Noticing New York's Hearing Testimony Re New York City Housing Development Corporation's Subsidization of Ratner's Atlantic Yards Mega-Monopoly

(Above, a collection of government officials, present to listen to testimony, just before the HDC hearing.)

The New York City Housing Development Corporation held an important hearing today on its proposed very substantial subsidization of Forest City Ratner's Atlantic Yards mega-monopoly. Here is Noticing New York's testimony.

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July 18, 2012

New York City Housing Development Corporation
110 William Street
New York, NY 10038

Re: HDC’s proposed issuance of up to $91.96 Million in tax-exempt bonds to (plus award of accompanying additional subsidy) to fund Building 2 (461 Dean Street in Brooklyn) of Forest City Ratner’s proposed no-bid, eminent domain-abusing Atlantic Yards mega-monopoly


Dear New York City Housing Development Corporation,

The following is Noticing New York’s testimony respecting the proposed issuance of tax-exempt bonds for the above mega-monopoly.

Here are changes that should be made to the federal law under which tax-exempt bonds are permitted to be issued:

• No issuance of tax-empt bonds should be permitted for a project that has been brought about by the abuse of eminent domain. The U.S. Supreme Court’s Kelo decision is one of the most unpopular of all its recent decisions (perhaps even ranking above the Citizens United decision). A huge preponderance of the American public strong disagree with it. States around the nation have passed enactments to circumscribe its implications. Even so, there are agencies like this one who would consider using federal taxpayer subsidies to finance such abuse. And the developer-driven abuse that occurred with respect to Atlantic Yards exceeds and was not even likely to have been permitted under Kelo. Unfortunately, the court did not take up the case to rule directly on this. Even as a local matter New Yorkers do not favor such abuse. In 1967 there was an attempt to amend the New York State Constitution to permit eminent domain-abusing projects like Atlantic Yards. The voters rejected it and the New York’s Constitution was never altered to make such a change.

• No bond proceeds should be permitted to fund projects that were not subject to competitive bid. Projects which are not the subject of competitive bid waste public funds and subsidy, breed crony capitalism and destroy democracy.

• Tax-exempt bonds should not be permitted to fund government creation or building up of private monopolies. Monopolies stultify development. They are antithetical to it because true development must partake of a diverse, richly dynamic environment of interacting elements and competitive testing of the best adaptations. Monopolies suppress development opportunities. Furthermore, in the words of Jane Jacobs: “Monopolies established by cronyism and strong-arm methods, along with pervasive extortion and corruption, falsify actual costs” [shall we note they falsify benefits as well?] Enterprises “prefer eliminating competition to competing with . . prices, quality and service.” Tax-exempt bonds are supposed to be issued by “development” agencies to foster development, not suppress it. Government officials shouldn’t replace economic ecosystems with a single privileged crony.

Why should all this be law? Because if these were provisions of federal law tax-empt bonds could not be issued for this project.

These provisions are not yet specifically part of the federal law. What is part of the federal law is that before this agency issues any tax-empt bonds it has to have this hearing so that politicians and legislators, being informed, will be forced to take accountability for doing anything as ill-advised as I have just suggested should be prohibited. If stupid things are then done despite cautions received at a hearing the laws governing the issuance of tax-exempt bonds may then be changed.

I request that HDC inform all legislators and politicians receiving a record of this hearing or inquiring about it that these recommendations were made at this hearing and that HDC further inform them that it is my recommendation any changes to the federal law enacting such restrictions should include provisions making them retroactive, by which I mean that any bonds issued ignoring the principles of these recommendations will retroactively reduce the amount of available tax-empt bond cap available to New York City and New York State. If HDC is going to use its tax-empt bond cap frivolously for a bad project the just and proper result is to take that bond cap away.

Public Agencies and Government Suing Barclays. The building for which HDC is considering issuing tax-exempt bonds will share walls and infrastructure with the Ratner/Prokhorov arena now promoting the name “Barclays.” HDC likely has cause to sue Barclays Bank over its LIBOR rate manipulation scandal. Baltimore and other municipalities in the nation are already suing Barclays. The MTA, another agency involved in the financing of this same Atlantic Yards project coordinating with HDC, has publicly stated that its legal counsel is looking at the Barclays scandal and that it will vigorously pursue “all available legal actions” to protect the MTA. HDC has been unresponsive to my inquiries about whether HDC is similarly looking at suing Barclays. My understanding is that the Barclays matter is under investigation by the State Attorney General. I presume that any presentation to the HDC board about financing this project will include in-depth information about all the possible lawsuits against Barclays that may or will be brought by HDC and other agencies. I believe that the public is also entitled to an outline of what gets described to the HDC board in this regard.

Lack of a Valid Environmental Impact Statement. The Atlantic Yards project is a project for which there is no valid Environmental Impact Statement. That has been judicially determined. This is bad not just because a proper environmental review has never been done: It is bad because the reason it hasn’t been done is that a proper review was sidestepped by fraudulent subterfuge by the developer in connection with which now-chastised government officials colluded. Whether or not there is a legal nicety by which HDC may reason this building can be financed without a proper environmental review it would not be appropriate to do so.

Character of the Developer and Prospective Project Owners. HDC needs to do its “bad apples” review of whether this developer (and prospective property owner) is suitable for the special privilege of receiving HDC financing and subsidy. Forest City Ratner is at the hub of many spokes in a wheel of indictments and various forms of bad conduct. There was the Forest City Ratner Ridge Hill prosecution, Senator Kruger’s prosecution, the recent State Attorney General Investigation resulting in a settlement concerning illegal New York City lobbying activity in connection with development that should have also have included the substantially similar activities in this vein respecting Atlantic Yards. It is not necessary for there to be an indictment or conviction of a developer for an agency to conclude that a developer is an unworthy and untrustworthy recipient of agency subsidy. A pattern of bad conduct and bad behavior and unsavory colleagues is entirely sufficient. And, Forest City Ratner’s pattern of broken promises and subterfuges is also enough.

Mikhail Prokhorov and Chinese Millionaire Investors, Prospective Owners. When HDC does its “bad apple” character reviews it will also have to look at the other prospective owners under the documents. That includes looking at the activities and conduct of Russian oligarch Mikhail Prokhorov and there are also nearly 500 Chinese millionaires expecting to get green cards by virtue of Ratner’s laughable manipulation of the federal EB-5 immigration program. This project has been put up as security for those Chinese millionaires. Thus they can become owners of the project without further HDC approval, or if HDC thinks it has a right to approve them first then those millionaires don’t have the security interest they believe Ratner promised them. The likelihood of such a foreclosure of the Chinese security interest is all the more likely given what may flow from Ratner’s recent loss of the environmental lawsuit: a required consideration of taking the Atlantic Yards mega-monopoly away from Ratner to break it up amongst multiple developers.

HDC Discretion To Reject This Project. The reason this hearing is being held is because the HDC board has discretion which it is supposed to exercise. That discretion should be exercised to reject this project. Approval of this project should not be treated as a forgone conclusion. If the board has any fears that it lacks discretion to turn down this project that feeling that its options have been constrained would highlight significantly the very reasons the cord with this developer should be cut.

HDC Has Already Financed a Forest City Ratner Project. Some HDC board members may reason that they cannot now turn down this project because HDC financed a Ratner project once in the past. Not so. In fact, the bad behavior developer engaged in respecting the HDC-financed building, now known as 8 Spruce Street, should be grounds for HDC to turn down this project. In two blackmailing episodes the developer engaged in behavior that should have chagrined HDC. It blackmailed the local community board for additional subsidy and it also stopped construction on the building, blackmailing the construction unions. Both of these incidents, particularly the latter, should have been considered threats to HDC as well. For HDC to proceed with an approval of this financing after that behavior would constitute HDC’s endorsement of such blackmailing techniques, techniques which are actually typical of the developer and facilitated by its continuing monopoly on development which government, including HDC, should now act to end.

Modular Construction As Broken Jobs Promise To The Unions. There is a possibility of this building’s modular construction, pushing the technological envelope. If not risky, the broken promises to the construction unions this represents are emblematic of how the Forest City Ratner dishonestly ignores commitments respecting its mega-project. Ratner was planning its double-cross of the unions even as he was sharing the stage at the arena opening with union representatives he was praising for their support. I am not arguing that the Ratner promise to the unions is one that needs to be honored. The unions when they supported this project did not look out for the interests of the community and consequently supported an out-of-scale project of very poor design that was detrimental to the community in many ways. Still this promise-breaking should be noted as part of an overall pattern of promises never intended to be kept even as they are made.

This Project Is Immoral. Financing this project is immoral. This project is immoral because tax-exempt bonds and subsidies should not be used to reward, buttress and facilitate eminent domain abuse, crony capitalism, government-sponsored monopoly building and grossly out-of-scale development. But that is not the whole of it.

HDC is comprised of government officials who are supposed to be acting as guardians of the public trust. This hearing is required with that notion in mind. Government officials cannot act to protect the public, they actually lose the ability to do so, if they don’t have bargaining power. Government officials won’t have any bargaining power unless the Ratner monopoly is broken up. The design of this project as a monopoly (and we will remember all the project design came entirely from Ratner) is intended to thwart public agency bargaining power. HDC’s approval of this project would buy into that construct of an intentionally emasculated government by furthering Ratner’s monopoly when HDC has discretion to reject it instead.

HDC should reject this project and allow it to fail. The Atlantic Yards development can and should be taken away from the developer and broken up and distributed among multiple developers. That way the public and agencies like HDC acting as guardians can have some bargaining power and influence over the project as it is developed. That way the community's better UNITY plan (which calls for multiple developers) can be implement and respected.

Assemblyman Hakeem Jeffries has described Atlantic Yards as being presented to the community as a “field of dreams” with the reality delivered being a “graveyard of broken promises.” It isn’t really important which local politician we ascribe such an insight to because they all see it. What is important is to realize that the entire mega-project is fabricated on a foundation of false promises from which Ratner blithely and routinely expects to escape accountability and there can be no reasonable expectation of enforcing delivery of any true benefits from Ratner while Ratner still has the upper hand in a monopoly situation. HDC should have learned a microcosmic version of this lesson in connection with the Spruce Street project.

Scarce Subsidy Delivered to Ratner Is Misdirected. Delivery of scarce-resource subsidy to Forest City Ratner for out-of-scale development hogs and misdirects subsidy that could and should be better used elsewhere, including smaller developers and not-for-profits with a better chance of it benefitting minority developers.

HDC needs to pay attention to the unhappy saga of abuse. None of us has amnesia about Ratner’s misdeeds and we are not about to get it.

• They say that Atlantic Yards meant development?

Well, it’s just not so. . .

And it’s so NOT just.

It meant: Tearing down new construction and valuable historic buildings the community planned to preserve, leaving vacant lots for decades, halting the economic activity construction because it was competing with Ratner in his own backyard.

• They say that Atlantic Yards meant good government? Good procedures, protections for the community, considered carefully weighed decisions. Good government?

Well, it’s just not so. . .

And it’s so NOT just.

It meant falsifying findings to declare this area was blighted. (Even Senator Schumer, a supporter of this project, said that this area, close to his home, where he bicycled, was not blighted,) This project was about illegally giving a mega-development monopoly to Bruce Ratner, over 50 acres of Brooklyn, 30 of them contiguous acres around Atlantic Yards. This was about corrupt courts and agencies rigging the delivery of a wish list of special benefits to a politically-connected developer.

• They say that Atlantic Yards meant creating an affordable housing environment?

Well, it’s just not so. . .

And it’s so NOT just.

It meant tearing down housing that was truly affordable to the neediest, luxury condos, and housing the market was providing for anyway, setting up a Ratner sink-hole to beg for housing subsidies- preventing those subsidies from being used elsewhere and where most needed, Ratner only giving back the minimum that those federal (and local) subsidies always require, not a jot or a tittle more, and it means vacant lots.

• They say that Atlantic Yards meant jobs and employment?

Well, it’s just not so. . .

And it’s so NOT just.

It meant evicting businesses that were providing jobs, fake Ratner “jobs” programs- Deceptions where people even worked for free, strung along by false hope, sidestepping the creation of jobs with cheap, possibly dangerous modular construction, fluffed-up incredibly inaccurate jobs figures, minority and community job promises not meant to be monitored.

• They say that Atlantic Yards meant public investment.

Well, it’s just not so. . .

And it’s so NOT just.

It meant a net negative loss to the public of hundreds of millions of dollars, public subsidies of $2 to $3 billion dollars, including diverted taxes that won’t be paid and will go instead to pay for things like the Ratner/Prokhorov private arena. It means property given to Ratner lying fallow and vacant and off the tax rolls.

• They say that Atlantic Yards meant providing what the community wanted and community empowerment.

Well, it’s just not so. . .

And it’s so NOT just.

It meant fake community organizations, secretly paid for by Ratner, fake community benefit agreements intended as eye-wash and diversions designed to be unenforceable. It meant a developer’s efforts to divide and bamboozle the community, to incapacitate its leadership and strip its people of their power.

I could go on. Ratner was going to create good design and green space? No, it meant super density spot-zoned for Ratner’s special benefit, an arena tightly crammed in amongst brownstones, the seizing and privatizing of public streets, sidewalks and avenues, project-design bait-and switches with (largely theoretical) “green spaces” being ditched in the process.

I could go on, and on, etc. The question is whether HDC will go on with a inexcusable endorsement of this destruction and betrayal?

Sincerely,


Michael D. D. White

PS: Video of a portion of this testimony (below) is available here on YouTube.



Note: This post was updated as of 7/19/2010 to include additional supporting hyperlinks.

Numbers up: The New York Times Is Counting Wealthy Chinese, In A Too-Short Story

“585." “585?”

This week is was impossible not to notice that the New York Times was prominently featuring the number “585" for a short little blurb of a story featured in its "News of the Week in Review" section. Turns out they were counting wealthy Chinese. (See: Prime Number, Published: April 23, 2011.) The Times was taking note that 585 is the estimated number, in the thousands, of people in China who this year will have investable assets of $1.5 million or more. This was according to a study by Bain & Company, a Mitt Romney connected consulting firm.

The number, the subject and the calculation couldn’t help but remind us all of another number, “498" which is the number of Chinese that Forest City Ratner is soliciting to “invest” $538,000 in order get American government issued green cards that Forest City Ratner is being allowed to sell more or less exclusively for its own private benefit. After some time (five years), the Chinese are supposed to get back less money ($500,000) which, other than their green cards, constitutes the return on their investment provided the deal Forest City Ratner has structured for them doesn’t tank. This all has to do with something known as the federal EB5 program, a program Congress created supposedly to produce jobs in the U.S. but which Forest City Ratner is taking advantage of in a non-job producing way. Essentially, the Ratner firm is abusing the EB-5 program in a way that Congress is now letting it be abused: Ratner is selling United States green cards to rake in cheap capital without producing jobs.

In other words, if, as reported in the Times, there are 585,000 Chinese who have $1.5 million or more to invest, 489 of them, or one out of every 1,197 of this them are expected to pony up $538,000 of that available $1.5 million to pay Forest City Ratner for green cards.

The Times article seems rather too short in that it simply doesn’t bring the numbers home. If the Times is interested in how many millionaires there are in China mightn’t it then be interested in what portion of that elite cohort is sending their money to the United States particularly if such a substantial portion of all that money is coming into this country in a federal program that is being abused?

Fact is though, the Times has been passing up (virtually ignoring) the EB-5 abuse story and all its ramifications that among other things would necessarily lead them to reporting some unflattering things about Forest City Ratner, their business partner when it came to building the New York Times headquarters for which, like Ratner’s Atlantic Yards mega-monopoly, eminent domain was used.

As pointed out in an earlier Noticing New York post, the Times mangled its last report about the non-job-creating EB-5 programs use in connection with Atlantic Yards:

Perhaps what mightily facilitates the ease with which the EB-5 program is abused is that it is not known by any formal title, like the American Jobs Creation Act, leaving the New York Times to struggle as it refers to Ratner’s `enrollment’ of “498 Asian investors” in “an obscure federal program that grants [“sells” is a better word] green cards in exchange for a $500,000 investment in a job-producing American project,” thereby stumbling compliantly into having referred to `job-production’ which is, as discussed, actually nonexistent.

In other words, this Times story made it sound as if Ratner is using the program to create American jobs, which isn't a fair report of what is actually happening.

(BTW: Neither 585 nor 489 is a "prime number"-- That's aside from the fact that the 489 Chinese investors won't prime the American economy.)

To catch up with more stories about the EB-5 program here are some links:

• Atlantic Yards Report is the only media source that has been providing complete and thorough coverage of the program with a great deal of original investigative work involving procuring and examining original documents (which often involves translating them from the Chinese). To work backward from Atlantic Yards Report's latest post start here: Monday, April 25, 2011, Kunpeng, consultancy promoting AY to immigrant investors in China, among firms willing to deceive regulators, according to newspaper investigation

• A complete list of Atlantic Yards Report’s coverage on EB-5 is available by clicking here.

• And here is Noticing New York Coverage:

• Friday, October 8, 2010, Putting It Together: Who Should Be Selling Green Cards?

• Wednesday, October 6, 2010, Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires?

• Saturday, March 26, 2011, The American Jobs Creation Act, Job Creation That Wasn’t: What Happens When Government Doesn’t Manage Its Programs

• Sunday, October 10, 2010, Noting One Oddity, The Times, in Another, Neglects Obvious Explanations: Ratner’s EB-5 Green Cards Sale; A Reason For the Nets To Go To China, And. .

The American Jobs Creation Act, Job Creation That Wasn’t: What Happens When Government Doesn’t Manage Its Programs

Thursday night American Public Media’s Marketplace ran a story that told of how the American Jobs Creation Act passed by Congress seven years ago didn’t create jobs. On the theory that it was inducing corporations to bring home foreign profits to create jobs the act created a window of time during which taxes on those profits were greatly reduced.

What happened since that the law passed had such a pretty title stating its goal with such incontrovertibly boldness? This is what Marketplace tells us:

C. Fritz Foley teaches finance at Harvard. He found more than half of every repatriated dollar went to something other than job creation.

C. Fritz Foley: The funds were used to pay dividends to shareholders, and to repurchase shares.

We are told that jobs weren’t created because government fell down on its own job. Under the act Congress passed, the federal government simply did not actively manage the program for the purpose the act was passed. According to economist Allen Sinai, when it comes to companies participating in such a program, Congress “should hold their feet to the fire.” Here is more from Marketplace on Mr. Sinai’s views:

Economist Allen Sinai heads the research firm, Decision Economics. He says back in 2004, companies weren't punished if they didn't use their repatriated profits to create jobs. . . . .

Allen Sinai: They can set conditions, set an accountability mechanism, which says you get this money only if you hire people.

Why is an ineffective law from seven years ago and questions about what Congress should do coming up now? Because a “group of high-tech energy and pharmaceutical companies” wants a replay of the tax-reducing American Jobs Creation Act. They’ve launched a website to promote the idea and they are again saying that “the money would be used to create jobs here at home.”

The website is WinAmerica (the url contains “winamericacampiagn”) and here is what you read as soon as you get there (emphasis supplied).

The lead-in:

We have an opportunity right now to strengthen our economy, pay down our debt, put people back to work, and invest up to $1 trillion in America.

The wrap-up:

Providing American businesses with incentives to invest at home is a common sense solution that will immediately inject up to $1 trillion into our economy and provide businesses with the certainty they need to help get Americans back to work. The time to act is now. Let’s invest the money here at home – not spend it there.

What’s the response of the companies promoting the new law when asked about how the old law didn’t create jobs? They acknowledge what they have to and move on to “Rationalization B.”

According to Marketplace:

The companies pushing for another tax break say that's true. [What Havard’s C. Fritz Foley said about how the corporations used the `repatriated’ monies to pay dividends to shareholders, and to repurchase shares.] But they say the money still made its way into the U.S. economy. Shareholders reinvested the dividends or spent the money.

The Marketplace story can be found here: Companies press to repatriate overseas profits, by Nancy Marshall Genzer, Thursday, March 24, 2011.

Applied to New York City Development

What is the fascination of this story for Noticing New York? It reminds us of the non-job-creating “job creation” programs we get that funnel money into real estate mega-developments like- oh, why bother with any other example- Ratner’s Atlantic Yards mega-monopoly.

Basically the same thing is true: Why should we ever expect that these programs would ever be effective at creating jobs when government isn’t on duty managing matters to ensure the programs are being run for that purpose. And when government isn’t, the programs become just about the developer's lining their pockets at public expense.

In the case of Atlantic Yards we have two levels of AWOL government, each level with its own fictional job creation program that is not fulfilling its ostensible purpose: At the state level the ESDC (the “New York State Urban Development Corporation” doing business as the “New York State Urban Development Corporation”) does not monitor or pay attention to how many jobs are created at the megadevelopment and on the federal level (Congress again neglecting the declared core of a program) we have the non-job-creating EB5 program that we will get to in a minute. Perhaps what mightily facilitates the ease with which the EB-5 program is abused is that it is not known by any formal title, like the American Jobs Creation Act, leaving the New York Times to struggle as it refers to Ratner’s `enrollment’ of “498 Asian investors” in “an obscure federal program that grants [“sells” is a better word] green cards in exchange for a $500,000 investment in a job-producing American project,” thereby stumbling compliantly into having referred to `job-production’ which is, as discussed, actually nonexistent.

As for ESDC, it pushed through Ratner’s net-loss-to-the-public basketball arena (now the Ratner/Prokhorov arena) with the unsound idea that even if public money would be lost on it, at least jobs would be created. But there are numerous problems with the idea that ESDC or the government is on the case in this regard:

1. ESDC doesn’t have a place to start from in tracking jobs, since all the job creation figures bandied about to promote the project were insanely phony to begin with.

2. ESDC doesn’t itself actively keep track of or monitor job creation. When stories surface about the number of jobs being created (or lack thereof) it is Forest City Ratner that is supplying the figures.

3. The actual jobs, to the extent that they can be detected, are much lower than (expected?- NO) originally bruited. Very low indeed.

4. Ratner is doing what he can to keep employment resulting from the megadevelopment at a minimum, particularly union employment, including through the use of untested modular construction.

5. The role of government to monitor and administer its own job creation programs really oughtn’t be delegated by abdication as, for instance, to the CBA (so-called “Community Benefits Agreement”). Rather, to the extent that this is what ESDC did with Atlantic Yards, Forest City Ratner has actively gone out of its way to avoid hiring an Independent Compliance Monitor as called for by the CBA.

6. To the extent that any part of the provision of jobs is meant to be related to the provision of minority jobs, the responsibility for tracking that remains in the hands of someone Ratner hired, Darrle E. Greene, best known for being indicted for (and ultimately having to make restitution for) falsifying numbers he was submitting to government. When the disgraced Greene was found to be involved in the Aqueduct Raceway scandal (involving multiple parallels to Atlantic Yards) Greene was forced to withdraw from the Aqueduct transaction but he is still around for Atlantic Yards.

Ratner must have thought, “Gee, the racket of getting credit for phony jobs is pretty good” (a little like the old joke about what a good business prostitution is- “you sell it, you still got it!” Or maybe it's like a four-year-old girl’s tea party with the pretend tea you can keep offering no matter how many Barbie or Winnie the Pooh guests show up- “Would you like some”- and then you pour the invisible liquid of which your imagination has an infinite supply). So Ratner figured he ought to branch out and diversify in the phony jobs business. Hence, the EB5 program where he gets to sell to the federal government the same non-job-creation he sold to ESDC, getting credit twice for the very same quite minimal, decreasing and mostly phantom jobs.

What’s lost in all this nonsense when honest government has strolled off the beat is that this vast capacity for delusional benefits is displacing real economic activity that would have a much better chance of creating jobs.

(This is one of two sister Noticing New York articles being posted simultaneously on the subject of what happens when government neglects its duty to manage the actual work of government. To read the sister article, click here.)

Revisiting a Classic Seasonal Tale: Ratnerville

(The "wonderfully lively" animation of the above, adapted from our original Noticing New York post, comes via the creative courtesy of No Land Grab. )

This is the season for revisiting and retelling classic tales about the eternal verities. A number of the most classic seasonal tales create their magic by investigating alternative realities, contrasting realities where greed goes unchecked versus the better, more marvelously rich world we could harmoniously all share if people's better nature prevails. In that vein, we think our Noticing New York post from last Christmas Eve stands the test of time rather well.

With one year passed it is clearer than ever what paucity of promise fulfillment comes with Ratnerville’s monopolistic takeover of Brooklyn: We are getting no jobs, no housing, no design, nothing but decades of imperious monopoly and acres of desolate parking lots. If the past year has done anything beyond making all this a lot clearer it has been to show us as well that as Ratner evicts Brooklynites from Brownstone Brooklyn he is using his monopoly as a springboard for even more greed and deception. We reference his deceptive sale of green cards to gullible Chinese millionaires. (See: Monday, December 20, 2010, Anatomy of a Shady Deal: an FAQ and restrospective on the effort to recruit EB-5 investors in China for the Brooklyn Arena and Infrastructure Project and Wednesday, October 6, 2010, Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires?)

Here is the Noticing New York post we ran one year ago today: Thursday, December 24, 2009, A Christmas Eve Story of Alternative Realities: The Fight Not To Go To Pottersville (Or Ratnerville).

Happy holidays.

Noting One Oddity, The Times, in Another, Neglects Obvious Explanations: Ratner’s EB-5 Green Cards Sale; A Reason For the Nets To Go To China, And. .

(Above, From the New York Times story about why Mikhail Prokhorov and Bruce Ratner's Nets basketball team is going to China and Russia and making a deal with Russian vodka producer Stolichnaya. Fred Conrad Photo.)

A just-off-the-presses New York Times sports section story about how the Nets, Bruce Ratner's and Mikhail Prokhorov’s basketball team are traveling to “Moscow on Sunday on their way to China” begins by observing what it dubs an oddity:

The Nets might be an odd choice to be the N.B.A.’s ambassador overseas. With 12 wins last season, they are often a forgotten team even in New Jersey, where they fail to sell out their home games and live in the shadow of the cosmopolitan Knicks.

Yet the Nets are among the most active teams in courting international companies.

(See: For the Nets, First Brooklyn and Then the World, By Ken Belson and Jonathan Abrams, October 9, 2010.)

Times and Nets Focus on China and Russia

Though this lead-in to the article speaks in general terms about the Nets as the “N.B.A.’s ambassador overseas” “courting international companies” the article really addresses the Nets activities with respect to just two countries, China and Russia. While the Nets are headed off to both countries, between the two it is apparently China that is getting shorter shrift these days. Near the end of the article we are told that: “The Nets are creating a Russian-language Web site to better reach them, and have replaced a marketing specialist who spoke Mandarin with someone fluent in Russian.” The article also states that “Last year, six Chinese companies, including the electronics giant Haier, paid hundreds of thousands of dollars for courtside signs at the Izod Center, where Yi Jianlian played for the Nets” and then notes that Chinese-born Yi “was traded in the off-season, so the Nets are now focused on Russia.”

Shorter shrift maybe, but the Nets are nevertheless going to China and China and Russia are the only two countries the story discusses in terms of the Nets being ambassadors to, as the article’s title suggests: “The World.”

Casting Reasons Aside

Why are the Nets going, as the article reports, to China and Russia? Though the article pronounces it odd that they are going abroad and then spends most of its time tendering possible explanations, it passes up taking a crack at the possible explanations that would seem to be the most logical, but perhaps also the most impertinent to mention.

Norman Oder of Atlantic Yards Report specifically mentions this particular Times sports story (“The Sports section, however, is all over the Nets' trip to China.”) in writing about how the Times has avoided reporting on the scandalous sale of green cards in China by Ratner and Prokhorov to finance their nets arena. (Mr. Oder broke the story of the scandal. For our own commentary linking back to his see: Wednesday, October 6, 2010, Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires? and Friday, October 8, 2010, Putting It Together: Who Should Be Selling Green Cards?.)

The sports section may be “all over the Nets' trip to China” except that it isn't reporting that the likely explanation as to why the Nets owners have made it a priority for the Nets to go to China is the EB-5 green cards the owners are selling to the Chinese, something the Times apparently doesn’t want to report about. Also not mentioned is that New York state and local government officials have been expecting to tag along with Ratner to sell the U.S. issued green cards with him in China.

China aside, also not mentioned is what would be the best-guess reason the team is going to Russia: That would be for the purpose of burnishing Mr. Prokhorov’s image there. Burnishing may not really be the right term notwithstanding that Mr. Prokhorov’s image that could use a big-league PR scrub job.

Taibbi on Prokhorov’s Reputation

Investigative reporter Matt Taibbi in a Men's Journal article not yet on the internet for us to link to gives us his view that Prokhorov bought his share of the Nets as a vanity project the purpose being in a manner “totally representative of the Russian oligarch class” to “show the suckers back home how much you’ve podnyalsya, or `risen up.'” Podnyalsya displays are the payoff that apparently makes irrelevant the public stain about how one has gotten their money, a subject about which Taibbi is caustically informative in providing information about Prokhorov as he details events he first covered in the mid-90s.

Prokhorov’s wealth came from the acquisition of “state-controlled Norilsk Nickel, one of the world’s largest metals companies” in what Taibbi describes as an auction that was “shamelessly, hilariously rigged.” with Prokhorov’s bank, Oneximbank, helping to run the auction in which it was itself “declared the winner after bidding $170 million to manage a 38 percent stake in a company then worth $1.2 billion” despite the fact that another firm had “bid twice as much.” Shades of the origin story for Ratner’s Atlantic Yards project! No wonder Prokhorov wanted to buy in! Taibbi reports how it turned out that the “bureaucrat who paved the way” for the deal “accepted $100,000 in the form of a `book deal’ from an obscure Swiss publishing firm with ties to Prokhorov’s bank.” (That’s Prokhorov’s deal being referred to, not Ratner’s Atlantic Yards, though Brooklyn Borough President Marty Markowitz was taking money from Ratner for his performance “charities”.)

Taibbi is also scathingly detailed about the almost incomprehensible pollution and labor layoffs that followed in the wake of Prokhorov’s acquisition of Norilsk, making it clear how in need of burnishing Prokhorov’s reputation was.

Not Exactly Voldemort

Taibbi reports that Prokhorov’s arrest in Lyon, France on the well-reported charges of importing a planeload of prostitutes “was apparently the last straw in Prokhorov’s already sticky relationship” with Vladmir Potanin and that he was consequently forced to cash out and sell his shares in Norilsk to Oleg Deripaska. About Deripaska, another “Russian Bogeyman,” Taibbi tells us that a Russian journalist friend of his refused to say his name “out loud even in the noisiest of bars, for fear the oligarch might hear.” This clear echo of Harry Potter’s Lord Voldemort as “he who must not be named” apparently applies only to Deripaska and not Prokhorov- At least for the time being. Nevertheless, when you read the Harry Potter series you are confronted by a world where almost nobody can be trusted, the highest public officials (those who head the Ministry of Magic) are on the wrong side and a sensation-seeking press routinely writes things that are quite untrue. The Harry Potter world sometimes seems ever so much like a thinly veiled metaphor for the world of New York real estate development, its weird indefensible politics, and Atlantic Yards.

Driven to Distraction?

So if the Times doesn’t report on the selling of the EB-5 green cards and the refurbishing fictions of Prokhorov’s reputation as being, respectively, the reasons that the Nets are going to China and Russia, what does the Times report might be the reasons the Nets are traveling to China and Russia?

Here is what they come up with:

• The fact that the Nets are making an effort to court international companies to sign advertising sponsorship deals may signify that they are having trouble attracting sponsors at home. (For instance, it mentions a five-year $2 million a year Stolichnaya vodka deal that Prokhorov helped arrange with the Russian company)

• Basketball is growing faster in popularity overseas than in the United States.

• The NBA’s goal is to grow the interest in basketball throughout the world. (Not just China and Russia.) Adam Silver, the deputy commissioner of the N.B.A., assisted the Ratner/Prokhorov cause by providing a quote for the Times article to this effect.

• More league players are being born overseas.

• The Nets plan to move to Brooklyn, which has a large Russian-born population so this will help build up the Brooklyn fan base. (There may be something to this but it also relates back to the fact that Prokhorov’s image needs scrubbing.)

A Timely Question: If Not Now, Then When?

We have a question for the Times: If, in their estimation, now is not the time to report on the EB-5 green card selling scandal and the dark not-so-secret back stories relating to Prokhorov’s wealth, then when will those things be discussed in the gray lady’s pages? Maybe it is just that the Times reporters, sports reporters and others, are not able to read Chinese. The answer then would be to hire a Chinese translator, which is what Mr. Oder did and the reason he has consequently been able to keep breaking new gripping stories in his series about the EB-5 scandal.

What are New Yorkers left to do when the Time sidelines itself this way? Here's one thing we can tell you: If, as the Times reports, “The Nets are creating a Russian-language Web site” then New Yorkers are all going to have to hope that Mr. Oder opens his wallet up one more time for another translator, a Russian one. If he doesn’t, with the Times asleep, we will probably miss out on some major news stories that matter a great deal to our city’s local politics.

Putting It Together: Who Should Be Selling Green Cards?

Sometimes something dawns on us when we think about matters long enough and we make connections that were perhaps not so obvious at first. Now we an idea has come to us. Maybe it could really help the average New Yorker.

This is the way it started.

It kept gnawing at us: Why should this be something a private individual gets to do rather than its being the responsibility of the government? . . . Why should Bruce Ratner (and his partner Mikhail Prokhorov, a bloody Russian oligarch of all people!) get to go out and sell U.S. government-issued green cards to 498 Chinese millionaires and their families? . . . Why isn’t the issuance of green cards a government responsibility?

There is no question that Ratner is, indeed, selling the green cards. He’s selling them for an amount that we have calculated to be about $325,000 or more per recipient family! That means that for the total number of green cards going out to the members of the 498 families they are selling them to, Ratner and his Russian buddy Prokhorov get to pocket around $162 million or more. Though the Chinese are sometimes referred to as making an “investment” that sure ain’t the case: The Chinese give Ratner & Co.’s team some money ($538,000 per family) and, after some time (five years), the Chinese get less money ($500,000) back. There’s no interest either (in case you were wondering). Actually, as we wrote before, the Chinese will get even that reduced sum back only if they are lucky. Anyway, calculate your way through all this rigmarole and the value of what the Chinese have given up is about $325,000 or more per recipient family if they do get that reduced sum back.

Why should Ratner and a Russian oligarch hand out these green cards, deciding who gets them (and pocketing millions), rather than its being something the government does?*

(* Even if you consider the U.S. Immigration Service’s technical approval role, pro forma approvals of whatever the “Regional Center” cats drag in are meaningless to check privatization of the process. Also we will proceed to discuss in a bit, even the Service’s main criteria that immigrant deposits not be “illegally earned” can lead to unsatisfying murky ruminations about the extent to which the public good will really be considered.)

If the government were doing it, mightn’t it decide that the issuance of green cards should support public purposes and policies? Maybe, for instance, the government would decide that certain families were particularly worthy of receiving green cards and would be good families in certain specified ways to have visit the country? Maybe the government would look for a connection between the issuance of the green cards and the creation of jobs? That’s not something that is happening here: While nominally (and for PR purposes), the money Ratner and Prokhorov hope the Chinese will furnish will be attributed to the financing of the Brooklyn Nets basketball arena they have under construction, ESDC, the state agency responsible for that project, has confirmed that the EB-5 money “will not create any new jobs beyond those already forecast.” Actually there is a question as to whether the money goes to the arena already under construction; whether it goes to the arena plus the railyards Ratner is under contractual obligation to furnish to the MTA; or whether it goes just to those railyards. This issue is apparently being intentionally obfuscated to maximize risk for the Chinese. (There is also the issue that the Atlantic Yards project, crafted at every turn to put the developer’s interest ahead of the public’s, is simply a net public detriment in all respects.)

Sure, the government might be directed by a public purpose if it was the one handing out green cards but when the task is left instead to Ratner and a Russian oligarch what do you think they are going to do? Aren’t these guys, after all, motivated just by the profit they are pocketing and therefore choosing their path accordingly? Consider: Bruce and Mikhail could be selling their green cards to citizens of countries all around the world. Do you think the fact that they are going to China to sell these green cards is because that is where they can sell the cards at the highest price? It would seem so. . .

. . . Green cards are a scarce resource.* The total annual number that can be issued is strictly limited by U.S. Immigration law and it is limited in a way where the largest countries in the world like China and India (populations 1.34 and 1.19 billion respectively) are put at a disadvantage with a per-country quota system that says that no country can send more than 7% of the total worldwide immigration annually. That translates into 25,620 for each country no matter what the population. Meanwhile, a much smaller country like Nauru with a population of only 13,918 (although densely populated) has green card availability to send the same number of people. No wonder the Chinese are expected to be the highest bidders and Bruce and Mikhail are headed off there. (Were any of us thinking that Ratner was picking China because he thought that Norman Oder would be less likely to catch up with his antics if he had to translate fraudulent sales claims written in Chinese, or that he might be found out too fast in India because so many people there speak English?)

(* As we will discuss further on, the number of EB-5 green cards that can be issued is also a capped amount, a further factor in making them a scarce resource)

It is not that we are against Chinese or are against providing them with green cards. Quite the contrary. New York in particular has a history of thriving based on the industry of hard working and clever immigrants. But if scarce green cards for the Chinese go the way that Ratner and Prokhorov direct it means that more industrious Chinese families who have more to offer the U.S. and its economy won’t get green cards. Ratner’s green cards-for-cash program is actually the low-rent version of the program. The EB-5 program requires that immigrant families invest $1 million in the U.S. except that if, as is being done with the Ratner/Prokhorov setup, the money is run through an EB-5 Regional Center, the amount they are required to put up drops down to half that, only $500,000.

Presumably, the reason for scaling back the immigrant cash deposit requirements for the Regional Center offerings is that Regional Centers can, through their control and prepackaging, better ensure that the American public is properly benefitted. That is likely a regrettable assumption if you look at the credentials of the man at the head of the Regional Center involved in the Ratner/Prokhorov deal: In that regard you probably want to read more about Mr. Paul Levinsohn. The truth is that the Chinese who don’t have access to more profitable deals when they want to invest in the U.S. and whose best thought is to offer a highest-bidder price to Ratner/Prokhorov are those Chinese who likely have less to offer the U.S. in return for their green cards than those other Chinese to whom green cards could be offered as truly bona fide investors.

We Segue to MTA Cutbacks

As indicated earlier, it is our Noticing New York wont to put things together and make connections. That, for example, is something we did when the MTA started raising its fares and cutting back on its service. We pointed out that these cutbacks and fare increases might not be so necessary but for the fact that MTA officials were giving away the store to Atlantic Yards. (See: Friday, December 18, 2009, Big Picture Questions: Does MTA Chairman Jay Walder Comprehend Atlantic Yards Link to MTA Cutbacks?)

Yesterday’s news was that the MTA’s board voted to hike the cost of a monthly monthly MetroCard to $104 from $89. That’s a 16.9% increase. The MTA hiked other fares as well. It was the third round of increases since 2008 and the increase was after and despite the service cutbacks it enacted just months ago. Even worse, Andrew M. Saul, the board’s vice chairman said the fare increases approved on Thursday are “just the beginning.”

Tunnel Vision Cutbacks

To provide additional perspective, other headline news yesterday concerned New Jersey’s Governor Chris Christie scrapping the under-the-Hudson ARC (Access to the Region’s Core) tunnel that would shorten the average new Jersey commuters trip into New York by 40 minutes and for which work was already “under way and $3 billion of federal financing had already been arranged — more money than had been committed to any other transit project in America” because he said New Jersey could not afford an estimated $5 billion the state might have to pay in cost overruns on the project originally priced at $8.7 billion.

Christie’s estimate of an extra $5 billion exposure might have been exaggerated in support of justifying his announcement (overruns might actually be as low as $2.5 billion) and it should be noted that, since this project (which is entirely for New Jersey Transit’s own trains) is also being paid for with another $3 billion committed from the Port Authority (coming from its tolls), New Jersey wasn’t paying for that big a portion of its own project. Conceivably, Christie’s decision could have been prompted and backed by the highway lobby, but if Christie thinks he is going to get returned for local roads any of the $6 billion he is giving up from the federal government and the Port Authority, he is likely mistaken. What’s in store for New Jersey motorists is probably just greater increases in congestion.

Even though aspects of the ARC tunnel such as its poorly designed connection to Penn Station can be criticized, the ARC tunnel is a mass transit project that represents the creation of the kind of critical big-scale regional connections (like the Erie Canal) that have been an essential factor in the growth of our metropolis. The Times also writes about how the project was supposed to “provide jobs for 6,000 construction workers” and “raise property values for suburban homeowners.” In other words the ARC tunnel is the kind of mass transit infrastructure project that equitably confers benefit widely and stimulates development throughout the territory.

And the Tunnel Vision Associated With a Lack of Cutbacks

So what can we afford these days?

On one hand we have Christie portraying himself as courageous (whether he is making a blundering mistake or not*), deciding that New Jersey cannot afford the few billion it will cost to generally benefit everyone and stimulate development by increasing mass transit. But, conversely, on the other side of the river in New York, we have Governor Patterson and Mayor Bloomberg acting very differently. They without compunction continue to support the expenditure of $2-$3 billion in subsidies (with nowhere near the same level of matching funds from the Feds and none from the Port Authority), subsidies that are designed to confer only private benefit on Ratner and Prokhorov as the developers of Atlantic Yards. Rather than stimulating development, the subsidization of Atlantic Yards merely usurps the development opportunities of others. Rather than promoting development by building up the transit infrastructure like ARC, Atlantic Yards will additionally overtax New York’s existing mass transit thereby counterproductively dampening development impetus further.

(* latest reports are that Christie may be reconsidering.)

If the MTA Just Undertook Some Creative Financing of Its Own

So what can we afford? Here is the not-so-crazy idea we came up with when we put two and two together. Maybe we could afford a lot more if the government was the one out there handing out green cards to the high bidders. Did the MTA think they had cleverly accomplished something and squared away part of their capital budget needs when, in connection with the very low price Ratner is paying to acquire the Vanderbilt railyards from them for Atlantic Yards, they contractually obligated Mr. Ratner to build the replacement (albeit smaller and less adequate) railyard they were then going to need? By going to the Chinese Ratner isn’t the one paying to close that budget gap anymore; he’s simply passing his contractual obligation along to the Chinese. Gosh, Golly and Jumping Jehosaphat: The MTA could have gone to the Chinese directly, eliminating the middle man!

Let’s unprivatize the selling of green cards and put some money back in the government’s pocket by taking this function back! It could mean really big bucks.

Among other things the MTA would like to fill the hole created last December when the state removed $143 million of its transit funding out of the state budget. $143 million? If the MTA were selling green cards rather than Ratner and Prokhorov, then the $162 million or so that they are getting for equipping 498 families with green cards could easily fill that gap.

But wait, why stop there? The MTA has miles and miles of track and railyards to fix up, a whole multitude of worthy capital projects to tackle and under the EB-5 program there are 10,000 EB-5 visas available to qualified aliens each year with 5,000 of those annual visas for aliens whose money comes in through the “Regional Centers.” If Ratner and Prokhorov could get to sell 498 of those visas, why shouldn’t the MTA as a government agency with its truly worthy projects that are true fuel for the economy get to sell at least maybe 2,000 of those visas? That would bring in a cool $648 million. The MTA’s current deficit is less: $400 million. (It’s entire subsided operating budget is $7.2 billion with the fare increases intended to generate 7.5 percent more revenue.) If all the MTA wanted to do was hold the money for a while as an investment, 2000 visas would bring in $1 billion. Maybe the MTA would even agree to pay some sort of nominal interest on that amount.

Tripping Along

Alas, such opportunities are not being seized by the government for the benefit of the public. Instead, in what Norman Oder of Atlantic Yards Report has christened an “abdication of government” we find that government officials like Brooklyn Borough President Marty Markowitz and the Empire State Development Corporation head Peter Davidson simply assisting Ratner and Prokhorov arranging travel to willingly “flack Ratner's project in China” without requiring identification of any public purpose in the sale of the green cards. It certainly raises serious ethical issues about proper governance. Mr. Markowitz has since canceled his trip though reportedly there is a city conflict of interest board ruling saying he could go. (We haven’t seen the ruling but would love to see exactly what the board reasoned through to such a conclusion.)

Why would our public officials want to make such trips?* The answer could be as simple as that public officials just like to travel. In yet more of the headline news informing us yesterday the Times reported that former New York State Comptroller Alan Hevesi, pleading guilty taking kickbacks for approving a $250 million pension investment, admitted that the $1 million in kickbacks he accepted, “included hotel and travel accommodations for himself and his family during trips to Israel and Italy.” More specifically, according to two NPR reports, “Hevesi and his family got $75,000 worth of luxury travel and gifts”and “The trips involved first-class airfare for Hevesi and his family, luxury hotel suites, a helicopter tour, a car with a driver and a security detail.”

(*Having just come from seeing Inside Job the documentary dissecting the recent U.S. financial crisis, we note that its prologue informs you that one of the last roles performed by Icelandic government officials before that country’s major economic crisis was to travel abroad shilling for the banks that ushered in the their economy’s ruin.)

(Subsequent to this post going up Mr. Oder offered another likely explanation for why government officials would go on such trips: "Agency Capture." Actually, he offers two possible explanations in that post. The other, he suggests is a "hostage situation" something we have also written about. Click here and then you might want to look, in particular, for the heading "Beekman Blackmail." When it comes to the Beekman, Ratner blackmailed the unions on jobs and the local community board for more subsidy.)

Be Careful What You Import

Here is one final thought. Mikhail Prokhorov is also a foreigner. We were wondering whether he might be eligible to be a beneficiary of the EB-5 program. He has, after all, also given money to Ratner to put into Atlantic Yards. Researching the EB-5 visa program we read that one of its most important requirements of the program is that it must be documented that the money that qualifies the applicant immigrant for visa status was legally earned. . . .

. . . . And how did Prokhorov get his money?

Investigative reporter Matt Taibbi, who has an article coming out on the subject (and previously wrote about Goldman Sachs), spoke on a Fox Business interview show with Don Imus about how peculiar it is that the press is not paying more attention to the extremely controversial way in which Prokhorov acquired his wealth. Here, via Atlantic Yards Report, is what Mr. Taibbi said:

It's really funny--I lived in Russia for ten years, and one of the things I covered way back when was this scandal called 'loans for shares.

They privatized the jewels of Soviet industry into the hands of a few gangsters, basically, and I remember covering that story very well," he said, "and I remember how angry everybody was, that all this stuff that was public property was handed over to these guys who were friends of the president."

And then, ten, 15 years later, I come back to America and find out that one of them has become owner of the New Jersey Nets," Taibbi continued. "Prokhovov was part of this company called Norilsk Nickel. They basically won a rigged auction for one of the world's largest metals companies... Yet this guy is a hero here in the States because he's tall and he says some funny stuff on TV."

So did Prohorov acquire his wealth legally such that he would qualify for the green cards he is now selling? Taibbi, speaking about the fact that the NBA approved him as an owner, made the point that it all comes down to what the rules are that have to be observed (emphasis supplied):

They said they vetted him thoroughly. I can't speak for David Stern, [NBA Commissioner] but this guy, for Russians, he's sort of a symbol of this whole era when there were absolutely no rules and public wealth was just turned over to a bunch of insiders. It's unbelievable to me that he's being celebrated as this great guy.

So by that measure Prokhorov did make his money legally because there were no rules to break. But you know it can be interesting what gets imported along with the immigrants entering the country. Based on what we have seen of the handling of this EB-5 program we would suggest that Prokhorov (and his buddy Ratner) right now, here in the U.S., are very much a symbol of an era when there are absolutely no rules and public wealth is just being turned over to a bunch of insiders. Now that we’ve imported Russian practices to America it’s all happening again.

(Below is the Matt Taibbi Fox Business interview video.)

Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires?

(Above, Norman Oder on September 29 at a meeting on the Barclays Center public plaza, trying to ask an avoidant Borough President Marty Markowitz questions about his potential trip to China to flog a cash for green cards scheme program being undertaken by Forest City Ratner. Photo (part of a set) by Tracy Collins from Atlantic Yards Report.)

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 collateral

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.

Yep! If Ratner doesn’t return the their money the booby prize for the Chinese is that Ratner gets to keep their money!

(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.

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.

(See: The Governor's Secret, August 13, 2004.)

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.”

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.

(See: New Jersey’s Jim McGreevey: America’s Most Corrupt Governor? by Nicholas Stix, September 1, 2004.)

. . . 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.