Tuesday, July 3, 2012

It's Official: Entire Willets Point Development Rests on Illegal Lobbying

The three year investigation by the NYS Attorney General into the illegal lobbying of the Flushing Willets Point Corona Local Development Corporation-an action that was instigated by WPU-has been concluded with both the LDC and the NYC EDC! admitting that they had engaged in illegality in their pursuit of the redevelopment of the Iron Triangle. The WSJ has the story:

"New York City's economic-development agency and two related organizations admitted in a settlement Monday that they illegally lobbied the City Council on behalf of projects at the heart of Mayor Michael Bloomberg's redevelopment agenda.

The concessions came after a three-year probe by the state attorney general's office. Investigators found that the Economic Development Corp. worked behind the scenes with the groups—called local development corporations—to nudge lawmakers to support projects in Willets Point in Queens and Coney Island in Brooklyn."

What this means is that the entire development project was advanced fraudulently by an illegal scheme. As Schneiderman told the Journal:

"These local development corporations flouted the law and lobbied elected officials, both directly and through third parties," Attorney General Eric Schneiderman said in a statement.

Local development corporations are nonprofit organizations that can acquire land from a municipality without public bidding, and they are commonly used in major public projects. While technically separate from government, their political independence varies widely. They are banned from lobbying." (Emphasis added)

So what did AG Schneiderman do in response to this blatant fraud? The intrepid and fearless chief law enforcement officer of New York State has come up with a draconian punishment: Shulman's crew promises it will never, ever, do that again: "The finding carries no fine or harsher penalty. The EDC, a nonprofit, must restructure and shed its status as a local development corporation. The other two groups have agreed not to lobby or encourage third parties to speak with elected officials."

But before we proceed to wax the AG for fecklessness let's go back and review the last quote. What Schneiderman's office has done-through the intervention of WPU-is to force the EDC into a comprehensive reorganization of how it does business. At the same time, he implicates the agency right into the heart of the illegal lobbying scheme:

"The findings seemed to give ammunition to critics of the Bloomberg administration and its economic-development arm, which has been accused of pushing through large-scale projects over community objections."

While that's quite true it elides the most significant aspect of the AG's enforcement ruling-not only was this project pushed through over the objections of the Willets Point community, it was done so in a fraudulent manner. And the WSJ recognizable what we have been saying for three years-this was a phony astroturf effort with the LDC (acting on behalf of its real estate developer members) fronting for EDC:

"In pushing the Council for zoning and other land-use changes, city officials "took steps to foster the appearance of independent 'grass-roots' support for the projects in the local community," said the agreement signed Monday by the EDC and the other groups.

For example, the agreement said the EDC directed the Queens group to use its fax machine to send a letter drafted by city officials about the Willets Point project to Council members because, in the words of one city official, "we felt this letter coming from our fax machine would have been lobbying." Other lobbying activities included ghostwriting op-eds and preparing testimony, according to the agreement."

As we pointed out almost a year ago:

The bottom line in all of this is that Mike Bloomberg, Mr. The Rules Don't Apply to Me, concocted a plan to create a phony grass roots support group to advance the Willets Point development-and created an LDC that was simply a stalking horse for TDC (Sterling Equities) and its cohort of developer colleagues. So, in essence the tax payers funded an AstroTurf effort to deprive the WPU property owners of their Constitutional rights."

That gets us to the major defect in the AG's three year enforcement effort: the punishment simply doesn't fit the crime. The AG doesn't even level a fine. As WPU told the Journal: "Irene Prestigiacomo, a member of Willets Point United, a group opposed to the city's plans for the area, said she was disappointed in the outcome. Ms. Shulman's organization has "gotten away scot-free with breaking the law at our expense and have been rewarded with a mild tap on the wrist," Ms. Prestigiacomo said."

Schneiderman's defense misses the most serious issues in this elaborate scheme to defraud: "Aides to Mr. Schneiderman said the law doesn't provide for financial penalties. While the office could have sought to dissolve the groups, aides said, the facts didn't rise to that level."

It was at this crucial juncture that Schneiderman-how can we say this as delicately as possible?-simply punked out. The violation of the law in question-Section 1411 of the state's not for profit statutes-is the tip of the proverbial iceberg. It's violation was part of a larger scheme to defraud that allowed the LDC-once again made up of real estate developers with an obvious non-public interest in the development of the Iron Triangle-to obtain $500,000 in tax payers' funds to advance the lobbying effort.

If it was illegal for them to lobby then they were not eligible for the city's money. Period! C'mon Eric, can't you at least get the group to refund the ill gotten gains? After all Sterling Equities, one of its key members, has just profited handsomely from the illegal scheme-being handed, with no bill of sale, $200 million worth of property that was extorted from the Willets Point businesses as a successful result of the illegal lobbying. Aren't there any other statutes on the books that could address this kind of fraud?

Eric Schneiderman is no profile in courage. The law does not permit? This was a narrowly conceived investigation that ignored the larger illegality-fraudulent use of an not for profit to promote private gain. As the Journal points out the violation of 1411 was not the only badge of fraud: "In 2009, the City Clerk imposed a $59,090 fine against Ms. Shulman's group because she failed to register as a lobbyist."

So what Shulman was doing was trying to hide what the group was constructed to do-a pattern of deception that doesn't stop there. When registering as a 501(C)(3) with the IRS Shulman's organization was asked if it was going to engage in lobbying. Her answer: NO.

What we have here is a conspiracy to defraud the tax payers but in addition to deprive the businesses of their property rights-and the conspiracy emerges, as the AG's finding underscores, right from the heart of the Bloomberg administration. It deserves a much stronger law enforcement action than what the AG has come forward with-after all, this is the guy who just got a major drug company to pay a record $146 million in penalties for fraud. The action against EDC and Shulman stands in sharp contrast and we are left with wondering why.