FBI, STATE INVESTIGATE DRUG FIRM

Allegedly Billed for Testing It Never Performed

A Chicago drug-testing company with a long-standing no-bid state
contract is under state and federal investigation amid allegations it
billed the state for drug tests it never performed.

The company--K.K. Bio-Science Inc.--came under scrutiny following an
Oct. 27 report in the Tribune detailing how Gov. Rod Blagojevich's
wife, Patricia, earned more than $113,000 in real estate commissions
from the company's owner and president.

There is no indication the fraud investigation has any connection to
the real estate deals. Company officials declined to comment.

The governor has portrayed the newspaper's inquiries about his wife's
business with a state contractor as sexist and "Neanderthal."

The Blagojevich administration last year denied Tribune requests for
records that could document the company's performance, citing "an
unwarranted invasion of privacy." But investigators in the Illinois
Department of Children and Family Services' internal inspector
general's office quietly opened an investigation into the contract.

The children's services agency said Tuesday that investigation likely
prompted K.K. Bio-Science to officially terminate its contract on Jan.
9.

DCFS spokesman Kendall Marlowe said Tuesday that the agency's
inspector general "found issues with the company's billing practices.
. It is reasonable to assume that the company's decision to terminate
the contract was related to our questions and to our review of their
billing practices."

K.K. Bio-Science owner Anita Mahajan declined to be interviewed Monday
evening and referred all questions to her attorney, James Regas, who
did not return repeated telephone calls Monday or Tuesday.

The company performs drug testing of urine for people involved with
DCFS services, such as parents. A source familiar with the
investigation said the questions focus on "false billings" in which
the state may have been billed for tests that were not done at all.

Sources familiar with the probe said the Cook County state's
attorney's public integrity unit is leading the investigation.

Search warrants were served Tuesday at the company's offices on the
17th floor of a Chicago office building at 220 S. State St. According
to office workers across the hall, the offices had already been
cleared out.

K.K. Bio-Science abruptly closed down Jan. 19, giving its employees no
warning. Company representatives then spent the next week tossing
records and office equipment into trash bins, said other building tenants.

"They threw away an incredible amount of stuff," said Paul Leslie
Beals, who works across the hall at the Lawyers' Committee for Better
Housing. "I counted at least five Dumpsters in the hallway. There was
a printer in there that one of my colleagues took. There were all
kinds of files and documents. Somebody said they even saw some checks
in the trash. They were throwing away everything."

Gov. Blagojevich's spokeswoman, Abby Ottenhoff, declined Tuesday to
address the specifics of the investigation.

"We appoint IGs to investigate when the system is abused," Ottenhoff
said. "It doesn't matter who might be in question--when rules are
broken or taxpayers' resources are misspent, we take corrective
action, including forwarding findings to law enforcement. And we will
continue to do that."

Agents from the FBI and Cook County state's attorney's office were
waiting in the lobby at the company's headquarters at 9 a.m. Tuesday
as workers from the building's other offices arrived, several workers
said.

"They wanted to talk to all my employees to see whether we knew anyone
who worked there," said Kathy Clark, director of the Lawyers' Committee.

Clark said several of the investigators identified themselves as being
from the FBI.

"They said it was a joint investigation and they had the search
warrant," Clark said. "They were here when I got here at 9 a.m., and
they were still there when I left for lunch."

John Gorman, a spokesman for Cook County State's Atty. Richard Devine,
said he could not confirm or deny the investigation.

K.K. Bio-Science has had the DCFS contract for drug screening for at
least 15 years. This year, the approved contract amount was $739,000.
According to the most recent state contract, the company receives
$33.40 for every urine screening and $121 to test hair follicles and
fingernails.

Company employees reached at home said they were stunned on Jan. 19
when they were told it was the company's last day.

"Of course people were shocked to lose their jobs," said a former
office supervisor, Jyotsna Brahmbhatt. "That's really all I know. They
didn't tell us anything else. You'll have to talk to the lawyer, Mr.
Regas."

Anita Mahajan and her husband, Amrish, president and CEO of Mutual
Bank based in Harvey, hired Patricia Blagojevich last year to help buy
commercial real estate properties totaling $5.71 million.

According to real estate records, the $113,700 in commissions
Blagojevich's real estate company, River Realty, earned on the four
deals accounted for her only commissions in the first 10 months of
2006.

"We understand how it may look, that there is a problem with
appearances," Amrish Mahajan said in an October interview. "But if we
had even thought about that, we would never have hired Mrs.
Blagojevich."

Mahajan has also contributed $10,000 to Blagojevich's campaign fund,
and in November hosted a Hindu celebration that advertised Gov.
Blagojevich as its guest of honor. The governor was a late
cancellation, but his wife did attend the event.

Mahajan's bank also has lent millions to a top Blagojevich fundraiser,
Antoin "Tony" Rezko, who was indicted and pleaded not guilty last year
to federal charges he tried to squeeze millions in kickbacks from
firms seeking state business.

The governor's office shrugged off as sexist questions about whether
it is a conflict of interest for his wife to make money from a couple
whose businesses depend on decisions made by the Blagojevich
administration. "Mrs. Blagojevich has no authority over state
contracts, and she has every right to conduct her private real estate
business the same way everyone else does," Ottenhoff, the governor's
spokeswoman, said in October. "To suggest otherwise, quite frankly, is
a throwback to the 1950s."

Blagojevich himself, addressing questions about the real estate deals
last year, said "to suggest she doesn't have the right to have her own
business and pursue her own business is Neanderthal and sexist."