A swindler involved in one of the most expensive schemes in the history of Chicago's federal court pleaded guilty Wednesday to securities fraud as part of an unusual deal with prosecutors in which he would live with relatives while he is treated for colon cancer.
Prosecutors agreed to free Michael E. Kelly for up to 120 days in return for his admission of wrongdoing, which will clear the way for some $50 million in restitution to be paid to thousands of victims. He would stay with relatives in Indiana during treatment.
Kelly was to be sentenced on the same day — another unusual part of the deal — but U.S. District Judge Ronald Guzman delayed the action for at least a day, saying he wanted to confer with a probation officer on how Kelly's release would be supervised.
"I've seen sicker people than this get up and walk away," Guzman said of Kelly, who has been in custody since his arrest in December 2006. "It's a real concern."
The judge also noted that Kelly had amassed hundreds of millions of dollars that could be "in places we haven't even begun to look" and that he has dual U.S. and Mexican citizenship.
In an effort to win the judge's support, Kelly's wife and several relatives agreed that they would pay a total of $10 million if Kelly fled after his release from the Metropolitan Correctional Center.
As the hearing began, Kelly, 63, who uses a wheelchair and appeared tired and weak, slowly moved himself into the courtroom. Through much of the two-hour hearing, he hunched forward in his wheelchair and held his hands together above his lap.
In pleading guilty to the one fraud count, Kelly, formerly of South Bend, Ind., said that some 7,000 investors from around the country lost more than $342 million during the nine-year Ponzi scheme.
Kelly enticed clients to invest $500 million while rewarding his sales staff with hefty commissions and promising large returns to investors, according to the plea agreement.
Investors were led to believe that "all you have to do is sit home and wait for your income," prosecutors said.
Early investors received tens of millions of dollars in returns as Kelly tried to keep the scheme going
.
Kelly spent lavishly, buying boats, cars, an airplane and a nightclub, according to the plea agreement.
Though Kelly has been in custody for six years, his conviction on the securities fraud count carries a maximum five-year prison sentence. He faces 13 more fraud charges, but his health could determine if he's eventually tried.
Kelly's attorney, Jeffrey Steinback, said a tumor was removed from his colon and that his client has a "50-50 survival rate" though the cancer has spread.
