Witness in probe of Ryan era got $4.9 mil. goodbye
May 27, 2003

BY TIM NOVAK AND STEVE WARMBIR Staff Reporters

Donald Udstuen, a top lobbyist and onetime pal of former Gov. George Ryan, was paid nearly $5 million on his way out the door as a top executive of the state's biggest medical-malpractice insurer--only two months before Udstuen pleaded guilty to taking kickbacks on state contracts.

Udstuen got the $4.9 million payment from ISMIE Mutual Insurance Company, where he was chief operating officer. ISMIE is now under fire from doctors who have received notices from the insurer that their medical-malpractice premiums will soar at least 35 percent in July.

No one else at ISMIE was paid anywhere near what Udstuen got. His boss, Alexander Lerner, for instance, was paid slightly more than $1 million by ISMIE, state records show. Altogether, ISMIE paid its top 10 officers nearly $8.4 million last year. It's unclear why Udstuen got more than half of it.

Udstuen, 59, of Crystal Lake, is a key cooperating witness for federal investigators in their probe of corruption during Ryan's tenure as Illinois' secretary of state. Udstuen pleaded guilty last year to taking bribes from another Ryan friend, Larry Warner.

Udstuen was once dubbed Dr. Don, though he's not a physician, for the legislative cures he worked on behalf of doctors. But his world of power and privilege disintegrated last year, when he was snared in the ongoing probe of corruption under Ryan. With the scandal nipping at his heels, Udstuen resigned from his longtime positions on the boards of Metra, a McHenry County hospital, a chain of nursing homes and the Illinois State Medical Society and its many affiliates.

Representatives of ISMIE, an arm of the Illinois State Medical Society that was run for years by Lerner and Udstuen, declined to detail the payout to Udstuen.

"In this compensation total were all of Udstuen's accrued benefits over almost 30 years of employment with ISMIE Mutual, including deferred compensation that he, himself, had chosen to defer," said a written statement from ISMIE's chairman, Dr. Harold L. Jensen. "This completely ended Udstuen's relationship with ISMIE Mutual and its affiliates."

But one doctor on ISMIE's board indicated that at least some of the money represented a settlement for Udstuen when he left the company in April 2002. "This was basically deferred income he put in there for 30 years of service at ISMIE and part of the settlement for him leaving," said Dr. Peter Brusca.

At first, Brusca, of Carol Stream, expressed surprise when told the size of the payout. "Wow," Brusca said. "I didn't even know that. I've not heard of such a thing."

Later, Brusca called a Sun-Times reporter back and said his earlier comments were in error and that, in fact, he was even on the compensation committee that approved Udstuen's deal.

ISMIE is owned by doctors and provides medical-liability coverage across the state for about 14,000 physicians. The insurance company is a creation of the Illinois State Medical Society, which is one of the biggest contributors to politicians in the state, handing out hundreds of thousands of dollars a year. The doctors organization was one of Ryan's biggest supporters. But now it finds itself shadowed by the growing political scandal.

Earlier this year, Lerner, who remains in charge of the medical society, said through his attorney that he shared in bribe money that Udstuen received from his friend, Republican businessman Roger Stanley.

Lerner has insisted he did not know the source of the money and that he believed it came from business dealings between him and Udstuen. Udstuen passed the money to Lerner through an intermediary, though. It's unclear why. Lerner has not been charged with any wrongdoing.

Udstuen also received payments from Stanley directly related to Udstuen's work at the political arm of the society, the Sun-Times has learned. Stanley ran a direct-mail business for politicians. Stanley pleaded guilty earlier this month to a bribery scheme involving Metra and also said in court then that he had directed payments to Udstuen for unspecified political work. That work included political mailings that the medical society was paying for on behalf of Republican candidates, two sources said, adding that the payments to Udstuen went on for more than a decade. The amount of money involved could not be determined.

Udstuen found another way to boost his income, according to his guilty plea, through another friend, Larry Warner, a political power broker in his own right and a friend of former Gov. Ryan. Warner is charged with political influence-peddling related to secretary of state's office contracts when Ryan ran that agency.

Warner is accused of including Udstuen in the kickback scheme, and also an individual identified in court documents only as "Official A." The Sun-Times has identified Official A as Ryan.