ban FutureChurch, she said, and if John Carroll University and her religious order gave them a welcome mat, “what can the diocese do? Kick out a priest for allowing discussions when they haven’t kicked them out for sexually abusing kids?”
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“I console myself that Jesus was rejected by his own tradition,” she told Tom Roberts of the
National Catholic Reporter
. “So was Paul. He was thrown out of all the best synagogues in the Mediterranean world, so when I get upset that one diocese or the other won’t let me speak on church property, I just remind myself that it’s all part of it.”
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