Published May 30, 2009

City pension officials have been hit with subpoenas from a federal grand jury trying to determine how a start-up company co-owned by Mayor Daley’s nephew won $68 million in pension investments.

The grand jury issued the subpoenas Wednesday, nearly two months after city pension officials refused to comply with similar subpoenas issued by the city of Chicago’s inspector general, David Hoffman.

Hoffman said Friday that he and federal investigators are now jointly investigating the pension fund investments with DV Urban Realty Partners, a minority certified business co-owned by one of the mayor’s top African-American allies, Allison S. Davis, and Daley’s nephew Robert Vanecko.

This is the second joint investigation that Hoffman and federal authorities are conducting into Vanecko’s businesses.

The other investigation involves the hidden ownership stake Vanecko and the mayor’s son, Patrick Daley, held in a sewer-cleaning company that won millions of dollars in no-bid contract extensions from City Hall. Vanecko and Patrick Daley have said they sold their investment in the company in late 2004 when Patrick Daley enlisted in the Army and Vanecko went into business with Davis.

Hoffman began investigating Vanecko and Patrick Daley in the wake of Chicago Sun-Times investigations into the mayor’s son and nephew during the last two years.

Davis, 69, and Vanecko, 43, set up their company hoping to get money from public and private pension plans for real estate investments.

But they were rejected by several private and government pension plans until 2006, when the five city pension funds agreed to invest $68 million with them.

Davis and Vanecko are guaranteed $8 million in management fees — they’ve been paid $2.7 million so far — under the eight-year deal that expires Dec. 31, 2014.

They can also share in any profits from their real estate investments.

They’ve invested the pension funds in eight Chicago properties, but all of their real estate deals have declined in value, partly because of the recession.

Davis and Vanecko are also trying to prevent the loss of $7.9 million in pension funds they invested in a stalled project to build a Dominick’s grocery store and condos at 3030 N. Broadway. They have been feuding with the developers, Michael O’Connor and Jon Zitzman, and are trying to find people to buy out O’Connor and Zitzman at an auction set for June 5 in the law offices of Patrick Daley Thompson, another mayoral nephew.

City pension officials refused to comply with Hoffman’s subpoenas, arguing he had no authority to demand records from them.

The federal grand jury stepped in, demanding records from the pension plans for Chicago municipal employees, laborers, police officers and firefighters, even though the firefighters pension fund refused to invest any money with Davis and Vanecko.

The other two pension funds that invested with Vanecko and Davis — Chicago teachers and the CTA — haven’t received any subpoenas from Hoffman or the grand jury.