We are agog at the profusion of stories that Norman Order has been writing in Atlantic Yards Report concerning the scam where Forest City Ratner’s Bruce Ratner wants to pervert an obscure provision in the U.S. immigration law known as EB-5 so that he (and his Russian oligarch partner Mikhail Prokhorov) can finance their Nets basketball arena by selling green cards to 498 Chinese millionaires and their families. Mr. Oder’s articles brim over with revelations of astounding facts. He couples the disclosures with the analysis that what is making this possible is an “abdication of government” as public officials like Brooklyn Borough President Marty Markowitz and the Empire State Development Corporation head Peter Davidson willingly “flack Ratner's project in China” without vouching for the public purpose of the green card sales.
Let Us Explain
The deal Ratner (with Prokhorov) is offering the Chinese millionaires is that they put up $538,000 apiece and, after five years, if they are lucky they will get $500,000 back. That’s right; they get back less money. So overall the Chinese lose and are out-of-pocket financially: They’re down that initial $38,000 difference; they’re down the presumed inflation loss on the money, perhaps another $55-60,000, and they are down the lost investment earnings on the original $538,000. At a mere 8.9% annually (not 17%, 11.7%, 11%, or 10.3%) the foregone annual investment earnings on $538,000 compounded annually for five years come to: $285,989. (A lower return or reduced final figure should probably be used to avoid double counting the inflation loss.)
(* It is also a pretty safe guess that the Chinese will not get any tax benefits from having their money finance the arena which is sometimes a compensating factor when taking a negligible or nonexistent investment return. Our guess is that any tax benefits, such as they may be, will all be assigned to other REAL investors.)
That means that, all tallied, each of these Chinese “investors” are walking away and leaving about $324,000 to 380,000 or more in the Ratner/Prokhorov pocket. It’s obviously not an “investment” at all and the Chinese are not “investors”; they are simply, merely, and nothing more than, the purchasers of green cards and if green cards are worth about $324,000 to $380,000 per each individual and their family then perhaps Mr. Ratner hasn’t swindled these Chinese millionaires . . . yet.
Translating a Swindle?
We were most interested in what came out when Mr. Oder hired a professional translator to translate what was on the Chinese web site that shills the program to the Chinese. As is probably evident from the headline for Mr. Oder’s story the Chinese site seems engineered to mislead those Chinese who might be turning their money over to Ratner. See: Monday, October 04, 2010, NYCRC misleads Chinese investors about project (erroneous, stale Schumer claim about jobs); also, investors would get no profit, just green cards. One thing in particular caught our eye: The Chinese investors might not get their money back at all; Ratner may get to keep it.
The deal is that maybe Ratner gives the money back, and maybe he doesn’t. If he doesn’t give the money back the Chinese are being furnished with “collateral” but the terms of that collateral are that Ratner gets to keep the money he got from the Chinese! Confused? Mr. Oder decodes the deal with a perspicacity of analysis as follows:
The collateralYep! If Ratner doesn’t return the their money the booby prize for the Chinese is that Ratner gets to keep their money!
What guarantees do the investors get?The first collateral is the development rights to the 3,025,654 square-feet land the project will develop.As far as I can tell, that's the development rights to Phase 2 (or a large portion of Phase 2) of the project, consisting of the site east of Sixth Avenue and Site 5, how home to Modell's and P.C. Richard.
While that may be valued at $542,375,000 (and the estimate approved by the Chinese embassy), that value would take a lot to unlock, notably the ability of the owners to get new subsidies for residential construction.
In other words, should Forest City Ratner fail to pay back the investors but instead give them a piece (or most, or all) of the development rights, the investors likely would have to get a partner--like Forest City Ratner--to actually fulfill those rights. It's a good deal for the developer.
(Below, screen shots showing two of the web pages Mr. Oder had translated, the first trafficking in visual razzle and the second engaging in over-stretched fudges to over-hype the projects benefits.)
A Familiar Scam
We realized that this booby prize scheme whereby those who have already given Ratner money find themselves forced to forgo their originally agreed upon return on investment and instead let Ratner get away with filching even more money from them sounds startlingly familiar. Why? With the complicity of the state and city public officials who consciously worked with Ratner not to negotiate a better or more public-protecting deal, Atlantic Yards was set up so that Ratner can blackmail the public for a better deal whenever he wants it: Extended completion schedules, more subsidies, worse project design, fewer public purpose requirements, etc. All this results from public officials structuring this deal as a 30 acre (no-bid) Ratner monopoly for which billions of dollars of public resources have been put at risk without specifying exactly what was to be delivered in return. So, as can be seen when Ratner went to the MTA for a better deal, Ratner’s penalty for not holding up his end of the bargain is that public gets the booby prize of anteing up more cash to put in his pocket. Welcome to the club, Mr. Chinese investor!
Develop Don’t Destroy Brooklyn also thought that Ratner’s antics as reported by Mr. Order sounded like a retread of his old tricks. (See: Atlantic Yards Con Job Being Replicated in China for Green Card Selling Scheme, Posted: 10.04.10)
Purpose of the EB-5 Immigration Law Program
If the purpose of the immigration law’s EB-5 is to bring savvy investors and investment into the United States to create jobs, that isn’t happening here. This deal is not for “investors” nor is it for the savvy. Further, as Mr. Oder has amply demonstrated in his articles it is not about creating jobs. Is Ratner now seriously pretending that the arena under construction isn’t going to be built if private citizen Ratner and a Russian oligarch can’t sell green cards? Please! (ESDC has just admitted the EB-5 money “will not create any new jobs beyond those already forecast.”) Besides, the idea of creating jobs with the building of this arena always involved a shell game. Jobs have actually been lost. Many existing permanent jobs and the potential for more were destroyed for what, in the overall scheme of things, is a relatively few temporary construction jobs plus very few replacement permanent jobs expected to materialize after the arena is built. Meanwhile, Ratner’s overall mega-project is creating surrounding blight and vacant land that by his own admission will lie fallow for decades. Net net: The Nets arena means job losses for the community. The idea of creating jobs with the building of this always represented a shell game and with the advent of Ratner’s twisted use of EB-5 it has only become even more of one.
And the EB-5 Program Comes Courtesy of . . . Paul Levinsohn
If all of this isn’t unsavory enough, let’s go into the credentials of who is running this scheme. As Mr. Oder reported at length after we pointed it out to him:
Paul Levinsohn, one of two Managing Principals in the New York City Regional Center--the investment vehicle Forest City Ratner aims to use to raise $249 million (mainly) from Chinese millionaires--has a bit of a history as an operator, exploiting a legal loophole to get rich.
He has an important cameo in The Soprano State: New Jersey's Culture of Corruption, by Bob Ingle and Sandy McClure (as pointed out to me by Michael D.D. White)Detailed in Mr. Oder’s article is an account of insider self-dealing by Mr. Paul Levinsohn in his days as a public official which, while perhaps not necessarily illegal, exemplify his willingness to put his own private interest in quick-buck profiteering ahead of observing any trust he owed the public. Should we now consider it surprising that, once again, we find ourselves sorting out those same concerns in relation to Mr. Levinsohn’s more recent activities? In the end Levinsohn resigned from his public office as a result of his billboard operations described more throughly by Mr. Oder. Subsequently, Levinsohn’s boss, the New Jersey governor himself had to resign over another incident in which Levinsohn had earlier played a critical role.
Paul Levinsohn and Another Breach of Public Trust
Here is the New York Times commenting in an editorial on another breach of public trust. The breach concerned New Jersey's former governor, James McGreevey, who resigned in the midst of the scandal the Times editorial page was astutely commenting upon. Factoring into the scandal was the fact that McGreevey, threatened with a sexual harassment lawsuit by the man he appointed as the state’s homeland security advisor, had been secretly gay. That left the Times to carefully parse it thus (emphasis supplied):
''My truth is that I am a gay American,'' he said. If that had been the beginning and the end of the story, we would be celebrating Mr. McGreevey's candor, not assessing his resignation. But the story -- like Mr. McGreevey's statement -- was incomplete.(See: The Governor's Secret, August 13, 2004.)
The governor's announcement was reportedly driven by the threat of a sexual harassment lawsuit by a former aide, Golan Cipel. Mr. McGreevey, who has two children from his two marriages and whose wife stood next to him during his press conference, acknowledged that he had committed adultery with another man. He did not say that the man in question had worked for his administration.
Gay or straight, that kind of relationship raises troubling questions, apart from the issue of whether it was consensual. Mr. Cipel was originally appointed as the governor's homeland security adviser, a job for which he had no discernable qualifications. If Mr. McGreevey put someone in that critical post because of a personal relationship, that would be an outrage, regardless of his sexual orientation.
Mr. Levinsohn was appointed Chief Counsel to Governor McGreevey in 2002. Levinsohn in his capacity as a lawyer signed and reportedly wrote a letter for McGreevey (around the time of McGreevey’s January 9, 2002 inauguration) with the goal of putting Golan Cipel in the homeland security advisor job notwithstanding the Time’s editorial page’s later assessment that Cipel had “no discernable qualifications” for that job. (Mr. Oder points out that “‘McGreevey's propaganda arm’ claimed Levinsohn was not working as deputy attorney general despite the title, he had during that time” Another source addressing this point says “Levinsohn listed his own title as assistant attorney general, a courtesy title the McGreevey administration said Levinsohn was given, and sworn-in to, during the transition period (which might also impact his state pension(s) and benefits).”)
Levinsohn’s Suspect History of Representations to Federal Immigration Officials. . .
The Aug. 22, 2004 Record, reports Levinsohn wrote to the federal Immigration and Naturalization Service: “Cipel, a foreign citizen, was coming to the state Department of Law and Public Safety, he wrote. He would need a work visa.” The U.S. Immigration and Naturalization Service, the INS, is now ICE, the US Immigration and Customs Enforcement- Interesting how this all comes back to immigration again. And it also apparently comes back to Mr. Levinsohn improperly representing the credentials of foreigners to qualify under applicable immigration law criteria.
The details of Mr. Levinsohn’s involvement in writing to the federal government to represent Golan Cipel as qualified for a job he actually wasn’t takes some sorting through of a thicket of reports that may be partisanly tinged. The New York Times didn’t write about it and primary sources aren’t readily available but the facts are apparently not pretty. Levinsohn may also have filed a letter with the U.S. Department of Justice in the summer of 2001 and supplied the US Department of Labor with an application, dated Jan. 9, 2001. It seems as if Freedom of Information Act requests to uncover matters were resisted.
About the nature of Levinsohn’s representations we found this account:
. . McGreevey’s lies regarding Cipel began even before his inauguration, in a letter he had his chief counsel, Paul Levinsohn, write to the Department of Labor on Cipel’s behalf. As Gannett’s Sandy McClure reported on December 12, 2002, “Using the terrorism attacks of Sept. 11 to justify the hiring, the governor's chief lawyer [Paul Levinsohn] wrote a letter to the U.S. Immigration and Naturalization Service on McGreevey's inauguration day, telling the federal agency that New Jersey wanted Cipel to coordinate increased security with all branches of government and that Cipel had the necessary ‘substantial experience’ in public security.”(See: New Jersey’s Jim McGreevey: America’s Most Corrupt Governor? by Nicholas Stix, September 1, 2004.)
In fact, no foreign national could qualify for the job, because no foreigner could get the security clearance required to read sensitive federal documents or attend FBI briefings. Since the New Jersey media had already pointed this out, Levinsohn tiptoed around such issues in his official letters. And Cipel had no security background, to begin with. Meanwhile, big names in security had applied for the job, including former FBI director Louis Freeh, who had offered to do it for free. McGreevey later lied about the contents of the Levinsohn letter. The Gannett chain had to file a Freedom of Information Act request, in order to see the letter, which had mysteriously disappeared from state files, before a copy surfaced -- at Paul Levinsohn’s home.
. . . Don’t Stand the Test of Time
If Levinsohn represented that “Cipel had the necessary ‘substantial experience’ in public security” it was a representation that did not actually bear out in time as the Times later reported that Cipel:
. . . . Governor McGreevey's first homeland security advisor drew political fire, and some ridicule, over his lack of experience and qualifications. After federal officials said Mr. Cipel, an Israeli citizen, would not qualify for a high security clearance, the governor transferred him to another job.(See: One Tough Week, by John Sullivan, July 18, 2004.)
Avoiding the Swindle
All that brings us full circle to the representations Paul Levinsohn seems prepared to be involved in making to U.S. immigration officials in connection with Atlantic Yards. As we noted, there is no real “investment” being offered here to the Chinese at all: All they are really being offered is green cards at a hefty cost. But even if all they want is green cards, Chinese millionaires who want to avoid being swindled may want to think twice about whether the representations Levinsohn is offering to make to U.S. immigration officials on their behalf will stand the test of time. The rest of us, the American public and residents of New York and Brooklyn, would probably also like to avoid being swindled. What would that take? It would take public officials who don’t sell out public programs for the private gain of politically connected developers. It would take public officials willing to do their job keeping their public trust in mind. In Mr. Oder’s words, words we agree with, it would mean an end to unacceptable “abdication of government” by government officials.