Called the Donna Reid Memorial Education Fund, the organization was supposed to provide educational assistance to schoolchildren. In reality, the indictment said, it "primarily served as a conduit to provide cash and other personal benefits" to Stewart's chief of staff, Asquith Reid.
The two aides' loyalty "should have been to the New York City taxpayers," U.S. Attorney Michael Garcia said at a news conference Wednesday. "Instead, they were driven by greed."
Garcia said the federal probe will continue to take a "hard look" at the council's discretionary funds practice.
Reid was charged with conspiracy to commit mail fraud, money laundering conspiracy and two counts of witness tampering. Prosecutors said he directed two grand jury witnesses to lie about working for the Donna Reid fund and its related financial transactions.
Also charged was Joycinth Anderson, who also worked on Stewart's staff. The indictment said she aided Reid in the scheme. Stewart was not named in the indictment.
Reid and Anderson were in federal custody Wednesday, awaiting arraignment before a magistrate. The names of their lawyers weren't immediately available.
The indictment portrays Reid as a corrupt employee who took advantage of the council's recently revealed practice of allocating millions of dollars in discretionary funds to nonprofit groups favored by council members.
Some of the money was hidden in the city budget through a practice of assigning the money first to organizations that were entirely fictious. Once it had been budgeted, that money was then transferred to real nonprofit groups, at the discretion of the council members and their top aides.
Council Speaker Christine Quinn, a likely mayoral candidate next year, has scrambled to explain the allocations since news about the longtime practice surfaced.
Earlier this month, the speaker and her office said the council had appropriated some $17.4 million since 2001 to groups that did not exist. Last year, $4.5 million was hidden this way in a budget of more than $50 billion. Quinn said the practice of setting aside what she called "reserve funds" dates back at least 20 years.
According to the indictment, the Donna Reid Memorial Education Fund was not one of the fake organizations, but a real entity, registered with the state, which had received about $365,000 in council discretionary funds since 2005.
All of that money, about a third of the fund's total revenue, was granted by Stewart's office. However, before the Donna Reid fund could obtain any money, it had to apply for it through a city agency.
The indictment said employees in the New York City Department for the Aging initially rejected the group's application for city money in 2004 after noticing that its office address was identical to Asquith Reid's home address.
The group then reapplied for city funds through the New York City Department of Youth and Community Development. That request was granted. Some of the money passed through fictitious groups created by the city council before being awarded to the fund.
The indictment said some of the money received by the Donna Reid fund, at least $31,000, was wired to Reid's friends and relatives in Jamaica. Another $21,000 was spent on political events or campaign literature for Stewart.
Anderson also cashed thousands of dollars in Donna Reid fund checks and gave the money to Asquith Reid, according to the indictment.
