It was only a few months ago that Tom Connelly's duties as an assistant U.S. attorney in Phoenix included making appearances in federal court to prosecute white-collar fraud.

These days Connelly is still summoned to federal court, but not as a prosecutor. Instead, Connelly is being sued for fraud by the United States government and two angry Maryland contractors.

Connelly resigned from the U.S. Attorney's Office this summer, just days before New Times revealed that Connelly, in his official capacity as assistant U.S. attorney, made a terrible mistake in 1987. He had validated what turned out to be a bogus financial statement belonging to his friend Bill Reeves, a self-described Scottsdale "investor."

Connelly's official approval of Reeves' financial statement is the reason Connelly recently was added to the list of defendants in a complex federal case. He joins several others, including Reeves, a Maryland contractor, a California bank and a Tolleson schoolteacher.

The Maryland contracting companies and the federal government claim in their suit that Connelly "did not properly examine the financial statement of William Reeves and did not determine what the real assets and liabilities of William Reeves were at the time . . . . In fact, the financial statement of William Reeves was almost a completely fictitious fabrication."

Connelly has never explained why, as a federal official, he signed a 1987 affidavit saying Reeves was worth $138 million. His buddy's reported wealth turned out to be highly inflated, the suit says.

"The acts of the defendants in preparing, certifying and submitting to the Department of Defense false, incorrect and improper financial statements were for the purpose of personal financial gain," the lawsuit says.

(Connelly, who lives in Scottsdale, could not be reached for comment. A woman who answered Connelly's telephone said he is away on a trip and it is uncertain when he will return.)

Reeves later used the document that Connelly signed to sell a performance bond to Jennings International, a construction company owned by a friend of Reeves. Jennings used Reeves' bond to contract with the Air National Guard to put up a building in Maryland. Reeves' bond was supposed to guarantee that subcontractors got paid even if Jennings didn't finish the job. As it turned out, everybody but the subcontractors got money. Reeves collected bond interest from Jennings. Jennings, in turn, collected payments from the Air National Guard but walked off the construction job before it was finished.

Jennings didn't pay two Maryland subcontractors, Press Construction and Fireguard Corporation, thousands of dollars for work they'd already completed on the building, the suit claims.

When the subcontractors turned to Reeves' bond for their money, Reeves defaulted on the bond. Which means that two subcontractors never got paid.

Which brings us back to Connelly. If he hadn't signed the document saying Reeves was worth $138 million, Reeves never would have been able to post the bond.

Press claims it was owed $128,884 and Fireguard says it was shorted $24,192. Now the companies want their money back, as well as millions of dollars in punitive damages.

Neither Reeves nor Jennings could be reached for comment. This summer, however, Reeves and Jennings each claimed innocence and blamed each other for the mess. A Tolleson schoolteacher named Charles Neely and the Wells Fargo Bank in California are also named in the lawsuit. According to the lawsuit, the bank approved a bogus financial statement for Neely, who defaulted on a similar construction bond. Neely could not be reached for comment. Kathleen Shilkret, a spokesperson for the Wells Fargo Bank, declined comment on the lawsuit.--

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Terry Greene