Here we go again: yesterday afternoon, federal agents arrested a prominent ultra-Orthodox Brooklyn rabbi, Milton Balkany, after he allegedly tried to extort an unnamed Connecticut hedge fund out of $4 million. Reportedly, Balkany promised the silence of a prison inmate whom federal authorities are questioning as part of an insider-trading investigation. According to a criminal complaint (PDF) filed yesterday, Balkany claimed the inmate had turned to him for advice, and Balkany, in turn, tried to play the hedge fund’s executives (his “co-religionists,” the government notes) off the Justice Department’s investigators.

Balkany, who was released last night on $250,000 bond, told Tablet Magazine in a phone call this morning that he’s sure he’ll be exonerated:

I’m pretty high-profile, and the government has always been after me in one way or another. They threw a bucket of mud at me seven or eight years ago and in the end there wasn’t even a trial. It’s just lots of hoo-ha and sensationalism. There was absolutely nothing there and there is nothing here.

Balkany claimed that he approached the hedge fund—whose name he refused to disclose (though the chatter up in Connecticut is that it’s Steve Cohen’s SAC Capital Advisors)—after being contacted by the inmate, who was concerned about selling out fellow Jews in exchange for a reduced sentence. “He doesn’t want to hurt another Jew,” Balkany explained.

How did the subject of charitable contributions come up? Well, Balkany said, after the hedge fund’s lawyers started talking about how generous the firm had been, he mentioned his school and a related yeshiva that were in need of a loan. “I said, ‘This is not a holdup, this is not an armed robbery, this is a request for charity and it had nothing to do with our other issue,’” he said. “Then they went and knifed me by going to the government.”

The government’s criminal investigator alleged that Balkany approached him at the same time, offering the insider information in exchange not just for reducing the sentence of the informant, but also for leniency in the case of an unnamed relative. Balkany confirmed that the additional person for whom he sought leniency is his brother-in-law, Sholom Rubashkin, who is currently in an Iowa jail pending his sentencing on 86 counts of fraud at Agriprocessors, the kosher meat empire. “The whole purpose was to get this first man out of jail,” Balkany said. “Rubashkin was thrown in later.”

Balkany, a white-bearded 63-year-old who heads the Bais Yaakov girls’ school in Midwood, is known in political circles as “the Brooklyn Bundler”—a name bestowed on him over 20 years ago because of his prowess as a fundraiser for political candidates, particularly those who proved willing to contribute to his pet causes. His wife, Sarah, is the daughter of Aaron Rubashkin, the founder of Agriprocessors; though Balkany never worked for the company, at the height of the Agriprocessors scandal, which involved allegations of both financial fraud and immigrant labor violations, he interceded on his in-laws’ behalf against a planned boycott.

It’s been a rough few years for the rabbi. In 2003, not long after he was invited onto the floor of the House of Representatives as guest chaplain, Balkany was charged with misappropriating $700,000 in federal grants to his school. (The government ultimately withdrew the charges.) He now faces charges of extortion, blackmail, fraud, and making false statements, carrying a potential sentence of up to 20 years.

Brooklyn Rabbi Charged in $3M Extortion Plot [NY Post]

Earlier: Rubashkin Found Guilty of 86 Fraud Charges