New London - The city has agreed to give Police Chief Margaret Ackley $25,000 to settle her allegations that former City Councilor Michael Buscetto III systematically tried to undermine her leadership.

Ackley claimed, among other things, that members of the police department kept Buscetto's name out of a 2009 investigation of an incident at a casino nightclub involving off-duty New London police officers celebrating a birthday. According to statements by police officers during an internal investigation into alleged inappropriate and lewd behavior by off-duty officers, Buscetto groped three women, including a female officer, at Shrine nightclub at Foxwoods in April 2009.

Buscetto said Friday that he was interviewed about the incident by the city attorney at the time and that no complaints were made against him.

"I didn't do any wrongdoing,'' Buscetto said when reached at home Friday night. "I can tell you this: Through all the investigations, through all the public statements and ethics complaints, I haven't been found guilty of anything."

Mayor Daryl Justin Finizio made the settlement announcement during a press conference late Friday. He said the settlement was within the recommendations made in an independent report recently completed by former Superior Court Judge Beverly Hodgson.

City Council President Michael Passero attended the press conference with two other city councilors, Marie Friess-McSparran and Anthony Nolan. Nolan is also a New London police officer.

"This is all breaking news to me," Passero said. "I got the Shrine file the same time you did. I can see why they would want to keep it under wraps."

Finizio has refused to release the judge's report, saying it is protected under attorney-client privilege. He said he would meet with the City Council Wednesday in a closed-door session to discuss whether the report should be made public.

In an Aug. 24, 2011, letter to then-City Attorney Thomas Londregan, Ackley accused Buscetto of gender discrimination, making defamatory remarks about her, threatening her and inappropriately using his influence to interfere with her department. She also said city officials failed to investigate Buscetto's conduct.

That letter was released Friday. The Day had requested the document under the state Freedom of Information Act, and a hearing before a state FOI officer was scheduled for Feb. 2.

In the letter, Ackley alleged departmental investigators covered up Buscetto's involvement in the incident at the nightclub, where Buscetto allegedly groped three women and asked one to have sex with him.

The letter also alleged that a police officer was asked by Buscetto to deliver a message to Ackley just before she was sworn in: "Better not take the position of chief, if you do, he will destroy you."

Buscetto was a member of the City Council in 2009 when Ackley was sworn in as the city's first female police chief. Buscetto had supported Capt. William Dittman for the job. Finizio announced Friday that Dittman and Capt. Michael Lacey are retiring from the department. Lacey investigated the nightclub incident.

On Wednesday, Finizio announced he was not renewing the one-year contract of Deputy Chief Marshall Segar.

A new deputy chief will be hired from outside the department, Finizio said Friday, and an internal promotion for one of the captain slots will be made right away.

The antagonism between Buscetto and Ackley became public last July when Ackley announced at a City Council meeting that she wanted to retire because Buscetto had undermined her authority and she could no longer run the department. In April, Ackley and then-City Manager Denise Rose signed an agreement that would allow Ackley to retire at the end of the year. It included a clause that precluded either side from discussing the retirement package in public. There was also an "opt-out" clause, which allowed Ackley to change her mind up until Dec. 15, and remain on as chief.

"It's just part of a continued smear campaign against me,'' Buscetto said Friday. "I had hoped the report by the judge was released tonight so I could understand why the mayor would give her (Ackley) $25,000."

It is unfortunate that "someone can make allegations and make money,'' Buscetto said.

"I will tell you this: This city is stuck with questionable leaders in the police department and the mayor's office,'' he added.

k.edgecomb@theday.com