Published June 9, 2009

The tightly knit Daley family is struggling to solve an internal crisis caused by a nephew who they say refused to stop embarrassing his uncle.

Sources said Robert Vanecko was told nearly two years ago that his uncle, Mayor Daley, wanted him out of a risky real estate venture involving city employee pension funds. Another Daley nephew, Patrick Thompson, was given the same directive one week earlier — and promptly dropped out as an attorney representing the Children’s Museum at heated community meetings on the controversial Daley-backed plan to build a new Children’s Museum in Grant Park.

Unlike his cousin, Robert Vanecko ignored the mayor’s advice — apparently until this week.

Vanecko “has resigned as a general partner for DV Urban Realty,” according to an e-mail sent Monday afternoon to police pension board members from John J. Gallagher Jr., executive director of the pension fund. “A press release will be issued [today] about this resignation, and other than that, no further information was provided at this time.”

It was unclear whether Vanecko can get completely out of the pension-fund deals because of the collapse of the real estate market.

Meanwhile, the Daley family is stuck with a headline that won’t quit and a federal investigation into how DV Urban won $68 million in pension investments in the first place.

“It’s a terrible situation. Everyone wishes this wasn’t going on. In hindsight, it looks bad. And it’s obvious this is gonna continue,” said one family member, who asked to remain anonymous.

“It’s not easy watching your nephew being trashed. We all feel sorry for him. But he’s finding out what we all learned 30 years ago — that if you stay around [government] long enough, you’re gonna get burned.”

Sources said other family members have been trying for some time to persuade Vanecko to dissolve his partnership with developer Allison Davis because of the perception that Daley family clout landed the deal.

Vanecko told them he was in the process of getting out, sources said.

But that apparently didn’t happen until this week.

Mayor Daley was described as livid and distraught about the controversy but dead-set against touching off a family feud by publicly criticizing Vanecko, the eldest of Richard J. Daley’s 22 grandchildren.

In September 2007, the Chicago Sun-Times disclosed Vanecko had formed a partnership with Davis and persuaded city employee pension funds to invest $68 million with their start-up company.

Davis and Vanecko are guaranteed $8 million in management fees — $2.7 million of it paid so far — under the deal that expires in 2014.

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

They’ve invested pension funds in eight Chicago properties, but that portfolio has declined in value.

Attempts to reach Vanecko and Davis were unsuccessful.

Mayor Daley has insisted he had no control over how city employee pension funds invest their money — or over the professional lives of his nieces and nephews. “It could be any business. They could be in real estate. They could be in development. They could be anything,” the mayor said.

Asked whether city pension funds should be making such speculative investments at a time when they’re saddled with unfunded liabilities, he said, “I am not on that board. They make decisions.”

Last month, a federal grand jury subpoenaed pension fund records after pension officials refused to comply with similar subpoenas issued by Inspector General David Hoffman. It’s Hoffman’s second joint investigation with federal authorities into Vanecko’s businesses.

The other involves the undisclosed 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. That’s when Patrick Daley enlisted in the Army and Vanecko forged his partnership with Davis.

Last week, the Sun-Times disclosed City Hall has paid nearly $500,000 in the last 15 months to lease space at a South Side site owned by DV Urban, which bought the land with city pension money.

Contributing: Tim Novak, Chris Fusco