A former municipal banker at Bear, Stearns & Co, pleaded guilty on Wednesday to fraud involving hospital financing that is part of a wide-ranging probe of government corruption in Illinois.

P. Nicholas Hurtgen, who had been set to go on trial in U.S. District Court next month, pleaded guilty to one count of aiding and abetting a scheme to defraud Illinois' health facilities planning board, which was weighing a proposal to expand a Chicago-area hospital.

The case is part of a corruption investigation by U.S. Attorney Patrick Fitzgerald in Chicago dubbed Operation Board Games. It culminated in the arrest in December of then-Governor Rod Blagojevich.

According to a plea agreement released by the U.S. Attorney's office, Hurtgen admitted being part of a scheme to pressure officials of Edward Hospital in Naperville to use a construction firm run by Jacob Kiferbaum for the expansion.

Hospital officials were told they had to use the construction firm or the state's health board might decline to approve the project, according to the plea agreement.

Kiferbaum and health board member Stuart Levine have pleaded guilty and cooperated with prosecutors.

Hurtgen also wanted the hospital to use Bear Stearns for the project's financing, the plea agreement said. Bear Stearns has since been absorbed by JPMorgan Chase & Co .

A key figure in the corruption scheme was Antoin Tony Rezko, a one-time fund-raiser for Blagojevich and President Barack Obama. Rezko was convicted by a jury in June.

Blagojevich, a Democrat, was arrested in December on suspicion of trying to elicit campaign contributions and other favors for official acts, including trying to sell his power to appoint someone to fill Obama's vacant U.S. Senate seat.

The Illinois Legislature subsequently impeached Blagojevich for abuse of power and removed him from office.

Hurtgen told the CEO of Edward Hospital that Blagojevich favored the arrangement, which Hurtgen said was all about money for political campaigns, the plea agreement said.

In his plea, Hurtgen agreed to cooperate with prosecutors, who will recommend he receive a prison sentence of nearly two years.

Hurtgen resigned from Bear Stearns' Chicago office in July 2004 and was originally indicted in 2005. Before becoming a public finance banker, he was a top aide to former Wisconsin Governor Tommy Thompson.

(Reporting by Karen Pierog; Editing by Andrew Stern and Xavier Briand)

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