“Barclays” Center Opening Pending; Fellow Government Officials Don’t Back Bloomberg Re Minimizing NY Lawsuits Against Barclays Bank

Noticing New York earlier covered the fact that Mayor Michael Bloomberg has acknowledged that New York City may be suing Barclays Bank over its rate manipulation in the LIBOR scandal but minimized any possibility that the losses would be significant. Such lawsuits could be relatively contemporaneous with the grand opening of Bloomberg-supported, city-subsidized Ratner/Prokhorov basketball arena that will promote the “Barclays” name. (See: Friday, July, 20, 2012, “Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?)

The Noticing New York coverage suggested that Bloomberg might be going out on a limb when he stated, after being briefed on the subject by Mark Page, his budget director, that any losses for which the city might sue would be a “de minimis amount of money.”

At the moment that’s what the mayor has said but other government officials, including the office of John Liu, the city comptroller, aren’t backing Bloomberg up with any similar assessment that city losses will be “de minimis.”

The NYC Comptroller’s Office

A spokesman for Comptroller Liu informed Noticing New York that Liu’s office is “closely monitoring developments and are keeping all our options on the table as the financial scope of the suspected manipulations is determined.” That seems reasonable as the New York State Attorney General is conducting a joint investigation with the Connecticut Attorney General that could soon be joined in by other states’ attorneys general and has vowed to “follow the facts wherever they may lead.”

Following up on the mayor’s remarks I asked Liu’s office whether his office could confirm the mayor’s statement that any losses the city may suffer from the LIBOR manipulation will be “de minimis.” Asking Liu’s office for such a confirming assessment makes sense since Liu’s office monitors the city’s finances and is supposed to be looking over the mayor’s shoulder to ensure the mayor’s proper management of the same. In addition, given that pension funds are usually among the funds most quickly cited as likely to have sustained appreciable losses as a consequence of the rate manipulation and the Comptroller’s office has responsibilities for the city pension fund I asked whether Liu’s office could confirm that any losses for any of the other funds for which the Comptroller has responsibilities, including the city pension fund, will be “de minimis”?

A spokesman for Liu, characterizing the situation as “fluid,” stated that the office was unable to provide confirmation on either of these questions. When Bloomberg said that the city would only have “de minimis” losses did he mean just the city standing alone in the most technical sense or did he also mean the city pension fund and other technically separate city agencies that are nonetheless tied in with the city’s financial health? One can only guess. To be fair, the Comptroller’s office was altogether more cautiously timid than Bloomberg, not even willing to confirm that it has lawyers looking at the lawsuits that Bloomberg has already publicly proclaimed are possible.

The New York City Housing Development Corporation

The New York City Housing Development Corporation (“HDC”) is one city agency that could suffer losses due to the LIBOR scandal without those losses being technically considered losses suffered by the city itself. HDC is looking at issuing more bonds for a new residential building furthering Forest City Ratner’s envisioned Atlantic Yards mega-monopoly. Noticing New York gave recent testimony on the proposed bond issuance that, among other things, went into the connection of the proposed bond issuance to the LIBOR scandal issue. The new building would be on the same block as the “Barclays” Center and would be structurally and reputationally integrated with it.

Noticing New York contacted HDC and, like the Comptroller’s Office, HDC would not confirm that any losses suffered by HDC or its bondholders from the LIBOR manipulation will be “de minimis.” Mark Page, the city’s budget director with whom mayor Bloomberg conferred before characterizing any possible city losses as “de minimis” is on HDC’s board. If after talking with Budget Director Page Bloomberg meant to say that the city would not incur any significant losses in big picture terms he would presumably have been representing that HDC as part of that big picture was not expected to incur any losses. That would seemingly make it a no-brainer for HDC (which HDC board member Mark Page should have checked in with to make such an assessment) to confirm that all its possible losses will be “de minimis.” But it didn’t.*

(* Here is one semi-absurd possible background explanation to contemplate: HDC foresees possibly significant losses which the city budget director believes will be cancelled out for the city in big picture terms by ways LIBOR rate manipulation may have benefitted other city financial activities. There will be more on the complexity of calculating net losses later in this article.)

When HDC would not confirm that any losses suffered by HDC or its bondholders from the LIBOR manipulation will be “de minimis” I had a follow-up question to put to the agency the next day:

Can HDC confirm that if any losses suffered by HDC or its bondholders are substantial there will be no effect or reduction in subsidies available for HDC projects, including perhaps, but not limited to, subsidy for projects like the Forest City Ratner Building ("Building 2") that HDC held a hearing about last Wednesday?

HDC declined to provide me with a confirmation that any substantial losses suffered by HDC or its bondholders would not reduce available housing subsidies.

The Metropolitan Transportation Authority

The Metropolitan Transportation Authority (MTA) is another agency that, as a public authority, is technically distinct from the city itself. Nevertheless, its financial health and finances do interrelate with the city’s and, once again, NYC Budget Director Mark Page is on the MTA’s board to represent the mayor.

The MTA’s spokesperson previously confirmed to Noticing New York that the MTA’s legal counsel was reviewing options in relation to the LIBOR scandal, and would “vigorously pursue all available legal actions” and “do everything possible to protect the MTA.” Following up on the mayor’s assurance of “de minimis” NYC losses I asked whether the MTA could confirm tha any losses that the MTA or its bondholders may suffer as a result of the Barclays Bank LIBOR scandal will be “de minimis”. The MTA’s spokesman responded by saying, “the Mayor speaks for the City of New York” and then, observing the above noted distinction that the MTA’s public authority status makes it a technically separate financial entity, stated, “The MTA is a separate entity under the State of New York, and our debt is not a part of the City government’s debt. The City’s debt portfolio and the MTA’s debt portfolio have different characteristics.” Rather than confirm that losses will be minimal the statement provided by the spokesman is that, “The MTA is continuing to analyze the matter and is not yet ready to make a pronouncement about the extent of any potential loses.”

Bloomberg possibly did not mean to include the MTA in the big picture of whether New York City’s LIBOR losses will be “de minimis” but if he did, the absence of substantial possible losses in this bigger picture is not something the MTA is willing to confirm.

Agencies Providing Substantial Subsidized Financing to Atlantic Yards and “Barclays” Center

New York City, HDC and the MTA constitute three out of four of the local government entities providing substantial subsidized financing to the “Barclays” Center and the Atlantic Yards mega-monopoly in a variety of ways: tax-empt bonds, land value write-downs, deferred collection for purchase prices, direct cash, exemption from paying real estate taxes, etc. The forth such agency financing the “Barclays” Center and the Atlantic Yards mega-monopoly is Empire State Development the state agency (and public authority) that is the eminent domain-abusing mega-project’s lead sponsor.

Empire State Development

Following up on the mayor’s minimizing characterization I asked ESD whether it was willing to confirm that any losses that it (or other agencies for which it serves as umbrella) may suffer as a result of the Barclays Bank LIBOR scandal will be “de minimis”? I couldn’t get such a confirmation from ESD either. ESD’s spokesman responded that ESD stood by its previous response that “The matter is being reviewed by our counsel’s office and we cannot comment further at this time.”

I did not ask either the MTA or ESD whether substantial losses, if they occur, would affect the level of funds at their disposal to subsidize and finance New York City projects but it is a pretty safe bet that the MTA, ESD and HDC would all be affected in this regard if they incur substantial losses.

New York State Comptroller

The New York State Comptroller is similarly situate to the New York City Comptroller, given that the New York Sate Comptroller has responsibilities with respect to investment and management of the state pension fund. As I noted above, pension funds are usually among funds most quickly cited as likely to have sustained appreciable losses as a consequence of the rate manipulation.

When I first inquired about whether the State Comptroller was looking at suing Barclays over LIBOR manipulation the spokesperson for the State Comptroller provided a statement that The Comptroller's Office “is monitoring the situation as it unfolds. Until there is a determination as to the extent of the effect that any manipulation actually had on rates and the time period it occurred it is premature to make an assessment regarding the direct or indirect impact on the state.” When I asked for confirmation that the office was in touch with or reaching out to communicate with other state agencies (including any of those it supervises and regulates) about this subject I was told only that, “We will disclose information relating to LIBOR at the appropriate time.” One of the agencies over which the State Comptroller exercises oversight is ESD, mentioned above.

When Bloomberg went public with the fact that he envisioned the city would sue about LIBOR I asked whether the Comptroller would, given that fact, confirm like the MTA and ESD that it had counsel looking at the possibility of suing Barclays Banks in connection with the LIBOR rate manipulation scandal. They weren’t willing to do so.

And I asked whether the Comptroller could confirm that any losses for any of the other funds for which the Comptroller has responsibilities (including the state pension fund) will be de minimis. The office was not willing to do so.

Has the State Comptroller’s Office been contacted by legislators wanting assurance that that office is monitoring possible state losses and ready to sue as appropriate to protect state interests? I don’t know; they wouldn’t tell me that either.

State Attorney General’s Office and State Comptroller

In actuality, maybe I didn’t need to go to the State Comptrollers office to get these confirmations that they weren’t giving me. I haven’t yet been able to get the New York State Attorney General’s Office to exchange communications with Noticing New York about the LIBOR scandal, but Attorney General Eric Schneiderman was on the Brian Lehrer show yesterday talking about exactly this. Brian Lehrer asked Schneiderman about the Wall Street Journal’s report that Schneiderman was investigating whether New Yorkers have incurred losses as a result of the LIBOR rate manipulations (at about 12:20 in segment). Lehrer asked Schneiderman whether the state pension fund was a possible victim or what else might have lost money due to the fraud. Schneiderman said, “Anyone could have lost money” due to the artificiality of the rates (at different times rates were manipulated both up and down for the benefit of the bank) and said that it was a “broad investigation” and that “there are a lot of agencies that are involved” and said that it was a global issue with investigations all over the world. Prompted by Lehrer he said that figuring out who to sue was one of his challenges (there are fourteen banks involved.)



Schneiderman did make the point (as we will get to in a moment) that “the damages on this are tricky to assess.” Schneiderman didn’t specifically say he was in touch with the State Comptroller’s Office. Has Schneiderman been in communication with the Sate Comptrollers’s office about the pension fund while putting together his assessments? It is probably a sound instinct to think that he was.

What is true vis-à-vis the State Comptroller, the state pension fund and losses is likely also to be true vis-à-vis losses and the City Comptroller and the city pension fund.

New York City Economic Development Corporation, New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation

I asked the city development agencies functioning in consolidation with the New York City Economic Development Corporation (also the New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation) whether they had legal counsel looking at the question of suing Barclays Bank in connection with the LIBOR rate manipulation scandal, given that the MTA and the Empire State Development agency have now confirmed that they have legal counsel looking at the possibility of suing Barclays Bank in connection with the LIBOR rate manipulation scandal and given that Mayor Bloomberg said he considers it is possible the city will be suing.

I also asked whether EDC (and NYCEDC, NYCIDA, NYCCRC) could confirm that any losses suffered by EDC (and NYCEDC, NYCIDA, NYCCRC) or bondholders of the agencies due to LIBOR manipulations would be de minimis?

I received an interestingly qualified and technical response from their spokesperson about how and why the agencies would not be “directly” impacted:

“New York City Economic Development Corporation does not borrow and it has very few loans outstanding, all of which are at fixed rates of interest. New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation are conduit issuers. As conduit issuers they are not directly impacted by the questions relating to LIBOR quotations.”

It takes some financial bond structuring knowledge to understand the technical concept of “conduit issuer” being invoked here. What it means is that even though a government agency is the issuer of bonds for purposes of gaining the privilege of issuing bonds that are triple tax-empt (from federal state and city income taxes) the issuer structures that bond issuance as a non-recourse transaction pledging no more than the asset being financed (and its revenue) and allowing the agency that is technically the issuer to stand at a remove from the transaction, intending that it not itself be liable for payment on the bonds and theoretically insulated from any possible losses that may be incurred in connection with the transaction. In other words bond proceeds go to a developer and the developer agrees to pay back the bond holders and the “issuing” agency stands conceptually on the sidelines as a somewhat passive witness to that money going back and forth. Ergo, there is the idea that the “conduit issuer” is incapable of having “direct” losses. (Even though it stands conceptually on the sidelines the “conduit issuer” usually receives fees for lending its tax-empt status.)

Here is a legal nicety, a distinction with no practical difference: You can have two “conduit issuer” structures that are for all intents and purposes identical but in one case title to all of the financed assets and revenues would be held by a bond trustee, but in another title would be held by issuing agency but pledged to a trustee. In the first situation it would be easier to make a technical assertion that the “conduit issuer” was incapable of sustaining a direct a loss.

None of this is to say that a “conduit issuer’s” bondholders would not be sustaining losses if LIBOR was manipulated, nor that the developer wouldn’t sustain losses which might result from losses on invested bond funds, losses in connection with the project loan rate, or losses from a swap derivative intended to lay off risk. And this is not meant to say that even a “conduit issuer” would be immune from resulting lawsuits or absolutely free to ignore obligations to sue to make sure that the its bond resolutions and indentures were contractually honored. Indirect losses could involve incurring legal fees to protect bondholders. In a collapsing transaction the issuer might also find its fees don’t get paid. Some “conduit issuers” might hope that all losses associated with protection of its bondholders would be shouldered by the bond trustee and/or the outside professional who structured the transactions: But would that be the case?

One last thing: The implication that LIBOR has no possible influence on the determination of a fixed rate of interest might not be entirely correct.

Difficulty of Making a Quick Assessment (Like Bloomberg’s) of the Level of Damages

One of the reasons no one (other than Mayor Bloomberg) is jumping up to furnish assurance that LIBOR losses will be minimal is because it is so complicated to sort out where LIBOR losses will fall and how to calculate them. One thing that’s true is that any one entity may at the same or different times have experienced both benefit and losses in connection with LIBOR manipulations (and remember again that rates were also manipulated both up an down). Where there is both benefit and loss it can be argued (along the lines of Bloomberg’s own argument in this respect) that things should be considered a wash or at least netted out. Alternatively, a party might find that it is incumbent for it to be both a defendant party in one or more lawsuits where it incurred benefit and a plaintiff party in lawsuits where it incurred losses. (Conduit transactions might actually complicate and preclude treating as a wash or netting out benefits and losses that have thus been legally compartmentalized.) In other words, it’s potentially very messy and difficult to sort out, but recognize at least that whether one is a plaintiff or defendant lawsuits just aren't fun.

Yesterday, some of the difficulty in assessing where the losses were was discussed on a Brian Lehrer show segment in which Matthew Goldstein, the editor in charge of Wall Street Investigations for Reuters, was being interviewed about pending arrests in the rate-fixing scandal (including NYC Barclays traders). (See: The Brian Lehrer Show:Will the LIBOR Scandal Lead to Arrests? Wednesday, July 25, 2012.)



At one point in this discussion (10:15 in the recording) Brian Lehrer somewhat paraphrased Bloomberg’s expression* of his minimizing “wash” theory:

I think Mayor Bloomberg has said that with the different kinds of banks and investors here it may be a net wash for New York with those who gained and those who lost from the manipulation. On the other hand, we have Attorney General for new York State Eric Schneiderman coming on later in the program and reportedly he’s investigating at least the possibility of filing civil suits against some banks because I guess the New York State pension fund would have lost money if these interest rate rates were, you know, manipulated below the market.

(* It could be that Brian Lehrer was listening to his home WYNC when the station broadcast the story quoting Bloomberg, but if he wasn’t I’d like to think Lehrer was reading Noticing New York: As WNYC didn’t post the Bloomberg story on the web the only place it is available on the web is in Noticing New York’s republication of what I consider an important story.)

Around Lehrer's paraphrasing, Goldstein had some assessments of the “wash” concept and its complexity, when asked by Lehrer who the victims were (at about 8:50 in the recording):

I may be somewhat different from some of my other journalistic colleagues. I’m not convinced that there were a lot of victims.- Or, it’s difficult to identify the victims because obviously there were pension funds that invested in some of these sorts of interest rate sensitive securities that were tied to LIBOR but if LIBOR is being manipulated on one level you may have benefitted on another level. I mean keeping LIBOR low can actually help someone getting a loan, you know a lot of loans are tied as a benchmark. So I think that in terms of the dollars and cents of who got hurt we will definitely see litigation but there will be a deeper analysis: OK maybe you got hurt on this transaction but did you get helped on another? . . .

. . . You don’t want to have a system where people can game the system even if the actual harm to investors may not be in, individual things, large; it’s the idea that there is a select class that can sort of change the rules as they want. . .

. . . people have been arguing this and those cases are working though. I just think at the end of the day it will be difficult to identify - - And I’ve talked to other lawyers on this and they can argue it on both sides- - and I would expect an attorney general to be aggressive in pushing it – but, you know if a pension fund were also involved in doing some sort of borrowing that it needed or some sort of leveraged loans that it invested in it could have benefitted. I think the litigation is going to be an interesting analysis behind how it actually all plays out.

Hot topic that the LIBOR fraud is, on today’s Brian Lehrer show the benefit vs. harm possible wash came up again in another segment (See: July 26, 2012, The Brian Lehrer Show: Washington Grills the Banks, Thursday, July 26, 2012.) where it got a less endorsing assessment from Wall Street Journal economic policy reporter Damian Paletta (at about 14:00 in the recording):

Paletta: There are a lot of cities who have filed lawsuits because they feel like they have really gotten screwed and quite frankly a lot of these cities are in really tough financial shape right now so the impact on them might be pretty severe. So I think it’s going to take time for us to kind of find out who the victims are here, because this is a little bit strange how the LIBOR impacts everyone’s life, but there’s definitely folks on either side of this and I think it’s going to take some time for it all to sort of shake out.

Lehrer responded: No matter who the victims turn out to be it was still people at the top of the biggest banks deciding that for their own purposes they were going to manipulate interest rates, and lie about interest rates and cover up what the true interest rates should have been. .not thinking about the 99% or even their other competitors; in the 1%.

Given what a mess this is you can see why government officials are not providing assurance that manipulation losses will be minimal. While the losses will, in the end, need to be calculated, Attorney General Schneiderman also made clear in his interview yesterday that there will be crimes he can criminally prosecute whether or not substantial losses get identified.

Still, the question raised here is whether Mayor Bloomberg went out on a limb to trivialize the possibility of New York City losses as a result of the rate manipulation. Bottom line, I think it’s clear that he did. Quite rightfully, other government officials are not backing him up (even though there is plenty of reason for them to want to if they could).

Maybe when the “Barclays” Center arena opens in the fall and Bloomberg has the urge to attend it we will have the spectacle of a number of government agencies simultaneously suing Barclays Bank for substantial losses. Maybe we won't yet have gotten to that stage and there won’t yet be many New York government agencies suing Barclays. Maybe the defining clarity of that moment will only come from Barclays traders being criminally prosecuted for self-interested rate manipulation. Rather than make a rushed assessment, let's just wait and see.

Below, in reverse chronological order is all of Noticing New York's prior coverage on this topic:

• FRIDAY, JULY 20, 2012, “Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?

• THURSDAY, JULY 19, 2012, “Barclays” Center Opening Pending, Will Empire State Development Sue Barclays Bank?: ESD Says The Question Is Being Reviewed By ESD Counsel’s Office

• TUESDAY, JULY 17, 2012, Will The MTA Sue Barclays Bank Over LIBOR Rate Manipulation Scandal? MTA Says It Will “Vigorously Pursue All Available Legal Actions”

• SATURDAY, JULY 14, 2012, Will The Empire State Development Corporation (ESD), The MTA, NYC And New York State Sue Barclays Bank?

“Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?

With a significant amount of New York City government hoopla about to be unleashed with respect to the opening of the “Barclays” Center (i.e. the Ratner/Prokhorov basketball arena for the Nets) Mayor Bloomberg may be going out on a limb to minimize the story about how NYC could be suing Barclays Bank at pretty much the same time. Baltimore and other municipalities are suing Barclays Bank for its rate manipulation in the LIBOR scandal, but Bloomberg is taking the position that New York, a much bigger city than Baltimore, the financial capital of country and a leader in doing government financing in terms of both scale and complexity is only likely to have “de minimis” losses because of Barclays . . . but Bloomberg is nevertheless envisioning that NYC may very well be participating in lawsuits against Barclays.

The story about the Mayor’s consultation with his budget director Mark Page was on WNYC yesterday evening. Noticing New York is providing WNYC's entire story below since it is not otherwise available on the internet:

Mayor Bloomberg says the city may have lost money due to rate tampering by large banks. But he doesn't believe the losses were large. Mark Page, Director of the Office of Management and Budget, briefed the Mayor this morning on the city's potential exposure. The city has swaps agreements on construction bonds, linked to a key interest rate that may have been manipulated.

Cut to clip of Mayor Bloomberg himself:

“If the rate went down some city debt would be adversely impacted, and some city debt would be favorably impacted. If there are class action suits, we'll join em, but it would be a de minimis amount of money.”

It's the first time the Mayor has spoken on the subject since Barclays Bank admitted it tampered with the benchmark London Interbank Offered Rate, or LIBOR.

Is Bloomberg paying attention to Noticing New York’s inquiries about what government agencies will be suing Barclays? Bloomberg’s quick and dismissive assessment of the lawsuit situation comes just two days after the New York City Housing Development Corporation (“HDC”), a Bloomberg-controlled financing agency and one of the biggest municipal bond-issuing agencies in the country, declined to comment when Noticing New York inquired if that agency would be suing Barclays (quote: “HDC declines to comment on these issues at this time.”)

On Wednesday HDC held a hearing respecting its proposal to issue bonds for a building that will be structurally and reputationally a part of the “Barclays” arena. HDC is proposing to issue approximately $92 million in additional bonds, secured by the new building, to finance Forest City Ratner’s proposed Atlantic Yards mega-monopoly. It also plans to provide the Forest City Ratner building with a significant amount of subsidy in addition to those bonds but did not publicly disclose what the amount of that subsidy (or even a ballpark figure) would be before the hearing being held to take comment on the financing (and the amount is still unknown). Noticing New York provided testimony at the hearing opposing the issuance of those bonds.

The mayor says the city may be suing Barclays. At the same time HDC, a city agency accountable to Bloomberg through his appointees, is mum about whether it will be suing Barclays but earlier Noticing New York stories covered the fact that the counsel for two of the other agencies financing Atlantic Yards and the “Barclays” arena, the MTA and Empire State Development, are considering the possibility of suing Barclays. That means that at least three out of four of the principal financing agencies for “Barclays” arena block are looking at suing Barclays Bank. Despite HDC’s being mum on the subject it is probably four out of four. And the New York State Attorney General is investigating Barclays together with the Connecticut Attorney General, perhaps soon to be joining with other states’ attorneys general as well.

Here is Noticing New York’s prior coverage to date on the above (in reverse chronological order):

• THURSDAY, JULY 19, 2012, “Barclays” Center Opening Pending, Will Empire State Development Sue Barclays Bank?: ESD Says The Question Is Being Reviewed By ESD Counsel’s Office

• TUESDAY, JULY 17, 2012, Will The MTA Sue Barclays Bank Over LIBOR Rate Manipulation Scandal? MTA Says It Will “Vigorously Pursue All Available Legal Actions”

• SATURDAY, JULY 14, 2012, Will The Empire State Development Corporation (ESD), The MTA, NYC And New York State Sue Barclays Bank?

It’s clear why Mayor Michael Bloomberg wouldn’t want to play up a possible city lawsuit against Barclays. Whatever the losses to the city occasioned by Barclays Bank's misconduct, the city has invested a flabbergasting sum in the “Barclays” arena itself. Hundreds of millions of direct New York City cash subsidy has so far been given to the Atlantic Yards mega-monopoly and the Barclays arena (replacing properties that were actually taxpaying and plans for more) will also be off the city tax rolls so the cost to the city of just the arena is up close to around one billion dollars. No matter how conservatively you calculate the net loss it is in the hundreds of millions of dollars.

Further, in writing about this before I raised the question about whether city assessment of the situation might be affected by how much Mayor Bloomberg is “a friend of the banking community.” In connection with previous “Barclays” arena promotion hoopla Bloomberg saluted Bob Diamond, the Barclays president who recently resigned because of the LIBOR scandal as his “friend.” (See: Tuesday, July 03, 2012, Flashback to March 2010: Mike Bloomberg calls Barclays' Bob Diamond "my friend"- which includes a video of Bloomberg’s statement of affinity.)

Is Bloomberg going out on a limb with his `de-minimizing’? Was the city Budget Director Mark Page able to make this assessment so quickly? Did Bloomberg mean that it was just specifically the city’s loss he could consider minimal or did he mean the city and all of its bond financing agencies such as HDC (Mr. Page is on HDC’s board as one of Mr. Bloomberg’s representatives) and the New York City Economic Development Corporation? Remember the 2008 financial crisis when no one could figure out or know for certain where all the losses would be and what their amount would be because the interrelationships were so complicated? There are similarly complex and tangled interrelationships to be assessed here.

If you begin to search the internet you will see what starts to pop up and how frequently:

• The New York City Executive Report on the City’s 2011 Budget, Message from the Mayor with Mark Page’s name on it

• Look at the same Executive Report for the city’s 2010 Budget.

• The City Comptroller's Comprehensive Financial Report for the fiscal year ending June 30th 2008 has this kind of language in it about NYC financial risk mitigation:

“In its August, 2004 basis swap, the City’s variable payer rate is based on SIFMA and its variable receiver rate on a percentage of LIBOR. However, the stepped percentages of LIBOR received by the City mitigate the risk that the City will be harmed in low interest rate environments by the compression of the SIFMA and LIBOR indices.”

• HDC has bonds where LIBOR comes into play. It could very likely be the majority of HDC's bonds that do.

• Here from April 2010, generated by Barclays Bank itself, is a “Barclays Capital Trading and Distribution Commentary” about the municipal market. It warns “The views and recommendations in this commentary are the short-term views of the Barclays Capital Municipal Trading Desk.” It notes that Barclays “will price a New York City Housing Development Corporation weekly VRDN next Friday.” The price for these “Variable Rate Demand Notes” was probably keyed off Libor. Elsewhere in this document it evaluates market interest rates this way: “The stronger economic picture and expected govt debt supply next week weighed on treasury yields. Libor swap yields rose over 5bp in the 3y-7y sector for a second consecutive day. SMA Ratios dropped in response, however, activity was much lighter than yesterday.”

• State agencies which issue bonds to finance projects in the city also keyed such bonds off LIBOR as a benchmark for all sorts of things. Here is just one $131,105,000 Dormitory Authority of the State of New York financing. DASNY is a big issuer of bonds so there are more. . . many, many more.

Despite Bloomberg’s `de-minimizing’ this doesn’t look like the story is going to end here. Noticing New York will also be doing some follow-up on where the New York State and City Comptrollers are in overseeing these matters and possibly bringing their own lawsuits, particularly with respect to the city and state pension funds.

Two Things About the Pataki Administration and a Hope About What Is Secretly Going on Behind the Scenes Respecting Atlantic Yards

When my friends criticize the Pataki administration, as many, being Democrats, are wont to do, I, who worked for the Republican Pataki administration for all its twelve years (a substantial fraction of my overall tenure in government), think of two things about that administration, one good, one bad. I myself am almost certainly much more of a Democrat in temperament than a Republican, though if the Republicans could live up to many of what should be their aspirations I would find myself sympathetic to them. Plus the countless failures of the Democrats to live up to what should be their own aspirations frequently leave me aghast and disappointed.

The bad thing I think about with respect to the Pataki administration is one that I know comes to mind for many people think when they remember the Pataki administration. I don’t know if it is number one on the people’s list of negatives when they think of that administration but it might potentially be. It is the role the administration played in launching the execrable idea of the Atlantic Yards megadevelopment in Brooklyn. The good thing I think about is something little known and largely uncredited to the administration, something that also gives me hope for an outcome with respect to Atlantic Yards that could, unbeknownst to nearly all, be secretly in the works. The good thing I think about is the administration’s decision to send a Republican State Senator to jail.

How do I know about the Pataki administration decisions that resulted in a Republican State Senator going to jail? As the second in command of the legal department of the state finance authorities where I worked I participated in the investigation that resulted in that outcome, including bringing certain facts to light.

Pataki Support of Investigation

I should be careful not to make this sound too simple. The people at the top of the Pataki administration didn’t decide to send a powerful Republican State Senator to jail; they decided in favor of supporting the investigations that sent the Senator to jail and they didn’t decide this out of the blue. To be frank, the administration needed to be pushed a little, which is to say they needed to know the facts they were dealing with, why it was the right choice, and why perhaps there really was no other acceptable choice but to cooperatively assist in the investigation. The Senator who went to jail in the end was Guy Velella from the Bronx.

Those at the top of the Pataki administration made the right choice but the pushing and the framing of the issues that brought about the right result came from below. There is a reason that what happened with respect to the Pataki administration sending Senator Velella to jail gives me hope with respect to what may be happening regarding Atlantic Yards. It relates to the same reason that the Pataki Administration is largely uncredited for its work in sending Senator Velella to jail: That work was a long and laborious process that went on in secret for years before the outcome was revealed. Much of what happened was so secret that, for instance, only when most of this time had passed was it revealed to some top political appointees and decision makers that their own phones had been tapped.

Whistleblowers

I should point out that one thing that was key to the investigation gaining momentum was that there were whistleblowers involved, public employees who came forward with critical information about what needed to be investigated. I point this out not only because it is important to the process but also because in terms of speculating about what might be happening behind the scenes as regards Atlantic Yards it is fascinating to note that the Empire State Development Corporation, the state agency theoretically most responsible for Atlantic Yards, does not have whistleblower protection policy even though it was legally required to have adopted one by the Public Authorities Accountability Act of 2005, the provisions of which were signed into law on January 13, 2006.

The fact that ESDC doesn’t have a whistleblower protection policy doesn’t mean that ESDC doesn’t have whistleblowers and as those whistleblowers would quickly find out if they went to a lawyer it doesn’t mean that they aren’t protected if they blow the whistle on ESDC’s bad practices. Further irrespective of what management has failed to advise them of, ESDC employees should also know that they are likely to be much more protected if they blow the whistle than if they do not. What does ESDC’s failure to follow the law by not having a whistleblower policy in place that it circulates to its employees mean? One thing it means is that in ESDC’s governmental culture a focus on other things takes precedence over these kinds of good governance measures. Does it also reflect a reluctance on the part of ESDC management to curtail internal misconduct including (as required by law) by encouraging that it be reported?

As a practical matter ESDC’s failure to provide and promulgate the required policy makes it more probable that ESDC whistblowers will report ESDC misconduct to outside agencies rather than internally and it also makes it less likely that officials higher up in the ESDC organization will wind up coordinating or cooperating in investigations that ensue or even know about them.

The Investigation That Could Be Going On

What activities of ESDC with respect to Atlantic Yards might be getting investigated right now? An intriguing hint might be seen with respect to the indictment of government officials in Yonkers which very importantly relates to a Forest City Ratner project. (Forest City Ratner is, of course, the developer of Atlantic Yards.) The indictments were with respect to an illegal scheme whereby Forest City Ratner paid public officials in Yonkers for a vote in the Yonkers City Council approving their project. (See: Thursday, January 7, 2010, Got “Bilked?” The New York Times Biased Report on Federal Investigation Involving Forest City Ratner.) Forest City Ratner has not been indicted yet with respect to those events nor have any of its “employees” but as part of the scheme Forest City Ratner did agree to engage as a “consultant” one of the indicted public officials even though it is clear that they certainly knew of the indicted official’s illegal conduct since the furnishing of that consultancy position was itself part of the indicted conduct. For more on how the fact pattern in Yonkers comports with the probabilities of a future indictment of Forest City Ratner see the post we linked to above.

Velella Investigation and Indictment

Senator Velella (and two others, his father and also an official from the housing agencies for whom I worked) eventually went to jail for patterns of illegal conduct that were quite similar to what happened in the Yonkers indictment situation. Guy Velella was indicted in 2002 on 25 counts of bribery and conspiracy for allegedly accepting at least $137,000 in exchange for steering public development contracts to parties from whom he was receiving payments. The charges involved illegal solicitations for far greater sums, “more than $250,000.” See the District Attorney’s May 9. 2002 Press Release and the Times article: State Senator Quits in Deal Over a Bribery Indictment, by James C. Mckinley Jr., May 15, 2004. (Years before in 1993, Velella was accused of fixing local school board elections though no charges were filed.)

The charges ranged from steering subsidized housing projects to developers to fixing the bid process so that contractors would get bridge painting contracts by paying to have their award politically influenced. One such bridge painting contract fix involved a contractor who had submitted a $37.7 million dollar bid to paint the Verrazano Narrows Bridge. That bid was actually supposed to be the low bid for the Verrazano but, at least with respect to another bridge painting contract also being “fixed” (the Dunn Memorial Bridge) there were concerns about whether the contractor was a "responsible" bidder because of past safety violations.

Shades of Velella

When looking at both the Yonkers indictments and the facts that emerged respecting events that sent Senator Velella and his cohorts to jail one has to wonder how distinguishable or different are the fact pattens and conduct of government officials with respect to Atlantic Yards, not to mention some of the overlapping patterns associated with the Columbia University expansion eminent domain case. Atlantic Yards (similarly the Columbia case) involves political manipulations to confer a massive mega-monopoly and an astounding heap of subsidies on a developer without any real, true or credible bid, and without any accompanying cost benefit analysis despite neutral and convincing analysis that the only actions now being taken ESDC and the city will result in net losses to the public.

Things Seen First Hand or Not Seen at All

I learned from the Velella investigation things that, until you have seen them first hand, may seem difficult to appreciate. One is how the smell of something wrong can, with due investigation, can escalate from a few facts and leads to a treasure chest of documenting evidence. (Velella and his cohorts pled guilty rather than stand trial. Velella also surrendered his law license.) Another is how investigations take on a life of their own when investigators know they are on to something. It probably helps when there are multiple investigators (or the possibility of them) following up on a scent because then none of them want to risk being considered lax in their follow-up either for a perceived lack of investigative skill or deference to the investigated. I learned that while people will tell you things that give you a clear general idea of what is going on (thus encouraging the investigators to steadfastly persevere) there may be delay and lull as those same people express reluctance to testify or provide more essential details. I learned that as much as you may think you know, it may still be only the tip of the iceberg. I also learned that late in the game additional information can flood in the most unexpectedly strange ways surprising those who are suddenly its recipients.

One thing of particular importance that I learned is that sometimes when bad things are happening that officials in power actually know about and want to stop, bad things those officials actually have the ability and probably duty under most conditions to stop, that the investigators may not want those bad activities halted. Instead the investigators may want more time to observe and collect evidence as the bad activities continue. Colloquially put, they will encourage that the perpetrators be given enough rope to hang themselves. It is not that investigators can order an agency to allow a continued breaking of the law or bad practices but you may find them strongly suggesting postponement of corrective action. It is uncomfortable but the investigators can provide some assurance that in the end when everything else comes out that they will be able to vouch that you were cooperating.

To whom might investigators be suggesting such things? Unless you are actually yourself amongst the small group of public officials to whom they are directly making such requests you are unlikely to be aware that such requests have been made or are being operatively honored. That may pose some quizzically challenging conundrums for observers trying to figure out why it seems bad actions are being tolerated. Who knows what conclusions observers will reach? I previously reported that when City Councilman Brad Lander was a candidate for the City Council office he recently won, he asserted that he “was the lone voice calling attention to corruption at the Pataki-era NYS Housing Finance Agency” (the Agency where I worked) which he said “had become a corrupt candy store.” There are many reasons a political candidate might resort to making those kinds of charges during a campaign: One of them is that from Mr. Lander's vantage he had no idea how much toil was going on internally at the agencies to foil the bad guys.

Only Those Who Need to Know

The fact is that investigations are conducted on a need to know basis. Even though some of us at the agency were close to the core of the Velella investigation and its very origin and even though we participated in and contributed to the investigation, there was much that the investigators did not tell us and that we did not know. Similarly there were other officials or public employees who also knew of some aspects of the investigation (in some cases less than we knew) but did not know how much they did not know. Some may have specifically known they didn’t know everything but still didn’t know what they didn’t know. A couple of things to note in this regard: It’s not a bad formula to encourage good behavior and secondly, since you yourself don’t know exactly where your puzzle pieces fit in when you provide them to investigators it is good to be vigilant and meticulous about the truth.

When Whistleblowers Don’t Come Forward

The willingness of whistleblowers to come forward is invaluable to maintaining a good public agency environment. While I also have praise for whistleblowers it should be noted that they need not be acting altruistically; it is also in the whistleblower’s own interest to do the right thing. Not coming forward when the opportunity presents itself, especially when one is in the higher echelons of public service, can have a price. I empathize that it can be extraordinarily difficult to come forward. There is almost always the implicit assumption to be made when one sees bad conduct high up in government that such conduct exists because it is tolerated by the `powers that be’ with the belief that it is supported as high up perhaps as a mayor or a governor.

A case in point I can offer is the scandal that occurred at the New York City Housing Development Corporation (HDC), a housing finance agency that is, coincidentally, expected to be asked to provide a vast amount of subsidized financing to the no-bid Atlantic Yards. As was ultimately disclosed and written about extensively, including in a series of scathingly detailed articles* by Tom Robbins that appeared in the Village Voice, the Executive Director of that agency was involved in considerable personal misconduct at the expense of that agency.

(* Some of those Tom Robbins articles include: The Lush Life of a Rudy Appointee: How a Politically Tied Aide Spent a Quarter of a Million Dollars on Food, Fun, and Travel, Tuesday, April 9, 2002, Harding's Conflict of Interest: After Pledging to Steer Clear of Dad's Law Firm, Son Aided a Client, Tuesday, July 9, 2002, Russell Harding's Vanity Fair: 'Voice' Trail Led to Charges, Tuesday, March 18, 2003, Harding's Hustle: Bonuses, Bargains, and Strip Clubs at the Housing Development Corporation, Tuesday, May 7, 2002, Harding's Collateral Damage: Bloomberg Drops the Hammer—Selectively, Tuesday, May 13, 2003.)

No doubt the sense of the agency employees (and potential whistleblowers) was that the conduct was tolerated by the mayor at the time, Rudolph Giuliani. The Executive Director in question, Russell Harding, was a son of Ray Harding, the head of the Liberal Party with whom Giuliani was aligned and someone whose political endorsement was politically important. For one thing, it meant having Guiliani’s name at the head of on an extra column when voters went into the voting booth.

It must have seemed to many within the agency that because of Giuliani assumed endorsement and/or tolerance of the misbehavior that there would have been great professional career risk to coming forward to report impropriety and further that there were forces at work to assure that it all would be kept from coming to light. But come to light it did. And when it came to light, those that were perceived as having tolerated (or perhaps merely failed to detect) the misbehavior suffered professionally from what they did not do instead of from what they did do. Some senior officials left the agency. Others who remained were not promoted. As onlookers we can only assume what the connections were. I know that much of the talk on the outside was that it was unfortunate that good capable public servants were hurt because they did not know what to do when those politically above them were loathsomely perceived as on the side of misconduct.

One Tom Robbins Village Voice article specifically addresses the failure of whistleblowers to come forward: Where Are the Whistle-Blowers? Why City Workers Don't Speak Out, by Tom Robbins Tuesday, July 2, 2002. According to Robbins the misconduct went unreported although:

How widely known were Harding's abuses? "Everybody knows" was the answer. "And everyone is terrified."

and

the goings-on were common knowledge

When Russell Harding pled guilty to fraud and conspiracy charges (in addition to the charges respecting child pornography on his office computer) he admitted to stealing more than $400,000 from the housing agency he once headed and agreed to serve up to 63 months in prison. Much of his stealing from the Agency was done by extravagant and ostentatious use of the agency credit cord and expense account for personal travel and dining. It was documented in excruciating detail right down to The Village Voice publishing an image of a receipt for the morning bagel Harding’s regularly had his agency pay for.

ESDC’s Failure to Adopt Required Whistleblower Policy

This brings us back to the glaring absence of the whistleblower protection policy that ESDC and its sister agencies failed to adopt as required. We must reiterate that the absence of whistleblower policy doesn’t mean that there aren’t whistleblowers at ESDC or that they aren’t entitled to protection, just that ESDC is running an operation where employees are not being informed that it is public policy to bring misconduct at the agencies to light.

Ideally, a public agency should promulgate the whistlblower protection policy it is required to have and make it a focus in a number of ways. The policy should be circulated to the employees on a regular basis. It should be furnished to all new employees so that they are aware of the policy from the very first day of their employment. The policy should be regularly reviewed by the agency’s board so that the board can make sure it is up to date, and be reminded of it importance while demonstrating to others that the policy is regarded as important enough to justify regular consideration. The policy should also be on the agency’s website so that employees can readily and unobtrusively access it (for example from home or a library) without feeling that they are calling uncomfortable attention to themselves.

I therefore expected that if ESDC had the policy it is required to I would likely find it on ESDC’s website. I hoped I would find it there even though ESDC is singularly nontransparent when it comes to the use of its website to provide information about the agency. This is appearently at least partly due to the fact that ESDC is lax about following requirements. (See: Thursday, December 17, 2009, Due diligence on the BALDC leads down a rabbit hole, while other state agencies are more transparent than ESDC/JDA/BALDC.) As for its website, it should be noted that it was just revised though again the agency apparently did not invest the kind of resources it could have in this public interface. (See: Tuesday, February 02, 2010, ESDC debuts new, more transparent web site; drops "New York Loves Business" but does claim it's "Open for Business".)

When we did not find a whistleblower policy on ESDC’s website we began to suspect what turned out to be true: ESDC and its co-located sister agencies never adopted a whistleblower protection policy. This was confirmed when contacting ESDC to obtain a copy of the required policy. We were told that “ESDC does not currently have such a policy.” I was told however that ESDC would be adopting a whistleblower policy because it was recognized that amendments to the Public Authority Accountability Act were enacted last fall which will be “effective this spring” require public authorities to have such a policy. (NOTE: I think this is a relatively significant scoop worth brandishing for other representatives of the press to pick up.)

The Law Has Required a Whistleblower Policy Since 2006

I responded by making clear that while the amendments that take effect this spring revisit the requirement of having a whistleblower policy with more extensive provisions to supervise the authorities, what I had been looking for was a policy adopted in compliance with and pursuant to the original Public Authorities Accountability Act of 2005. On its face the act’s provision applies to ESDC and we were not advised that there is any reason that ESDC believes it doesn’t.

More specifically, pursuant to that original act, signed into law on January 13, 2006 as Chapter 766 of the Laws of 2005:

§ 18. Title 2 of article 9 of the public authorities law is amended by adding a new section 2824 to read as follows:

§ 2824. Role and responsibilities of board members. 1. Board members of state and local authorities shall . . .

(e) establish written policies and procedures on personnel including policies protecting employees from retaliation for disclosing information concerning acts of wrongdoing, misconduct, malfeasance, or other inappropriate behavior by an employee or board member of the authority, investments, travel, the acquisition of real property and the disposition of real and personal property and the procurement of goods and services;

The act provided that it would take effect immediately and apply to the public authority fiscal year beginning on or after January 1, 2006. Ergo, ESDC was required to a have a whistleblower policy from 2006 on.

Promulgating the Policy

As for putting the policy on it website, the act doesn’t require that, but it does encourage other information to be on the agency’s website and other agencies have taken the hint to put their policies there.

The act does specify that the authorities' policies for the disposition of their property should be on their websites (and presumes Procurement Guidelines will be there too) and more generally provides:

To the extent practicable, each state authority shall make accessible to the public via its official internet web site documentation pertaining to its mission, current activities, most recent annual financial reports, current year budget and its most recent independent audit report unless such information is covered by subdivision two of section eighty-seven of the public officers law.

What might such a policy look like? I can point you to the policy you can find on the website for the New York State Housing Finance Agency and its sister co-located sister agencies (on a page that makes many other policies available). It is not bad policy if we don’t say so ourselves. It looks like this:

10011401HFAWhistleblowerPolicy

Toughened Whistleblower Requirements Coming in March

More whistleblower requirements that ESDC is supposed to follow are coming effective March 1, 2010 with the amendments to the Public Authorities Reform Act of 2009. These amendments to the 2005 Public Authorities Accountability Act strengthen the original whistleblower provisions by requiring a Whistleblower Access and Assistance Program in consultation with the Attorney General that (i) establishes toll-free phone lines available to employees, and (ii) offers advice and consultation on state and federal laws and further provides that an authority like ESDC may not fire, discharge, demote, suspend, threaten, harass, or discriminate against any employee for their whistleblower actions.

Don’t Assume What’s Not Happening

As I opened by saying, I think the worst thing the Pataki administration ever did was launch the atrocity known as Atlantic Yards, but the best thing I remember that it did was largely unknown: it supported the kind of investigation that could stop Atlantic Yards dead in its tracks.

I can easily imagine myself in the ESDC environment and I often see familiar faces at ESDC, people with whom I have worked. While I regularly wonder about the unjustified support for Atlantic Yards that I see coming from ESDC and other agencies, including the city agencies accountable to Bloomberg, I don’t want to be quick to judge individuals. You never know what is really going on or what you might discover their roles are if you could delve below the surface.

As you can tell from looking at the indictment of Senator Guy Velella, much can be happening for a long time before the fact that correction and redress is coming becomes apparent. The Velella indictment concerned actions that went as far back as late 1995. Velella was not publicly indicted until May 2002. Treasure troves of information that went into that indictment were found as late as the fall of 1999 but the investigation was underway for a long time before that. Still, justice takes time. The Senator didn’t plead guilty or resign his office until two years after his indictment in May of 2004.

Similarly, when Russell Harding finally pled guilty in March of 2005 (he was indicted in March 2003) it concerned misconduct that reportedly went all the way back to 1998. The Tom Robbins articles disclosing everything in detail started in April 2002.

Never Assume Information Will Stop Coming

Information never stops coming out and you never know from where. We mentioned Russell Harding, who ran the New York City Housing Development Corporation and should have had the whistle blown on him by the officials who worked under his direction. He eventually went to prison for felony (embezzlement, child porn) and came out in 2007. In August of 2008 Mr. Harding started a blog, called Rudyveritas.com. While the blog is perhaps suspect due to some obvious anger on his part, Mr. Harding started telling some convincing-sounding stories about misconduct by those high up in the Giuliani administration with whom he worked. (See: Saturday, September 27, 2008, In tale of Giuliani influence, insight into the flexibility in size of affordable housing units.)

When I see all the faces in the ESDC panoply, one thing I say to myself is that any of those people could already be whistleblowers. Some of them, unbeknownst to most of the rest of us, may even be very involved in assisting investigators to investigate the things that seem so very wrong at ESDC. And even if the individuals in question are not whistleblowers yet, they may soon be whistleblowers when ESDC finally, belatedly issues and circulates to its employees its new whistleblower policy which will apparently be at about the same time that the extra whistleblower protections kick in from the Public Authorities Reform Act of 2009.

Interplay of Whistleblowers and the Race for Attorney General

I would be remiss if I did not observe that the new law that brings the Attorney General’s office directly into the whistleblower picture could cause some synergistic dynamics to come into play. If Andrew Cuomo, the current attorney general, runs for governor as expected, the office will be taken over by a successor. We have already speculated that the race amongst the candidates to replace Mr. Cuomo as attorney general logically could turn into a race to investigate Atlantic Yards as well. That could mean a race between the candidates, and if needs be a race to show up Mr. Cuomo as well if he has not done a good job or appears to have been deterred from an active investigation by campaign contributions (read on).

Among the candidates interested in the Attorney General position is Assemblyman Richard Brodsky (as we wrote before) who made his bones as an expert on misconduct at public authorities, and with his investigations into the financing of Yankee Stadium, exactly the kind of abuse that is being ratcheted up a few levels with the financing of the Atlantic Yards basketball arena. Another interested candidate is former State Superintendent of Insurance, Eric R. Dinallo. Mr. Dinallo is not in a position to feign naivete about abusive favoritism with respect to the handing out of housing subsidies since his wife just stepped down as the head of the housing finance agencies where I used to work.

The Justice That Money Can Buy? How Atlantic Yards Is Already Before the State Attorney General’s Office

The dynamics of all this vying for position will all be complicated by political campaign contributions. Right now that can be seen most visibly with respect to Mr. Cuomo. The Times just ran an article about how “the real estate industry was the top giver to Mr. Cuomo” [the current attorney general now expected to run for governor (and someone I worked with on housing at my old agencies)] and how “over the past three years as he amassed $18 million, leaving him with a five-to-one advantage over Gov. David A. Paterson, a fellow Democrat.” (See: Real Estate Interests Help Cuomo Gain a Big Edge in Cash, by Christine Haughney, January 28, 2010.) The article says that in the last six months 17 percent of Mr. Cuomo’s money came from the real estate industry with it being 20 percent of what he has gotten from individuals.

As the Times puts it:

The money has come as Mr. Cuomo’s office has been flooded with complaints about construction in new developments, especially from buyers who are trying to break their sales contracts, claiming that builders are not living up to their promises.

And the Times also noted that “Bruce C. Ratner, the Atlantic Yards developer” was among the “prominent givers” to Mr. Cuomo, also noting that:

Many of the major developers’ projects, like the World Trade Center and Atlantic Yards, are likely to come before the next governor.

The Times reported that Mr. Cuomo purportedly has procedures to protect against conflicts of interest from those developers considered to have matters before his office:

Aides to Mr. Cuomo said he had set up a rigorous screening process that requires donors to certify that they have had no matter before his office for the past three months. They say he keeps a firewall between his campaign and the operation of his office, and goes further than any other state official in vetting contributors.

In this regard, the Times noted that three donations Mr. Cuomo had accepted from developer Shaya Boymelgreen “totaling $8,000 from Boymelgreen-related companies between Jan. 15, 2008, and May 11, 2009" would “After an inquiry from The Times” be returned by Mr. Cuomo. The Times had been able to document that “residents at the Newswalk building in Brooklyn” who were suing Boymelgreen had contacted Cuomo’s office about construction problems in 2006 and 2007 and that Mr. Cuomo’s office has taken no action.

The Times did not mention that Mr. Boymelgreen, who had given his political contributions to Cuomo “while his empire was unraveling,” was also intricately involved in Atlantic Yards related litigation where he colluded with Forest City Ratner to take property from Henry Weinstein for the project. Making Mr. Boymelgreen’s intricate relationship to the Atlantic Yards even more Byzantine, the very oddly shaped Atlantic Yards mega-project footprint wraps around the Newswalk building in a very suspicious way.

While the Times mentioned that Atlantic Yards is “likely to come before the next governor” the Times did not point out that Mr. Cuomo has already been asked as Attorney General to investigate Forest City Ratner in connection with Atlantic Yards, nor did it report that Mr. Cuomo has returned Mr. Ratner’s contributions to him. The article also passed up the opportunity to mention the Times’ own business relationship to Mr. Ratner.

Pending Requests to Attorney General Cuomo on Atlantic Yards

State Senator Bill Perkins has asked the Attorney General to issue an opinion with respect to whether the issuance of the Atlantic Yards arena bonds was legal. (See: Wednesday, December 23, 2009, Perkins to Cuomo: issue an opinion as to whether AY bond process was legal.) Perkins had already sent to Cuomo (and also State Comptroller DiNapoli) a copy of an earlier letter to the Governor raising Atlantic yards legal issues. (See: Saturday, December 19, 2009, Hail Mary or silver bullet: Perkins, raising questions of fraud in arena bond sale, asks Paterson to put Atlantic Yards on hold.) Develop Don’t Destroy Brooklyn has asked that the Attorney General Cuomo (and State Comptroller Thomas DiNapoli) investigate the issuance of the bonds. (See: Cuomo and DiNapoli Urged to Investigate Ratner's Arena Junk Yard Bonds, December 14, 2009.) Noticing New York sent its own letter similarly asking for such an investigation. (See: Sunday, December 13, 2009, To Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli: Investigate and Halt Issuance of Arena Bonds.) In addition to giving campaign contributions to Cuomo, Ratner is giving campaign contributions to DiNapoli. (See: Wednesday, January 06, 2010, Ratner, no longer a campaign contribution "refusenik," is already investing in Cuomo and DiNapoli 2010.)

All of this is to say that the issue of Atlantic Yards is clearly front and center before the Attorney General’s office. If Mr. Cuomo has not already begun an investigation of Atlantic Yards the dynamic could be very interesting when the new whistleblower-related requirement for public authorities take effect in March and are ultimately investigated (or not) by Mr. Cuomo and then by the Attorney General who is the successor to Mr. Cuomo. And who would like to guess how all this will play out? We note, by the way, that while it has been suggested that the provisions of the 2009 reform act taking place in March will not be retroactive, the effect of stronger whistleblower provisions cannot help but have a retroactive effect when bad conduct being reported has taken place in the past.

By the way, if anyone wants to suppose that Mr. Cuomo or his successor as state attorney general either aren’t currently investigating or won’t eventually investigate, I will point out that investigations don’t necessarily have to be conducted only by the state Attorney General’s Office. It was a local district attorney’s office (of which there are many with the power to act) that sent Senator Velella to jail and it was federal investigators who convicted the NYC’s Housing Development Corporation’s Russell Harding (and some others*) sending him to jail. And that’s all the more reason for Cuomo and his successor not to want to be shown up as lax in their responsibilities.

(* Former city housing commissioner Richard Roberts pled guilty to lying about receipt of a $38,000 SUV and Harding aide Luke Cusack also admitted conspiracy and theft.)

Pataki vs. Cuomo

Whether or not Mr. Cuomo ultimately investigates vigorously I remind you that Governor Pataki, who replaced Mr. Cuomo’s father as governor, did, as we noted at the outset, support the kind of investigation we are talking about.

December’s Little Birdie?

One of the last times someone solemnly asked me what I expected to happen next with respect to Atlantic Yards was on a snowy Saturday coming home from the public meeting in Harlem where State Senator Bill Perkins requested Governor David Paterson to declare a moratorium on the state’s abuse of eminent domain (followed up by a quick impromptu press conference with the Governor). ESDC was poised to assist Forest City Ratner in with the ill-advised issuance of arena bonds the developer was nevertheless desperate to see issued. (See: Saturday, December 19, 2009, Hail Mary or silver bullet: Perkins, raising questions of fraud in arena bond sale, asks Paterson to put Atlantic Yards on hold.) We said then that we really didn’t know what would happen because the wild cards were impossible to predict and we speculated that something might turn up in the way of indictments.

Oddly enough, it was just a few business days later that the indictments concerning Forest City Ratner’s Ridge Hill project in Yonkers were announced. (See: Wednesday, January 06, 2010
Forest City Ratner, unnamed/unindicted, cited as giving indicted man consulting job after he got Yonkers Council Member to change vote on Ridge Hill.)

Did I actually know something back in December or was I just a good judge about the kind of things that might be happening behind the scenes?

Got “Bilked?” The New York Times Biased Report on Federal Investigation Involving Forest City Ratner

What’s your definition of “bilk”? We think that these days “bilk” generally evokes the concept of someone being swindled out of something valuable by fraud, trick or deceit, as in any of the following usages in the New York Times (here and here- at the risk of going just a tad too far to be sure we make our point):

. . . Irving Picard, the trustee for the investors bilked by Bernard L. Madoff, . .

. . . where Mr. Stanford, 59, has been held since he was indicted in June on charges of bilking investors through a scheme involving Antiguan bank certificates.

Marc S. Dreier, once a high-flying New York lawyer who orchestrated an elaborate fraud scheme that bilked hedge funds and other investors of $700 million. . .

Corporations bilking customers for profits with whiz bangs and geegaws?

The military industrial complex and crooked war profiteers bilked us many times over the bank bailout cost. . .

. . The New York Times detailed how Wachovia had provided bank services to fraudulent telemarketers who bilked the elderly of hundreds of millions of dollars.

A man convicted of bilking Colombians out of hundreds of millions of dollars in a pyramid scheme has been extradited to the United States.

. . . the plaintiffs sued Interior in 1996, alleging that Interior's mismanagement of the land accounts had bilked American Indians out of billions of dollars since the accounts were created in 1887.

. . . Texas financier R. Allen Stanford’s trial on charges he bilked investors out of $7 billion as part of a massive Ponzi scheme . .

Accused Florida Ponzi mastermind Scott Rothstein has decided to plead guilty to charges he ran an investment scheme that bilked clients out of more than $1 billion . . .

Times Says Ratner Was "Bilked" by Public Officials

Why do we want to be so sure of the meaning conveyed by the New York Times use of word “bilk”? Because of the story the Times wrote today about a federal corruption case in Yonkers where three individuals, two of them public officials, have been indicted for taking improper payments in connection with two development projects in Yonkers. One of them is Forest City Ratner’s $630 million, 1000-apartment, 81-acre Ridge Hill project. The Times reported that Forest City Ratner has allegedly been bilked by the public officials. Specifically, the Times article said that the indicted public officials:

. . are accused of bilking two developers of tens of thousands of dollars and funneling the money and other favors to Ms. Annabi in return for her support.

(See: Ex-Official in Yonkers Faces Charges of Corruption, by Nate Schweber, January 6, 2010.)

Ratner, a Specialist in Public Officials, Is “Bilked”?

So the Times is reporting that Forest City Ratner, a real estate firm whose specialty is collecting government subsidies through its relentless cultivation of public officials, was outsmarted (as the press release from the U.S. Attorney’s Office for the Second District says) by:

SANDY ANNABI, the former Democratic Majority Leader of the Yonkers City Council, charging her with conspiracy, bribery, extortion, false statements, and tax crimes. The Indictment also charges ZEHY JEREIS, the former head of the Yonkers Republican Party, and ANTHONY MANGONE, a Westchester County attorney

How ironic that the very same day, prior to news of the indictments emerging, Atlantic Yards Report had run two stories about the additional new funds in the form of campaign contributions that Forest City Ratner was sending in the direction of New York politicians it hopes to influence. Two of those politicians are public officials who have been asked to investigate Forest City Ratner’s Brooklyn Atlantic Yards project: Andrew Cuomo, the State Attorney General, and Thomas DiNapoli, the State Comptroller. Cuomo is, of course, also valuable for Ratner to cultivate since Cuomo is likely to become governor after challenging the sitting governor, David Paterson, in the primaries. (See: Wednesday, January 06, 2010, Ratner, no longer a campaign contribution "refusenik," is already investing in Cuomo and DiNapoli 2010 and Wednesday, January 06, 2010, More "sewer money" from Forest City to Housekeeping accounts, including $10,000 from a Cleveland Ratner to New York Senate Republicans.)

Public Official’s Pathetic End of the Deal

But is the Times anywhere near accurate in representing that well-heeled Forest City Ratner got the short end of the bargain when Ms. Annabi sold her City Council vote to approve Forest City Ratner’s $630 million 81-acre project? The Times’ own story makes Ms. Annabi’s end of the bargain sound rather pathetic:

“She went from council member to council member for sale,” said Joseph M. Demarest Jr., the assistant director in charge of the New York field division of the Federal Bureau of Investigation. “She sold her vote for baubles and trinkets.”

And the Times reported that the Forest City Ratner Ridge Hill project “is the city’s largest private undertaking.” It sounds to us instead as if Forest City Ratner got a pretty good deal and likely everything it was bargaining for. It doesn’t look at all like it was swindled.

How It Adds Up In the Ratner Scheme of Things

Without any apportioning, the Times reports that for both the Forest City Ratner project and the other project involved Ms. Annabi allegedly accepted a figure just under $167,000. Mr. Jereis was also receiving funds at the rate of $5,000 a month for 12 months. The two January 6th Atlantic Yards Report stories mentioned above (subtracting to prevent double counting) respectively report on $20,600 and $72,064 in campaign contributions. And that’s nothing when you move on to start aggregating Ratner’s other expenditures for influencing politicians like the $400,000 that was paid to former U.S. Senator Al D’Amato’s lobbying firm “in 2006 and 2007 to lobby federal legislators regarding eminent domain and other issues important to the developer of the $4 billion Atlantic Yards project in downtown Brooklyn.”

As we previously made the point, Forest City Ratner is a mega-maestro when it comes to cultivating politicians for the purpose of subsidy collection and their other goal, the avoidance of competition.

Misuse of “Bilked” Misleads on Necessary Distinctions

A lot hinges on the inaccurate impression the Times conveyed with its apparent misuse of the word `bilked’ including whether Forest City Ratner will likely, itself wind up indicted or cripplingly besmirched. The way the Times reports it, it seems as if neither of these things is likely to happen, but the Times has notoriously displayed a continually recurring bias when it comes to reporting about Forest City Ratner. Yet again, the Times article on the ongoing federal investigation is another instance where the Times did not report its business partner relationship with Forest City Ratner.

In our professional life as a public official we often encountered firsthand the quandary and importance of making certain distinctions along these lines. Background searches on candidate firms that public agencies are deciding whether or not to do business with sometimes disclose situations where those firms have had documented interactions with organized crime. (Real estate and construction can be a rough business.) It may be clear that a firm paid bribes to criminal intermediaries to obtain the award of construction contracts by a rigged bid. Often enough, public officials were involved. The question then becomes whether the firm can be considered the victim, whether it can be considered to have had no choice but to pay a gate-keeping criminal enterprise in order to obtain business that it should otherwise have been freely able to obtain by honest bid. On the other hand, the firm is not always the victim. Sometimes the firm itself initiated events because a rigged bid, sidestepping a legitimate one, was its preferred option for obtaining the contract.*

(* We must note that in the case of Atlantic Yards there was never any meaningful competitive bid on the proposal to give Forest City Ratner a monopoly on the 22 acres it sought and was awarded. This was apparently due to Forest City Ratner’s political influence.)

Depending on How the Story Is Told . . .

You can see that the distinctions are not easy to make and will depend on how someone tells the story and shades the facts. While a jury needs proof beyond a reasonable doubt to hand down a criminal conviction the question of whether a public agency should do business with a firm that was not actually convicted involves many more shades of gray. (It’s usually the people working at a firm who get convicted, not the firms themselves. If individuals do get convicted, they get replaced, though sometimes the same pattern of conduct is repeated by those who step in to replace them.)

We lay out the importance of making these distinctions because essentially the same issues are coming into play with respect to what will happen vis a vis Forest City Ratner in the ongoing federal investigation in Yonkers. Was Forest City Ratner the victim or was it willingly complicit or perhaps the initiator of the scheme? Was it extorted against its will to bribe Ms. Annabi or, given that it was a rather good deal for them, was it exactly what FCR wanted? If it was the latter, then Ratner was not the victim: Instead it was the Yonkers public that was “bilked” by Ratner’s scheme. Tellingly, as to whether Forest City Ratner was willingly going along with the conspiracy that was charged, it has been reported that:

At no time during these meetings and agreements with Jereis did Ratner go to the FBI, according to two sources familiar with the investigation.

This was not in the Times story. (See instead: Yonkers pol Sandy Annabi took bribe to OK Ratner deal, feds say, by Robert Gearty and Greg B. Smith, January 7th 2010, Daily News, Thursday, January 07, 2010, From the U.S. Attorney on the Yonkers case: "the developer enlisted the [now-indicted] Jereis," but he "demanded" a consulting contract from FCR and Forest City Ratner Allegedly Did Not Tell the FBI About Political Operative's Alleged Bribery Scheme.)

We are also left wondering how one of the scheme quid pro quos that is alleged with respect to Zehy Jereis, the other public official, could have been effected without Forest City Ratner’s willing complicity: Two weeks after Annabi switched her vote Forest City Ratner signed a contract hiring Jereis as a "real estate consultant" for $60,000 at $5,000 a month. If it was after the vote had already occurred, what compelled Forest City Ratner to follow through on executing that contract except for “honor among thieves” and perhaps wanting to have a good reputation in place when they sought to buy their next politician?