Liu Lashes Out at EDC-and Calls Out the Mayor

Today NYC Comptroller John Liu wrote a scathing letter to the mayor concerning the, “law-breaking” culture at EDC. The Observer has the story:

"City Comptroller John C. Liu today sent a letter to Mayor Mike Bloomberg to change what he called the “law-breaking” culture at the Economic Development Corporation.The missive comes as the EDC has been ordered to restructure as part of a recent settlement reached with New York attorney general Eric Schneiderman, who found that the agency illegally lobbied City Council members as part of their effort to redevelop Willets Point in Queens and Coney Island in Brooklyn."

Liu also indicated to the mayor that the so-called restructuring of EDC seemed to be a gimmick designed to continue the unlawful use of city funds to lobby: “The legal restructuring of the EDC, which appears to have been undertaken so that the impermissible lobbying can continue, is clearly insufficient. It amounts to nothing more than business as usual, notwithstanding knowingly allowing the use of taxpayer dollars for unlawful purposes,” wrote Mr. Liu."

Even more pointed was Liu's call for heads to roll: "Installing new leadership and opening the books would help change the EDC’s law-breaking culture, which, as documented in the settlement with the Attorney General, used the agency’s budget as a political slush fund for illegal lobbying.” As the Liu letter goes on to strongly say:

"The legal restructuring of the EDC, which appears to have been undertaken so that the impermissible lobbying can continue, is clearly insufficient. It amounts to nothing more than business as usual, notwithstanding knowingly allowing the use of taxpayer dollars for unlawful purposes. … I urge you to move swiftly to identify those senior officials from City Hall and the EDC responsible for the flagrant and repeated law-breaking activities, and hold them accountable."

What Liu needed to add was a call for EDC to return the $450,000 it sent to Claire Shulman's LDC for the ilegal lobbying use. Even more pointed would have been a call for the funds to be sent to Wilklets Point United because of the "pain and suffering" the property owners suffered because of the illegal EDC scheme. As we said this morning, this is far from over, so stay tuned.

Will Illegality Kill New Willets Point Deal?

Crain's is reporting on the impact of the AG's finding concerning the illegal lobbying of EDC and its Claire Shulman puppet:

"Opponents of the city's plan to redevelop Willets Point will try to take advantage of the Economic Development Corp.'s admission last week that it illegally lobbied for the project. A spokesman for a group of property owners resisting eviction said EDC's acknowledgement means the city should rescind its 2008 plan to remake Willets, which was approved by the City Council. A lawsuit is possible, the spokesman said."

Not everyone agrees that this is a deal killer: "But experts say it's unlikely that EDC's confession, made in a settlement with state Attorney General Eric Schneiderman, would be grounds for overturning the Willets decision."I don't see a court invalidating the approvals because of what may have been misconduct in the advocacy," said Kenneth Fisher, a land-use attorney and former Brooklyn councilman. "I can't think of any precedent for that."

We would agree that there was no precedent-not precedent for the city breaking the law, that is, in the pursuit of a development deal. Has former council member Fisher ever seen that? But certainly this will be another reason why the city council will examine the new configuration carefully:

"If the legal argument fails, opponents could still play the political card. The admission of illegal lobbying could bolster their argument that the project is tainted and should be killed. Because the redevelopment planned by the Related Cos. and Sterling Equities deviates from what was approved four years ago, the City Council will need to sanction a zoning change for the new version."

That and the fact that Sterling played a key role in the illegal activity-and Related is still Wal-Mart's best friend. Stay tuned to this.

Pinsky a Big Loser

In City and State's weekly Honor Roll-and Dishonor Roll-EDC's Seth Pinsky has rightly earned his place as a big loser:

"Seth Pinsky – The chief of the city’s Economic Development Corporation is now the head of an organization that has had to admit to illegal lobbying on behalf of the mayor’s economic development agenda at Willets Point, a charge that comes with no civil or criminal penalties, just ignominy. The charge is a black mark on what is supposed to be the mayor’s great economic development agenda, a far-reaching plan in all five boroughs meant to secure his legacy after 12 years in office, not undermine the law."

But undermine the law he did-and now he must be replaced because the illegal scheme at Willets Point falls on his shoulders, even though it was Dan Doctoroff that hatched the idea in the first place. Which elected official will be first to call for Pinsky's head?

NY Times and Daily News Weigh In on AG Smack-down of EDC

The NY Times in the person of Ray Rivera, the reporter whose stories helped to initiate the three year investigation by the NYS AG, has weighed in on the historic smack-down of a mayoral agency:

"The city’s economic development agency and two other organizations have admitted that they illegally lobbied on behalf of Mayor Michael R. Bloomberg’s plans to redevelop two long-neglected areas in Queens and Brooklyn, the state attorney general said on Tuesday."

Importantly, the groups involved acknowledged their wrongdoing-actions that played a key role in advancing the city's development schemes: "In a settlement with the attorney general late Monday, the three groups acknowledged crossing the line and agreed to several steps toward reform. “These local development corporations flouted the law by lobbying elected officials, both directly and through third parties, to win approval of their favored projects,” Mr. Schneiderman said."

Making the NYC EDC's role that much more nefarious was the fact that they hid what they were doing-and when exposed-blatantly lied about their key role in the subterfuge; a significant badge of fraud in our view: "The office of the attorney general, Eric T. Schneiderman, found that the Economic Development Corporation “played a behind-the-scenes role in the lobbying activities” of the other two groups to the City Council. The findings came with no civil or criminal penalties."

And that's the rub because the illegal scheme had real world consequences (not to mention hundreds of thousands of tax payer dollars) owing to the fact that the Shulman LDC was comprised of no real grass roots organizations-only developers who were in a position to benefit lucratively from the conspiracy. AG Schneiderman, in our view, should have gone the extra step at interdicting the development's forward progress-particularly because of the windfall that is awaiting Sterling Equities and the Mets. The Times cites our own blog on this point:

“What the attorney general has done is to tar the city’s chief economic development agency with illegal lobbying — and by doing so calls into question the legality of the entire Willets Point development scheme,” it wrote."

If the issue of fraud and conspiracy was in doubt the Times removes it with the following evidence from the EDC files: "In one example of the agency’s efforts behind the scenes, the investigation found that its officials had drafted a letter to City Council members but directed the Willets Point group to use its fax machine to send it. In the words of an employee, the agency “felt this letter coming from our fax machine would have been lobbying.”

The Daily News makes similar points-but goes further in crediting the role of WPU in the successful culmination of the AG's probe: "Two city economic development agencies have admitted to illegally lobbying the City Council to support a plan to overhaul gritty Willets Point...The agreement validates years of complaints from Willets Point business owners who charged the Flushing-Willets Point-Corona LDC and specifically its president, Claire Shulman, curried favor for a plan to take properties through eminent domain."

The News also cites WPU's complaint about the leniency of the AG's outcome: "Members of Willets Point United said sanctions should have been harsher. “There was a crime committed here,” said Willets Point United President Gerald Antonacci. “People ran for the hills when they were threatened with eminent domain. A lot of people who sold their properties would have never have sold it.”

This rather shocking outcome will add to the questions about the legitimacy of the new direction that the city is taken at Willets Point-with some observers commenting about the unfair favoritism accorded Sterling Equities. As the Times Ledger reports:

"The winners of a bid to redevelop Willets Point may have had a leg up on the competition, although the city said the selection process was completely unbiased...But there was one component of the plan that no one had seen before, not even the other developers who bid on the roughly $3 billion project.

When the city released its request for proposals in May 2011, it was seeking developers to build in a precisely defined area along 126th Street across from Citi Field.

The Sterling and Related plan calls for development within the boundaries defined in the RFP, but it also features another 1 million-square-foot retail and entertainment block to the west of the stadium."

In other words the fix was in-adding additional fuel to an already tainted project that has all the earmarks of corruption that we would have never expected to emerge from the administration of a billionaire mayor who touted himself as above tawdry politics.

Schneiderman Aftermath: Further Considerations

The enforcement action by AG Eric Schneiderman has a number of broad implications-and generates a number of further questions as well. What needs to be said at the top, however, that all of this is a direct result of the actions of the Little Engine that Could-the intrepid band of Willets Point irregulars at WPU. Never has one powerless group been able to accomplish so much against overwhelming odds.

What the attorney general has done is to tar the city's chief economic development agency with illegal lobbying-and by doing so calls into question the legality of the entire Willets Point development scheme. Not only that. What this also exposes is that EDC-and by extension the mayor's office-has been lying about this all along.

Let's go back to the original NY Times story that WPU initiated and listen to what the city said in response to Ray Rivera's exposé:

"The administration of Mayor Michael R. Bloomberg says that it never encouraged Ms. Shulman to lobby and that the $450,000 it gave to the group was not used for that purpose.

“The city regularly partners with local organizations that promote growth and economic development,” said David Lombino, a spokesman for the Economic Development Corporation. In the case of Ms. Shulman’s group, he added, “we are funding a scope of work that includes public outreach, organizing community support and proposing and advocating for area improvements.”

This was a flat out lie-as Schneiderman's agreement fully exposed:

"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."

Not only that, but throughout the eminent domain proceeding that NYC EDC claimed on the record-in response to WPU's accusations of illegal lobbying-that it had fully complied with all relevant laws. Throughout there was lying and subterfuge, all part of an effort to cover-up what was really going down-as the Times points out:

"Andrew Brent, a Bloomberg spokesman, pointed to a letter Mr. Doctoroff sent Ms. Shulman three weeks after their first meeting. It outlined the goals of her group, including conducting and leading “outreach, public relations and marketing efforts” to support the proposed redevelopment in Willets Point, but it never mentioned lobbying elected officials."

And the covering up and subterfuge was replicated by Shulman who failed to register as a lobbyist and told the Feds that her group wasn't lobbying: "In its 2007 federal tax returns, the group claimed it had spent no money on lobbying. The group has hired a lawyer to help it comply with all laws and regulations."

But Shulman's statement to the paper of record is the icing on this rancid cake-underscoring the extent to which a conspiracy existed between EDC and her LDC: "Ms. Shulman, borough president from 1986 to 2001, provides a starkly different account. “We hired lobbyists from the time we began, because we were told it was something we were supposed to be doing,” she said." (emphasis added)

So this entire development is a house of cards, built on dissembling and conspiracy to defraud the tax payers and the property owners. Our properties were put at risk by an illegal scheme and we were forced to spend hundreds of thousands of dollars to protect our Constitutionally protected rights against a municipality and its front group engaged in activities that were rife with fraud. We demand, and fully expect, that the Bloomberg administration will institute the proper corrective actions.

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.

WPU Daily News Editorial Slams New Development

In this morning's NY Daily News WPU property owners Jake Bono, Jerry Antonacci and irene Presti lash out at the city's bait and switch plans at Willets Point-and cautions the city council not to get fooled a second time:

"The city’s newly announced plans for Willets Point are an outrage — and should be seen as such by every City Council member who voted in favor of the plan that was originally proposed, and by all New York City taxpayers who are being stuck with the bill for what will forever be known as Bloomberg’s folly."

The editorial points out that this is all part of a twenty year scheme by Sterling Equities-the Wilpons' real estate arm-to gain control over property contiguous to their new tax payer supported stadium: " The Wilpons have schemed for 20 years to get the property adjacent to their stadium for development. They have funded a local development corporation, now under investigation by the New York State Attorney General for illegally lobbying on behalf of the Willets Point plan, and are now poised — as the lawyers say — to eat the fruit of the poisonous tree. A more blatant example of crony capitalism would be hard to find."

Of course the other scandal here is that the Wilpons are not going to pay for the property that the city bogarted from Willets Point business owners-using over $200 million of tax payre money-with the threat of eminent domain: "Making this entire situation that much worse is the fact that the Willets Point properties that the city bought — using the taxpayers’ money, of course — are being transferred to two, billion-dollar real estate companies for the princely sum of $0. Can this be any more outrageous?"

All of this sleight-of-hand for what? Another mall:

"At his recent press conference heralding this latest iteration of developing Willets Point, the mayor — with a straight face — said this about the new plan: “It includes everything we were looking for in the first phase, exactly as envisioned and approved by the community and City Council back in 2008.” This is a bald-faced falsehood, because the current plan — the one that will perhaps go forward in the near term — is really a gigantic mall. That is a far cry from the new green neighborhood, the one with so many units of affordable housing, that the City Council approved in 2008."

Read the whole thing and weep for the demise of honesty in government.