Friday, September 25, 2009

Should Public Agencies Approve Prokhorov as New Nets, Arena and Atlantic Yards Owner?

How would you like to be a public agency faced with the prospect of having to approve Russian oligarch Mikhail Prokhorov as a new proposed owner of the Nets basketball team, the heavily subsidized arena the team is supposed to play in, as well as the rest of the Atlantic Yards project which right now is nothing more than a multi-decade option to monopolize the development potential of 22 acres of valuable Brooklyn real estate? (A Russian oligarch should own the right to monopoly ownership controlling whether Brooklyn will or will not be developed?)

Would It Ever Have Been Approved in the First Place?

The other day on the Brian Lehrer Show Rep. Bill Pascrell (D-NJ), assessed (we think quite accurately), “I don’t believe this project would’ve been approved by the taxpayers of New York City and New York State if Mr. Prokhorov… was in this from the very beginning. . .” Norman Oder in Atlantic yards Report noted that Charles Bagli of the New York Times dodged the question. (See: Friday, September 25, 2009, Bruce babbles, explains deal as a "strategic" business investment; Bagli says project was on "life support".)

Awkward Questions Being Asked

If you were a public agency facing approval of Prokhorov’s participation in the megadevelopment heavily aided by public funds, you would be facing the fact that people are saying some not-very-nice things about the Russian oligarch, most notably that he was arrested for flying a planeload of prostitutes into Europe. For instance, Develop Don’t Destroy bundled the question of the reported prostitution importation incident together with concerns about other unanswered questions:
Prokhorov has been accused of asset stripping, abuse of corporate governance and violations of minority shareholder rights. He was arrested in France in 2007 on suspicion of involvement in a prostitution ring.
and, also in connection with Mr. Prokhorov:
. . the reported link of the Russian aluminum giant, UC Rusal, with organized crime.
The Wall Street Journal reported in December 2008:

“Suspected ties to organized crime -- which [UC Rusal head] Mr. [Oleg] Deripaska denies -- led U.S. officials to revoke Mr. Deripaska's entry visa in 2006. Mr. Putin and other top Russian officials have repeatedly raised the issue on his behalf with their U.S. counterparts, so far to no avail, according to people familiar with the situation.”
Go Figure It Out

So, if you were a public agency having to approve Mr. Prokhorov as the substantial recipient of billions of dollars of public subsidy, you would be asking questions about whether you could possibly disregard the incident involving the planeload of prostitutes given that Prokhorov was released without charge by French authorities. You would wonder if that meant that he had actually done nothing wrong or only that his $14 billion in wealth (down to $9 billion now) helped him tell a convincing story to the French authorities about how he was only importing the girls for his Christmas party. Does that mean that he gets off as just being the client-john? That he was not procuring for his own commercial benefit when he supplied the guests at his Christmas party? Does that mean that under United States law he would also have been released just as the socially tolerant French did?

These are obviously fun questions for a public agency to have to deal with and they likely have something to do with the fact that perpetual Atlantic Yards cheerleader Marty Markowitz has been uncharacteristically silent about Prokhorov being the latest Forest City Ratner orchestrated Atlantic Yards unveiling. (See: Friday, September 25, 2009, The Russian connection: reason for celebration or dismay? Has Marty been rendered "oddly silent"?)

Previously On the Subject of Public Agency Approvals: ACORN Sets An Example (Inversely Speaking)

We have previously written about how public agencies have to do background checks before they hand out public money and benefits to people. Previously, it was in the context of the internally concealed embezzlement at ACORN. It is also a cautionary tale about how, how subsequent events may well exacerbate the consequences and embarrassment if a public agency disregards early red flags. Initially. respecting the embezzlement alone we wrote:
Government Agency Background Checks

Consider this: State, city and federal agencies do background checks before they will provide housing subsidies. An embezzlement such as occurred at ACORN could certainly disqualify a group like ACORN from subsidy funding. (As noted, ACORN certainly gets such subsidy funding.) At the very least it must needs be a matter of significant concern to public agencies. It is the kind of thing they must bring to the attention of their upper-echelon decision-makers and their board members if they have a board.
(See: Thursday, July 24, 2008, Falling Acorn! How Far from the Tree?)

We think that we got it right back then when we said there were serious questions about whether public agencies should be advancing funds to ACORN. If there was any question about this, such question should have been put to rest when there followed reports of ACORN taking (and again keeping internally secret) a $1.5 million grant/loan from Forest City Ratner the company it sold out to in the case of Atlantic Yards. (See: Tuesday, December 02, 2008, With $1.5M grant/loan, FCR bails out national ACORN, parent of major CBA partner.) Likewise, if there was any question about ACORN’s propensity to position itself on the front line in selling out community interests, that ought to be settled by looking at ACORN’s role in the Willets Point debacle. (See: Thursday, December 4, 2008, Will It Come? What the Bloomberg Administration Wills at Willets Point (Part IV))

Should there then have been any doubts about the definite problems with the culture at ACORN? If a public agency still gave ACORN the benefit of the doubt they would surely be regretting it in light of the recent ACORN prostitution video scandals. Ah, the lure of the commercial benefit of illegal prostitution raises its pesky head again! Interesting, the caliber of people these Atlantic Yards people wind up consorting with. You don’t suppose that it will turn out that former governor and Atlantic Yards supporter Eliot Spitzer spent any Christmas time with Mr. Prokhorov?

As a result of the most recent incident Congress has been voting about whether government funding of ACORN must be terminated.

For the same reason we may assume that the IRS is severing ties with ACORN (Acorn Sues Over Video as I.R.S. Severs Ties, by Sarah Wheaton, September 23, 2009), because ACORN cannot be depended upon to properly certify income information or give honest tax guidance, the public housing agencies should not be making ACORN a channel for the provision of affordable units which involve the same kind of certifications of income for eligibility under IRS provisions.

ACORN is central to other current conflict-of-interest-ridden scandals. It has often been reported that for want of any proper distinction, ACORN is the Working Families Party, and, as well, that the Working Families Party is one and the same as the for-hire political “secretive private company, Data and Field Services” which, it is probably circumventing campaign finance laws by undercharging politicians for their services. (See: Inside The DFS Experience, Meet the workers behind the WFP’s near sweep, Edward-Isaac Dovere, WFP, Still Hiring For DFS, Searches For More Staff To Work On More Campaigns Than Previously Contracted, Additional canvassers sought as company expands efforts beyond previous contracts, prioritizes de Blasio
Edward-Isaac Dovere.)

For another slice on the way these entities are apparently incapable of properly handling their conflicts see: Thursday, July 9, 2009, A Street Encounter Raises Questions About The Working Families Party, ACORN and Atlantic Yards That Seem To Lack Satisfactory Answers.

Public Agency Approvals for Transfers

It is not just at the outset that public agencies regularly do background checks when they hand out benefits. You should also know that public agencies typically do background checks when projects are transferred. Otherwise the initial background checks would be meaningless.

ESDC Transferability Provision Drafted as Another Ratner Benefit

The question is whether the MTA and Empire State Development Corporation, which have been very busy handing out freebies to the Atlantic Yards mega-project (without measuring or caring about benefit in return) will draw the line at Mr. Prokhorov, now stepping in to be the recipient of such unqualified largess.

Interestingly, to the extent that ESDC’s Modified Project Plan speaks to this it would seem that its drafter (who probably should be presumed to be Forest City Ratner) would like ESDC to have absolutely no ability to reject Mr. Prokhorov.

Note how weak the modified project plan paragraph on transferability (on page 32) is on this subject, another obvious Ratner giveaway.
6. Transferability
The agreements with the Project Sponsors will provide that until the applicable building or improvement within Phase I is substantially completed, the applicable portion of each Parcel may not be transferred by the Project Sponsors, without the consent of ESDC and the City, except to affiliates of FCRC and in connection with financing transactions and/or the enforcement of rights of lenders under these financing transactions. In addition, in the event the Nets professional basketball franchise is sold to another entity prior to the completion of the Arena, Project Sponsors may transfer their interest in the Arena to the purchasing entity or its affiliate, provided ESDC and the City are reasonably satisfied that such entity can satisfactorily complete the development of the Arena or if such entity retains the Project Sponsors to develop the Arena.
Would ESDC try to disapprove the transfer based on inability to complete? Ratner would just thwart such a potential disapproval by being retained to complete the arena.

Forewarned Is Not a Forewarned or Forearmed ESDC Board

We know that as part of the recent public hearings on the additional giveaways to Ratner, public comment was submitted questioning the weakness of the transferability provisions. We don’t, however, see that the subject of transferability of the megadevelopment was addressed in ESDC staff write-up of the public comment and responses issued to its board at the September 17 board meeting.

The Real Likely Answer to ESDC’s and MTA’s Ability to Approve

Here is a very possible answer to the question whether ESDC has the right to approve the Prokhorov transfer. They probably do. Not because the transferability section of the Modified General Project Plan says they do but because it is very likely ESDC has not signed the current deal. In all likelihood it is still being written up.

Those who have been tracking Atlantic Yards will remember that at the June 22, 2009 MTA Finance Committee meeting it was revealed that after five long years the MTA had never ever signed a deal with Forest City Ratner! (And politicians had once been worrying how difficult it would be to terminate the deal with Ratner! Ha!) Until signed, ESDC and its board can always revoke any approvals given. ESDC's board only just approved the last deal dumping, among other things, an unexpected extra $25 million on Ratner at the last minute. It is a good bet that Ratner, who perpetually tries to squeeze more out of every deal, has not negotiated to his ultimate satisfaction.

By the same token the MTA may not have signed their new deal either.

That puts ESDC and the MTA on the spot. Do they want to approve this deal with Prokhorov?

We would imagine that Mayor Michael Bloomberg and Governor Paterson have at least checked in with the public agencies’ staffs about their ability to send Prokhorov packing, especially if the news gets any worse. Bloomberg though, in a one-wealthy-oligarch-to-another sort of way may not have been too urgent about his inquiry.

And Then There Would Be Housing Agency Approvals

But even if ESDC and the MTA manage to somehow sidestep the question of such approval or even if they do approve Prokhorov, the next question is the review that Prokhorov will need to be subjected to if he is to be a major participant in owning the rest of the project. After all, everyone knows that the arena is projected to be at least a $220 million net loss for the city. The ostensible reason for proceeding with this mega-project anyway was that affordable housing might speculatively be provided someday. Well, if Prokhorov has to be involved, the awkwardness in redirecting housing subsidy away from other housing developers to the Prokhorov tainted team becomes pronounced. The housing, per se, becomes less likely. For ESDC and the MTA to approve the new Prokhorov deal now makes for exceedingly awkward nonapprovals in the future.

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