The case and the contributions involve Antoin Rezko, one of Obama's earliest patrons. Rezko, 52, is scheduled to go on trial next month on federal charges alleging he joined a scheme to force investment firms seeking business from Illinois state pension funds to pay kickbacks.
Obama is referred to, albeit not by name, in a single paragraph in a 78-page court document as a "political candidate" for whom Rezko raised money. A source familiar with the case confirmed that Obama is the unnamed politician.
According to the document, Rezko used a business associate to funnel $10,000 to Obama's U.S. Senate campaign in March 2004 -- money that came from an alleged $112,000 kickback intended to benefit the Chicago businessman.
But the government's reference to the political candidate amounts to the first time Obama's identity is hinted at in the case against Rezko. It raises the prospect Obama's name will surface in Rezko's trial, an unwanted distraction as the first-term senator from Illinois seeks the Democratic presidential nomination.
The indictment alleges that Rezko and his co-conspirators -- some of whom are expected to testify against him -- aspired to receive millions in kickbacks from the pension funds and ended up receiving hundreds of thousands.
The main witness against Rezko is expected to be Stuart Levine, a longtime member of the board that oversees the Illinois public school teachers pension fund. Rezko, who had also been a major fundraiser for Democratic Gov. Rod R. Blagojevich, helped persuade Blagojevich to reappoint Levine, a Republican, to the Teachers' Retirement System board.
Seeking to quell questions about the Rezko case, Obama's aides announced the candidate would return the $40,350 from seven Chicago-area individuals who appear to be linked to Rezko. That pushes to $85,185 the amount that Obama will donate of the Rezko-related contributions between 1995 and Obama's 2004 Senate race.
"Recent public information has called into question contributions to the Obama campaign from a donor and fundraiser," Obama campaign spokesman Bill Burton said in a statement. "Our consistent practice in these circumstances is to give the funds to charity out of an abundance of caution."
Obama is not the only presidential candidate who has sought to distance himself from questionable donors. Republicans and Democrats have returned or donated tainted money.
Obama's main rival, Sen. Hillary Rodham Clinton of New York, returned $850,000 raised by Norman Hsu, who faces federal fraud charges in New York.
"It is a rule in politics: Early money is very important," said Jay Stewart, head of the Better Government Assn., a nonprofit watchdog in Chicago. "Tony Rezko helped put Barack Obama on his political feet. Tony Rezko was consistently a significant contributor."
In a review of Obama's donations, the Los Angeles Times has identified as much as $185,000 from Rezko-related donors. Sources familiar with Obama's 2004 Senate campaign said Rezko's name was prominently displayed on a white board that totaled the amount his bundlers had raised in the Senate race.