Thursday, July 24, 2008


Do you know about ACORN’s top-management cover-up of a million dollar embezzlement? The cover-up discovered just a few days ago lasted for eight years. I am figuring our local state and city government officials must now be in a tizzy evaluating what to do about the national housing and advocacy group.

If you Google “ACORN” (Association of Community Organizations for Reform Now) together with “embezzlement” there are too many stories concerning the cover-up of the million dollar embezzlement by the founder’s brother for there to be time to wade through them all.


As with any cover-up, the standard questions need to be trotted out for the standard basic investigative due diligence. Who knew what, and when did they know it?

Who needs to be asking those questions? Any government agency that has been doing business with ACORN, is currently doing business with ACORN, or may have planned to do business with ACORN.

In New York, we’ve definitely got some of those agencies. And in New York, there is another set of impinging questions that must, perforce, be examined concerning ACORN and the proposed $4.4 billion Atlantic Yards megadevelopment which ACORN has complicitly helped design as a subsidy sponge. A bunch of New York State agencies are going to have to ask these questions and the rest of us in the broader New York community are going to be wanting answers too.

Who “negotiated” the CBA & MOU?

The Atlantic Yards megadevelopment got rolling in large part due to a “Community Benefits Agreement” (“CBA”) and memorandum of understanding (“MOU”) between ACORN and the developer of the project, Forest City Ratner. The MOU, which was signed first, was signed on May 17, 2005. Note that May 17, 2005 was during the period of the cover-up that began eight years ago.

Since the MOU and CBA were “negotiated” during the cover-up, the second set of questions that will have to be asked and answered is who at ACORN was involved in negotiating the MOU and CBA? You need to find out not only who knew about the embezzlement and when they knew about it; you also want to know if any of those same people were in any way involved in negotiating the MOU and CBA. If they were, there are problems, as I will explain.

I have already done an extensive analysis that questions how suspiciously weak and not-to-the-community’s benefit the MOU and CBA were. See: Saturday, June 28, 2008,

The cover-up of the embezzlement puts the suspicious weaknesses of the agreement in another light.

Where Does the Cloud Fall?

Admittedly, ACORN is a big organization. It has national, international and many local operations. So, Norman Oder, of Atlantic Yards Reports aptly notes that what happened with respect to ACORN “doesn’t necessarily put a cloud over New York ACORN, the state affiliate.” (See: Friday, July 18, 2008 “National ACORN's (episode of) scandal, and NY ACORN's dubious Brooklyn stadium deal (in 2000)”)

Maybe the embezzlement and cover-up don’t necessarily put a cloud over New York ACORN, but there is no reason to assume that New York ACORN will be fully absolved upon due inquiry. Furthermore, you need to examine whether those ACORN principals who were involved in the embezzlement or cover-up outside of the New York office exercised influence in the signing of the Atlantic Yards CBA or MOU or establishment of its terms. I am not sure who yet knows enough to speak definitively on this but the initial indications don’t bode well for ACORN. By all accounts, the organization’s founder, Wade Rathke, was central in implementing the cover-up with respect to his brother’s embezzlement. Maybe Rathke it is boastfully inaccurate, but emphatic statements in Ratnke’s personal blog seem crafted by him seem to imply that he was very substantially involved in New York affairs generally and Atlantic Yards in particular:

“Most recently the highly contentious battle over Atlantic Yards and the basketball arena found us supporting the project based on agreements that the developers would provide more than 2500 units of affordable housing in Brooklyn where many of our people are being forced out. Surprisingly, we found ourselves on the opposite side of the divide among the Park Slope liberals and others who were unwilling to join us in making the diversity of the community the core issue.”

I think that Norman Oder’s July 18, 2008 piece does a good job pointing out that there seem to be problems with the ACORN culture. Those problems are exemplified by their abysmal record on Atlantic Yards, and other conduct by the New York office raises similar questions. Those problems with ACORN culture may also concurrently account for ACORN’s Atlantic Yards debacle and the embezzlement cover-up even if the “who-knew-what-and-when” questions can be answered in a way that 1.) absolves New York ACORN from any participation in the cover-up, and 2.) allows it to be concluded that those involved in the cover-up did not influence the CBA or MOU.

Questions from the Right-Wing?

To be fair, one reason Googling ACORN+embezzlment gets so many hits is because the Internet is stoked with so many right-wing attacks on ACORN. The right-wing reactions to ACORN and nearly all its activities are unpleasantly rabid. The right wing doesn’t believe in ACORN’s politics and strongly objects when ACORN pulls down government subsidies that are perceived to fund its operations and those politics. Let’s face it, if your politics are left-wing you might get just as excited when right-wing groups pull down government largess (faith-based initiative subsidies?) to fund their operations. (Some of us prefer the instinct to go lean and use subsidies as infrequently as possible as subsidies can be so readily misused.) Listening through what can be a substantial amount of shrillness, however, I think there is complaint that ACORN is engaged in extortionist tactics and is sometimes funded by “protection” payments for consultant services that institutions like banks might not really be eager to pay except for threats aimed at them.

ACORN pursues minimum wage legislation which comports with its efforts to get out the votes of lower-income voters. Accordingly, one of ACORN’s critics is the Employment Policies Institute which works against raising minimum wages (arguing it is for the benefit of low-wage workers trying to enter the workforce.) The Employment Policies Institute is the source of a critical July 2006 report about ACORN cited in a Reuter’s story. The report “Rotten ACORN, America's Bad Seed” goes way beyond minimum wage issues For instance, the report gets into the relationship between ACORN and the federal Community Reinvestment Act. The report even mentions Atlantic Yards. Interestingly, what we do to address the current Fannie Mae and Freddie Mac difficulties could be affected by ACORN’s interest in setting up a National Trust Fund from which it could benefit. This is not easy stuff to sort out.
(The short Reuter’s story is ACORN Embezzlement Scandal is the Latest Controversy in Group's Long, Corrupt History...
Wed Jul 9, 2008 6:57pm EDTand the report is here)

Usurp the Role of Political Player and Ignore the Community?

There is criticism of ACORN from other sources such as the Wall Street Journal, whose reporting is generally considered more reliable. I’ll take a pass on evaluating whether the most viciously leveled attacks of the right wing have a foundation of truth worth considering. I don’t think that government agencies who have already been doing business with ACORN while aware of such accusations are about to take them more seriously now. Nonetheless, a much broader range of people make accusations about ACORN which may be considered to have something in common with right-wing complaints. ACORN is accused of hypocrisy and insincerity. ACORN is accused of lip service respecting community goals while putting their own interests first. Norman Oder’s July 18, 2008 story details an incident respecting the proposed displacement of half the baseball, soccer and football fields on the Parade Grounds below Prospect Park for a “temporary”minor league baseball stadium. His account indicates that, beyond Atlantic Yards, there are problems with the culture of ACORN’s New York office. ACORN seems interested in pushing itself forward to claim, to the exclusion of others, the mantle of key political player, irrespective of ultimate community benefit.

Reading the CBA and MOU my suspicions, just based on the documents, were exactly this: That ACORN valued promoting itself as a political player above the interests of the community. I was not considering anyone else’s accusations to this effect. News of the embezzlement and cover-up had not broken. You can read my Saturday, June 28, 2008 post (originally posted as a comment on Atlantic Yards Reports on June 20, 2008). News of the covered-up embezzlement now puts ACORN’s propensity to put its self-interest first in a pronounced new light.

Government Agency Background Checks

Consider this: State, city and federal agencies do background checks before they will provide housing subsidies. An embezzlement such as occurred at ACORN could certainly disqualify a group like ACORN from subsidy funding. (As noted, ACORN certainly gets such subsidy funding.) At the very least it must needs be a matter of significant concern to public agencies. It is the kind of thing they must bring to the attention of their upper-echelon decision-makers and their board members if they have a board. A covered-up embezzlement is actually worse than the embezzlement itself when and if discovered. The fact that the money has not been repaid and that the perpetrators of the problem and those closely associated with them have remained at ACORN and in positions of power would make it worse still. The New York Times reported that while the embezzlement was covered up, Wade Rathke’s brother Dale Rathke (the embezzler) remained on ACORN’s payroll. The Times reported that Dale Rathke was paid about $38,000 a year but that none of that money was used to pay back ACORN. The Times reported that of the $948,607.50 embezzled eight years ago, the family repaid $210,000, starting in 2001, in exchange for confidentiality. For the Times story see: “Funds Misappropriated at 2 Nonprofit Groups” By Stephanie Strom Published: July 9, 2008.

A For-Sale Housing Provision - Silly or Suspicious?

The Community Benefits Agreement, negotiated about five years after the embezzlement, has provisions about a “for sale housing” program that has always been sort of silly because it was unenforceable and unspecific and because it obligated Forest City Ratner to be a part of a program where participants are motivated to participate because they make a profit.- (The language doesn’t obligate Ratner to do anything if the profit he makes is not sufficient to motivate him.)

The provision takes on new implications when you consider the embezzlement ACORN was concealing when they negotiated the provision. If you will bear with me, I will show what ACORN might have been finagling for itself under the shadow of the cover-up.

ACORN was at the time participating in programs from which they would likely have been disqualified if the embezzlement had come to light. For instance, the home-ownership programs run by the New York City Housing Partnership for the New York City Department of Housing Preservation and Development which involves money from a number of sources.

The programs that ACORN was participating in and from which it could have been disqualified are exactly the same kind of programs described in the CBA for providing the benefit of additional for-sale owner-occupied units off site.

See the paragraph in Annex A of the MOU that reads as follows:

“For sale housing - Pursuant to paragraph 5 of the MOU, Developer and ACORN will work on a program to develop affordable for-sale units, which are intended to be in the range of 600 to 1000 units, over the course of ten (10) years and can be on or off site. It is currently contemplated that a majority of the affordable for-sale units will be sold to families in the upper affordable income tiers.”

For more on this see Atlantic Yards Report post: “Thursday, March 27, 2008 And what about those for-sale affordable units? The fine print is vague

Who Knew the Benefits the CBA Provided Benefit to . . .?

If the additional off-site units were ever going to be provided as additional benefit negotiated as a result of Atlantic Yards, ACORN was setting themselves up via the “contract” of the CBA to be involved as conduit in the providing of those units even though ACORN quite likely would be disqualified as such a conduit if the embezzlement came to light.

Before anyone ever knew about the embezzlement, one must ask whether it was fair for ACORN to sell out the interests of the community in the multitude of ways that they did.- I asked that question in my June 28, 2008 post (originally a June 20, 2008 AYR comment: “As groups lobby against tax-exempt bonds for sports facilities, is WFP hamstrung by ACORN's AY deal?”).

That said, once one knows about the embezzlement it seems more unfair and even more questions must be asked. ACORN got involved in promoting humongous density of 7.799 million square zoning feet for the megaproject without ULURP and with a huge diversion of housing subsidies on a no-bid basis to a single developer. It made little sense but there was something no one knew at the time because no one knew about the embezzlement. Since one knew about the embezzlement what no one could consider at the time was that ACORN was taking back for itself in the CBA agreement a form of job or subsidy insurance whereby they would indirectly attempt to require state and city agencies to continue to give them subsidy that they stood to loose because of the embezzlement. That meant the “Community Benefit Agreement” was for ACORN’s benefit.

Agencies on the Spot

If the embezzlement and cover-up had come to light at any time State and City Agencies were making decisions about Atlantic Yards, they would have found this quite a dilemma when confronted with it. The many politicians who used the ACORN agreement as political cover when allowing Atlantic Yards to move forward should experience a similar level of discomfort. Upon discovery of an embezzlement and cover-up, the housing agencies would have an instinct to disqualify ACORN from subsidy or minimize to a carefully monitored trial amount the subsidy ACORN could receive. But with the Atlantic Yards “agreements’ in place, doing so would be scuttling the “community benefit” that was theoretically negotiated for a project of unprecedented size. They would almost feel blackmailed to continue giving subsidy to ACORN. And if the agencies continued with ACORN this would act as a blessing and precedent for others to follow! Did ACORN know exactly what they were doing in this regard and perhaps think it shrewd? Were they so desperate for a provision that would guarantee them program participation and subsidy that they would do what they shouldn’t? Was their desperation for such a provision the reason they negotiated a provision that was so meaningless and unenforceable?

What Happens Now?

What happens now? Was Wade Rathke involved in negotiating the Atlantic Yards MOU and CBA as he seems to imply that he was? If ACORN now claims that he wasn’t, what will the facts show? Bertha Lewis, the executive director of New York ACORN, was clearly involved in capitulating to the terms of the MOU and CBA. Did she know about the embezzlement and cover-up? According to the New York Times “a small group of executives decided to keep the information from almost all of the group’s board members and not to alert law enforcement.” Was Ms. Lewis part of that small group? Ms. Lewis has reportedly been named director of an interim management committee set up to run the national group’s day-to-day operations. (Here is an interesting thought: Is it possible that Wade Rathke required Bertha Lewis to sign CBA and MOU agreements she didn't believe in but which she was then required, as an officer of ACORN, to support under the terms of those same “agreements”? Under the terms of the CBA and MOU which are public Lewis is apparently contractually precluded from responding if this is inquired about.) Mostly we know how much we don’t know, given the questions. We don’t know, for instance, how seriously to consider the statements of the anonymous “John Brownz” leaving comments on various web sites who says he worked at ACORN and asserts that “The management staff that helped Wade cover up the theft are still in place. .” (See: “ACORN Leader Steps Down, Group Puts New Controls In Order” By Bennett Baumer, July 18, 2008)

Answering the Pending Questions

We don’t know. The government agencies don’t know but will have to find out. All the articles in the press and on the Internet will have to be combed through and analyzed. The agencies will have to write letters of inquiry to ACORN and seek assurances that the information in the responses they receive is accurate. They will have to consider what extra degree of due diligence is appropriate to assure that later-surfacing facts do not embarrass them. Among other things they will need to evaluate the extent to which the terms of the MOU and CBA might have been conceived as clever “blackmail” ensuring program participation for ACORN. Then all this information and correspondence forth and back will have to be accurately summarized and presented to the higher-echelon decision-makers. They wouldn’t want, like Wade Rathke, to keep the information from board members. After they explain all this to their members and decision-makers, they can account to us as the public. We’ll be waiting.

Could It Be Simpler?

No matter what, there will be a lot of work that will need to be done by the New York government agencies. I can’t make it go away but I can make one suggestion that will somewhat simplify the work of our public officials. That is to realize, as lawyers say, that you don’t have to look beyond the “four corners of” the MOU and CBA to realize that they are flawed agreements that were not negotiated to the community’s benefit and should therefore be disregarded and not given effect.

Hey! Want to know a substantial simplification that would greatly simplify everybody’s life? Government officials, including mayoral hopefuls like Representative Anthony Weiner and City Council Speaker Christine Quinn, should recognize that Atlantic Yards in its entirety is an abominable mistake and it will serve the public to stop it dead in it tracks.

1 comment:

Unknown said...

Please follow up with Cuomo's office.