UPDATED 05/11/11 7:18 p.m.

CHICAGO (CBS) — An Indian-American businessman testified Wednesday that he approached Rod Blagojevich’s brother in October 2008 with an offer of campaign cash in exchange for naming Congressman Jesse Jackson Jr. to the U.S. Senate seat that would soon be vacated by Barack Obama.

As CBS 2’s Dana Kozlov reports, prosecutors have contended that Blagojevich was planning to sell or trade an appointment to the Senate seat and that his final plan before he was arrested was to exchange a Jackson appointment for $1.5 million in campaign cash from Jackson supporters in the Indian-American community.

Much of Wednesday’s testimony at Blagojevich’s retrial was focused on that specific scheme.

Rajinder Bedi, a businessman who had held a number of fundraisers for Blagojevich, testified that he acted as a messenger for Raghu Nayak, a wealthy Indian-American who wanted Jackson to get the Senate seat.

Jackson has not been charged in the case and has denied any knowledge of Nayak offering to raise money for Blagojevich to get Jackson appointed to the Seat.

Bedi testified that he met with Rod Blagojevich’s brother, Robert Blagojevich – who was serving as the governor’s campaign manager – on Oct. 28, 2008, to discuss an upcoming fundraiser that Bedi and other Indian-American donors were having for the governor a few days later.

Bedi said that during the meeting, Robert Blagojevich mentioned that his brother’s campaign was desperate for money and asked Bedi to do everything he could to raise money for the governor.

That’s when Bedi mentioned to Robert that Nayak had offered to raise “a lot of money” for the governor’s campaign if he would pick Jackson for the Senate seat.

“I said that Jesse Jackson Jr. is very interested in getting appointed to the Senate seat, that Raghu Nayak is very close friend of Jesse Jackson Jr.,” Bedi said. “If Jesse Jackson Jr. was appointed to the Senate seat, Raghu Nayak would raise a lot of money for the campaign.”

Earlier that day, Bedi had met with Nayak and Jackson and they discussed Jackson’s interest in the Senate seat. Nayak also talked about fundraising, according to Bedi.

At the first trial, prosecutors revealed that, at that meeting, Nayak said he was willing to raise more than $1 million for Blagojevich to get Jackson appointed. Jackson has said he doesn’t remember any discussion of fundraising, saying that Bedi and Nayak were speaking to each other most of the time in Hindi.

Bedi also carried some baggage with him on the stand. Last year, he pleaded guilty to shoplifting.

“So, you’re a thief right?” Defense attorney Sheldon Sorosky said.

Sorosky also noted that Bedi has admitted that Nayak wrote him checks for about $2 million in 2008 and Bedi gave him back about $1.4 million in cash. Bedi admitted that he believed Nayak was doing so to cheat on his federal income taxes.

Bedi made about $600,000 through the arrangement, but did not report it on his own tax returns. He is testifying for the prosecution under an immunity agreement.

Although Robert Blagojevich initially told Bedi that his brother would never appoint Jackson to the Senate seat, he did mention the proposed deal to the governor later that day.

“I don’t know if you want to listen to this or not, but it has do to with a particular person who is lobbying to be the senator, um, and wants to talk to you about his resume, Jackson,” Robert said in the call. “And Raghu Nayak evidently supported it and he had communicated through Rajinder that if in fact, um, that would be the case, ah there would be some accelerated fundraising on your behalf between now and the end of the year.”

A few days later, Blagojevich told his deputy governor, Bob Greenlee, about an offer from the Jackson camp.

On Oct. 31, 2008, Blagojevich told Greenlee that he’d received a call from a woman calling on Jackson’s behalf.

“We were approached, pay to play. That, you know he’d raise me 500 grand. An emissary came, then the other guy would raise a million, if I made him a senator,” Blagojevich said.

Greenlee, who was also called to the stand Wednesday, testified that it was the first time he had heard about an offer of campaign cash in exchange for appointing Jackson to the seat.

Jurors also heard another tape in which Blagojevich talks to Greenlee and political consultant Fred Yang about an offer of “tangible” support from Jackson.

“Some of that tangible stuff can happen before it all happens. There are tangible things that can happen before,” Blagojevich said.

Greenlee testified that he believed Blagojevich was referring to cash contributions from Jackson supporters.

“Before he made an appointment of Jesse Jackson Jr. to the Senate seat … that contributors to Jesse Jackson Jr. … would give campaign contributions up front,” Greenlee testified. “There’s tangible, concrete tangible stuff from supporters. … Political, tangible political support. … You know, specific amounts and everything.”

Greenlee testified that that comment by the governor, “solidified in my mind that he was talking about cash contributions.”

In December, the governor asked his brother to set up a meeting with Raghu Nayak to tell him that Jackson was a realistic pick.

The conversation also revealed that Blagojevich seemed to be wary that a phone conversation with Nayak might be recorded.

“Now you gotta be careful how you express that. And assume everybody’s listening, the whole world’s listening. You hear me?” the governor told his brother.

Robert said he’d call Nayak to set up the meeting, but Rod said “I would do it in person. I would not do it on the phone.”

Later the same night, Rod Blagojevich got a call from his press aide, Lucio Guerrero, informing him of an upcoming Chicago Tribune article that revealed Blagojevich’s friend, John Wyma, was cooperating with the federal probe and that the FBI had wiretap recordings of the governor.

In most of the recorded conversations heard in the trial, Blagojevich was rarely at a loss for words, often talking at length, uninterrupted as he touched on many topics.

But when he was informed the feds might have him on tape, he was speechless for more than ten seconds.

“They have recordings of me and Wy-,Wyma’s cooperating with the feds? Who said that?” Blagojevich asked.

The next day, the governor ordered his brother to cancel the meeting with Nayak. Four days after that, Blagojevich was arrested.

Robert Blagojevich was initially charged alongside his brother and was his co-defendant at the first trial. But jurors deadlocked on all the charges against Robert and prosecutors dropped the charges against him.

Defense Team: We’ve Been ‘Cut Off At The Knees’

Before testimony began for the day, U.S. District Judge James Zagel denied a defense request for a mistrial, after the defense team claimed the prosecution’s repeated objections to their questions has caused the defense to be “cut off at the knees.”

LISTEN: Newsradio 780’s John Cody reports

Zagel has sustained dozens of prosecution objections to questions from the defense, largely because the questions have violated previous rulings about what the defense may suggest to the jury.

Defense attorney Lauren Kaeseberg argued that blocking those questions has stripped Blagojevich of his ability to cross-examine the witnesses against him.

“The defense is being cut off at the knees and being completely stripped of the ability to meaningfully cross-examine witnesses,” Kaeseberg said.

She also said that the repeated objections have left the defense team “looking like buffoons, like we don’t know what we’re doing.”

Zagel denied the motion, telling the defense team that he’s repeatedly told them they can recall any government witnesses when they present their own case to question them on any relevant topics the prosecution did not cover.

“This is the government’s turn at bat and the defense is entitled to a turn at bat,” Zagel said.

Blagojevich faces 20 counts at his retrial, including the Senate seat allegations and charges he tried to shake down various donors for campaign cash. He has pleaded innocent to all charges.

Blagojevich Lashes Out At Voters

Meantime, prosecutors continued to hammer away at the allegation that Blagojevich was trying to sell or trade an appointment to the U.S. Senate seat vacated by President Barack Obama in 2008.

Throughout the trial, jurors have heard several phone calls in which Blagojevich vented his frustration with various politicians, including President Barack Obama, U.S. Sen. Dick Durbin and then-Congressman Rahm Emanuel.

On Wednesday, the jury heard an expletive-filled tirade about Illinois voters, as Blagojevich decried his slumping approval ratings, despite a number of initiatives he’d enacted, such as free public transit for seniors and the expansion of a health care program for children.

“I f***ing busted my a** and p***ed people off and gave your grandmother a free f***ing ride on a bus. Okay? I gave your f***ing baby a chance to have health care,” Blagojevich said in a phone call with adviser Bob Greenlee, who was on the stand Wednesday.

“I fought every one of those a**holes including every special interest out there, who can make my life easier and better, because they wanna raise taxes on you and I won’t, I, I fight them and keep them from doing it,” Blagojevich added. “And what do I get for that? Only thirteen percent of you all out there think I’m doing a good job. So f*** all of you. Not to mention the fact that I’m a f***ing, criminal investigations and my family’s in jeopardy.”

Aide Says Blagojevich Interested Mostly In Money

Greenlee also testified Wednesday about some research he did for Blagojevich during his efforts to get something for the Senate seat.

Prosecutors have contended that one of Blagojevich’s schemes for the Senate seat was an attempt to get himself a job running a multi-million dollar non-profit foundation funded by wealthy Obama donors.

Greenlee said that at one point in early November, Blagojevich asked him to research what kind of non-profits he could run.

Greenlee said Blagojevich had expressed an interest in running foundations related to health care and social services, so he again went on the Internet to come up with a list for the governor. One foundation that Blagojevich had already expressed interest in was Families USA, a foundation focused on health care issues.

While Greenlee was doing that research, he talked to Blagojevich on the phone, in a tape played for the jury.

“What’d you find out about Families USA?” Blagojevich asked Greenlee.

When Greenlee began to tell Blagojevich about the foundation’s founders and their professional backgrounds, Blagojevich interrupted.

“No, but how much money does the guy make?” Blagojevich asked.

Greenlee said that the governor appeared interested mainly “in how much money he could make” at that kind of job, not whether or not it was something he was qualified to do.

Prosecution Introduces Children’s Memorial Shakedown Allegation

Later, prosecutors began presenting their first evidence on the allegation that Blagojevich was trying to shake down Children’s Memorial Hospital CEO Patrick Magoon for campaign cash in exchange for additional state funding for the hospital.

Greenlee testified that in July or August of 2008, Blagojevich’s friend, John Wyma – a lobbyist for Children’s Memorial Hospital at the time – asked for Greenlee to meet with Magoon.

At that meeting, Magoon expressed interest in getting some state funding to help fund an expansion of the hospital, as well as a rate increase for the money the state provided to the hospital for treating Medicaid patients.

According to Greenlee, he and Barry Maram, the head of the state’s Department of Healthcare and Family Services supported the idea of a rate increase and Greenlee told him to start making plans for a rate hike, effective Jan. 1, 2009.

A few weeks later, Blagojevich called Greenlee about the rate increase, even though Greenlee hadn’t mentioned it to him yet. Greenlee testified that Blagojevich wanted to know how much the rate hike would cost.

When Greenlee told him it would cost $8 million to $10 million, but that it was a good policy idea, Blagojevich told him “to look into it.”

According to Greenlee, “I understood that this was something that he was interested in and we should move forward with it.” He explained that the governor commonly gave him indirect orders to move forward with those kinds of policy issues by telling him “to look into it.”

Greenlee said he began moving forward with the planned rate increase, but on Nov. 12, he got a call from Blagojevich asking if they could hold up the rate hike.

On tape, Blagojevich was heard asking Greenlee “The pediatric doctors, the reimbursement, has that gone out yet or is that still on hold?”

The governor also said, “So we could pull it back if we needed to, budgetary concerns, right?”

Greenlee said he believed the governor was telling him to put the rate increase on hold and rehearsing what he’d say publicly if asked why the rate increase was being held up.

He said that the governor had never before held up a health care issue like this one because of budgetary concerns. Instead, if there were ever legitimate budgetary concerns about a health care issue, “Usually Rod said we should find a way to pay for it so that we could get it done,” Greenlee said.

So Greenlee put the rate hike on hold and a few weeks later, he said he got another call from Blagojevich, telling him that Wyma had been fired as the lobbyist for Children’s Memorial.

According to Greenlee, Blagojevich was upset that Wyma had been fired and the governor again told him not to go forward with the rate hike.

Prosecutors have contended that, at the time, Blagojevich was trying to squeeze Magoon for a $50,000 campaign contribution.

Todd Feurer, cbschicago.com

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