Saturday, September 14, 2019

Part 2:Dillon Read & Co. Inc. And the Aristocracy of Prison Profits...Clinton Admin. Progressives for For-Profit Prisons

Chapter 10 
Clinton
The Clinton Administration: 
Progressives for For-Profit Prisons 
Much has been written about the use of the War on Drugs to intentionally disenfranchise poor people and engineer the centralization of political and economic power in the U.S. and globally, including an explosive rise in the U.S. prison population. The purpose of this story is not to repeat this fundamentally sound thesis. For those who are interested in more on this topic, I would refer you to my article and audio seminar “Narco Dollars for Beginners” as well as Michael Woodiwiss’ book Organized Crime and American Power (University of Toronto Press, 2001) and their associated bibliographies.[49

What most people miss is the extent to which the day-to-day implementation of this intentional centralism is deeply pervasive and therefore deeply bipartisan. It receives the promotion and support from all political and social spectrums that make money by running government through the contractors, banks, law firms, think tanks and universities that really run the government. My intention for this story is to make clear how the system really works. A system in which a small group of ambitious insiders – who more often than not were educated at Harvard, Yale, Princeton and the other Ivy League schools – enjoy centralizing power and advantaging themselves. Paradigms of Republican vs. Democrat or Conservative vs. Progressive have been designed for obfuscation and entertainment. An endless number of philosophies and strains of religious and “holier than thou” moralism are really put on and taken off like fresh make-up in the effort to hide from view a deeper, uglier face. One person who may have described it more frankly during the Clinton years was the former Director of the CIA, William Colby, who writing for an investment newsletter in 1995 said: 

“The Latin American drug cartels have stretched their tentacles much deeper into our lives than most people believe. It's possible they are calling the shots at all levels of government.” 

The Clinton Administration took the groundwork laid by Nixon, Reagan and Bush and embraced and blossomed the expansion and promotion of federal support for police, enforcement and the War on Drugs with a passion that was hard to understand unless and until you realized that the American financial system was deeply dependent on attracting an estimated $500 billion-$1 trillion of annual money laundering. Globalizing corporations and deepening deficits and housing bubbles required attracting vast amounts of capital. 

Attracting capital also required making the world safe for the reinvestment of the profits of organized crime and the war machine. Without growing organized crime and military activities through government budgets and contracts, the economy would stop centralizing. The Clinton Administration was to govern a doubling of the federal prison population.[50]

Whether through subsidy, credit and asset forfeiture kickbacks to state and local government or increased laws, regulations and federal sentencing and imprisonment, the supremacy of the federal enforcement infrastructure and the industry it feeds was to be a Clinton legacy. 

One of the first major initiatives by President Bill Clinton was the Omnibus Crime Bill, signed into law in September 1994. This legislation implemented mandatory sentencing, authorized $10.5 billion to fund prison construction that mandatory sentencing would help require, loosened the rules on allowing federal asset forfeiture teams to keep and spend the money their operations made from seizing assets, and provided federal monies for local police. The legislation also provided a variety of pork for a Clinton Administration vogue constituency – Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs). The CDCs and CDFIs became instrumental during this period in putting a socially acceptable face on increasing central control of local finance and shutting off equity capital to small business. 

The potential impact on the private prison industry was significant. With the bill only through the house, former Attorney General Benjamin Civiletti joined the board of Wackenhut Corrections, which went public in July 1994 with an initial public offering of 2.2 million shares. By the end of 1998, Wackenhut’s stock market value had increased almost ten times. When I visited their website at that time it offered a feature that flashed the number of beds they owned and managed. The number increased as I was watching it – the prison business was growing that fast. 

However, the Clinton Administration did not wait for the Omnibus Crime Bill to build the federal enforcement infrastructure. Government-wide, agencies were encouraged to cash in on support in both Executive Branch and Congress for authorizations and programs – many justified under the umbrella of the War on Drugs – that allowed agency personnel to carry weapons, make arrests and generate revenues from money makers such as civil money penalties and asset forfeitures and seizures. Indeed, federal enforcement was moving towards a model that some would call “for profit” faster than one could say “Sheriff of Nottingham.” 

On February 4, 1994, U.S. Vice President Al Gore announced Operation Safe Home, a new enforcement program at HUD. Gore was a former Senator from Tennessee. His hometown of Nashville was home of the largest private prison company, Corrections Corporation of America (CCA). He was joined at the press conference by Secretary of the Treasury Lloyd Bentsen, Attorney General Janet Reno, Director of Drug Policy Lee Brown and Secretary of HUD Henry Cisneros who said that the Operation Safe Home initiative would claim $800 million of HUD’s resources. Operation Safe Home was to receive significant support from the Senate and House appropriations committees. It turned the HUD Inspector General’s office from an auditor of program areas to a developer of programs competing for funding with the offices they were supposed to be auditing – a serious conflict of interest and built-in failure of government internal controls. 

According to the announcement, Operation Safe Home was expected to “combat violent crime in public and assisted housing.” As part of this program, the HUD Office of Inspector General (OIG) coordinated with various federal, state and local enforcement task forces. Federal agencies that partnered with HUD included the FBI, the Drug Enforcement Agency (DEA), the Bureau of Alcohol, Tobacco and Firearms (ATF), the Internal Revenue Service (IRS), the Secret Service, the U.S. Marshal's Service, the Postal Inspection Service, the U.S. Customs Service, the Immigration and Naturalization Service (INS) and the Department of Justice (DOJ). The primary performance measures reported in the HUD OIG Semi-Annual Performance Report to Congress for this program are the total number of asset forfeitures/seizures, equity skimming collections and arrests. Subsequent intra-agency efforts such as the “ACE” program sponsored by DOJ and initiated by U.S. Attorney’s Offices, working with the DOJ Asset Forfeiture Fund, HUD OIG and HUD Office of General Counsel promoted revenue generating activities as well. 

Behind the scenes what all this meant was big budget increases for DOJ and the portions of the agencies that were focused on profitable enforcement and the War on Drugs. Big budget increases meant big contract budget increases as government outsourced more and more work. In "Prisons for Profit: A special report; Jail Business Shows Its Weaknesses," Jeff Gerth and Stephen Labaton in the New York Times in November 1995 describe the political appointees in the Clinton Administration who were successful at overcoming the natural intelligence of the career civil service at DOJ: 

The middle of last year, the White House sent its proposal to privatize prisons to the Justice Department, where it was greeted with a frosty response, according to officials involved in the discussions. 

“To help overcome the resistance of senior officials at the Justice Department and the Bureau of Prisons, the plan's architect at the White House, Christopher Edley Jr., asked Mr. Gore's office to turn up the heat. 

“Mr. Edley, an associate director of the Office of Management and Budget, enlisted the aid of Ms. Kamarck, Mr. Gore's senior policy adviser overseeing his government review. She then called her friend, Ms. Gorelick, the Deputy Attorney General, who oversees the day-to-day operations of the Justice Department. 

“I convinced Jamie to do more of it,” Ms. Kamarck recalled.” 

Cornell Corrections was one of the beneficiaries of Chris Edley, Elaine Kamarck and Jamie Gorelick’s efforts. According to Cornell’s 1996 Prospectus (the offering document provided to investors) filed with the SEC, after building a capacity of approximately 1100 beds over a five year period, Cornell in a nine month period was suddenly blessed with a feeding frenzy of new contracts, contract renewals and contract acquisition approvals that nearly tripled their capacity – all from the Federal Bureau of Prisons at the Department of Justice. 

Contract Awards, Renewals and Acquisition Approvals to Cornell Corrections by DOJ, September 1995 to April 1996

DATE LOCATION         PRISONER     CAPACITY TYPE 
9/95   Oakland                 61         Pre-Release 
11/95 San Diego              50         Pre-Release 
12/95 Salt Lake                58         Pre-Release 
1/96   Houston                 94         Pre-Release * 
2/96   San Francisco         81         Pre-Release 
2/96   Big Spring, Texas  1305         Secure 
3/96   Santa Barbara        25          Pre-Release 
4/96   El Monte, California 52          Pre-Release 
TOTAL 1726 Note: 

* This location is named the Peter A. Liedel Community Center after Cornell board member and Dillon Read officer Peter A. Liedel. 

The acquisition of the Big Spring, Texas facilities from MidTex, signed in February of 1996 and closed in July 1996 brought on board Charles J. Haugh to be Cornell’s Director of Secure Institutions as of May 1997. Haugh had most recently been the Executive Director of MidTex. From 1963 to 1988, Haugh had served in numerous capacities for the Federal Bureau of Prisons at DOJ, including Special Assistant to Director Administrator of Correctional Services Branch, Associate Warden, Chief Correctional Supervisor and Correctional Officer. 

Gerth and Labaton in “Prisons for Profit” describe who in the Clinton Administration got it done: 

“Federal officials say they are comfortable with letting private companies run Federal prisons because the industry has become mature, gaining experience running state and local jails. But Federal officials have also grown comfortable with the prison industry because its ranks now include many former colleagues as senior and other law enforcement officials have taken positions at private corrections companies, Washington's latest revolving door profession. 

“The industry leader is the Corrections Corporation of America, a 12-year-old company based in Nashville. Some of the company’s officials are former Federal prison employees, and the company's director of strategic planning, Michael Quinlan, headed the Bureau of Prisons in the Bush Administration. 

“Another industry leader is the Wackenhut Corrections Corporation of Coral Gables, Florida. Its directors include Norman A. Carlson, Mr. Quinlan's predecessor as the director of the prisons bureau, and Benjamin R. Civiletti, a former Attorney General. 

“The Acting Attorney General in the first months of the Clinton Administration, Stuart Gerson, is on the board of Esmor Correctional Services of Sarasota, Fla. Four months ago, the Immigration and Naturalization Service, a unit of the Justice Department, canceled its contract with Esmor after an uprising at its detention center in Elizabeth, N.J. An investigation by immigration officials concluded that Esmor, trying to cut costs, had failed to train guards, some of whom beat detainees. 

“The revolving door is beginning to work both ways. Not only has the private sector turned to former Federal officials, the Government has also started to look to industry leaders for aid in developing plans to hand new prisons over to private management. 

“Mr. Crane, a general counsel at the Corrections Corporation in the 1980s, was retained briefly as a consultant by the Bureau of Prisons to help write a model contract that is going to be used to hire the company to run the Federal prison in Taft.” 

The Mr. Crane who they have hired to develop the contract is the same Mr. Crane who arranged for the prisoners to be shipped from North Carolina to Rhode Island to save Cornell Corrections and Dillon Read’s municipal bond buyers. 

The outpouring of contracts from the Department of Justice to Cornell was very significant. When Cornell did its IPO in October of 1996, I estimate it had an implied “per bed” or “per prisoner” valuation of $24,241. Valuing the company at the IPO price, the total company value was $81 million. Without the contracts from the Federal Bureau of Prisons, the company value would have been approximately $39 million, assuming the company could have held a $24,241 per prisoner multiple or come to market at all – both unlikely in my opinion. The increase in total valuation of stock held by Dillon and its funds based on these assumptions would have been a minimum of $18.5 million. In short, the Dillon Read officers and directors invested in Cornell experienced a more than double in the increase in their value of their personal holdings of Cornell stock as a result of six months of contract decisions by DOJ and its agencies. 

Deputy Attorney General Jamie Gorelick, who according to the New York Times article had overseen the new policy of prison privatization, left DOJ in 1997. She then became a Vice Chair of Fannie Mae, a “government sponsored enterprise.” This means it is a private company that enjoys significant governmental support. Fannie Mae buys mortgages and combines them in pools. They then sell securities in these pools as a way of increasing the flow of capital to the mortgage markets. 

The reader can appreciate why Wall Street would welcome someone as accommodating as Gorelick at Fannie Mae. This was a period when the profits rolled in from engineering the most spectacular growth in mortgage debt in U.S. history.[51] As one real estate broker said, “They have turned our homes into ATM machines.” Fannie Mae has been a leading player in centralizing control of the mortgage markets into Washington D.C. and Wall Street. And that means as people were rounded up and shipped to prison as part of Operation Safe Home, Fannie was right behind to finance the gentrification of neighborhoods. And that is before we ask questions about the extent to which the estimated annual financial flows of $500 billion and $1 trillion money laundering through the U.S. financial system or money missing from the US government are reinvested into Fannie Mae securities. 

It is important before closing this description of Cornell’s extraordinary good fortune with the Federal Bureau of Prisons and DOJ in the fall of 1995 and the spring and summer of 1996 to provide some additional context. During this period, America was in the middle of a Presidential election. Bill Clinton and Al Gore were running for their second term. Dillon Read was a traditionally Republican firm, with the largest Dillon investors in Cornell giving generously to the Republican Party as well as to the Dole-Kemp campaign, whose campaign manager, Scott Reed, had been Kemp's chief of staff at HUD and then Executive Director of the Republican Party. The corporate ancestry and relations of Cornell – Bechtel, Houston, their auditor, Arthur Anderson’s Houston office, their attorney, Baker Botts, and their construction company, Halliburton/KBR – are ties all deeply associated with the Bush family and Republican camp. 

Federal Campaign Donations of Seven Largest Dillon Investors in Cornell Corrections Found in Center for Responsive Politics Database - 1995 & 1996 

Contributor        Date        Amount     Recipient 
David Niemiec 10/29/1996 ($250)   Weld, William F 
Franklin Hobbs 10/24/1996 $1,000  Weld, William F 
Franklin Hobbs 10/23/1996 ($2,000) Weld, William F 
Peter Flanigan 10/22/1996 $450 National Republican Senatorial Committee 

Peter Flanigan 10/16/1996 $500 Hutchinson, Tim 
John Haskell 10/14/1996 $500 National Republican Senatorial Committee 

Peter Flanigan 10/3/1996  $500 Cubin, Barbara 
David Niemiec 10/3/1996 $5,000 National Republican Congressional Committee 

John Haskell 9/13/1996 $1,000 RNC/Repub National State Elections Committee 

David Niemiec 8/30/1996 $1,000 Molinari, Susan 
John Haskell 8/29/1996 $15,000 RNC/Repub National State Elections Committee 

Peter Flanigan 8/12/1996 $1,000 RNC/Repub National State Elections Committee 

David Niemiec 8/7/1996 $1,000 Paxon, Bill 
Peter Flanigan 8/5/1996 $500 Weld, William F 
Peter Flanigan 7/31/1996 $40,000 RNC/Repub National State Elections Committee 

Peter Flanigan 5/28/1996 $1,000 Sessions, Jeff 
John Haskell 5/17/1996    $500 Livingston, Jeffrey 
David Niemiec 5/1/1996 $5,000 National Republican Congressional Committee 

Peter Flanigan 4/30/1996 $5,000 Republican National Committee 

David Niemiec 4/30/1996 $15,000 Republican National Committee 

John Birkelund 4/19/1996 $1,000 Dole, Bob 
David Niemiec 3/21/1996 $5,000 National Republican Congressional Committee 

John Haskell 3/8/1996 $365 New York Republican Campaign Committee 

Peter Flanigan 2/29/1996 $250 Cubin, Barbara 
George Wiegers 2/26/1996 $1,000 Alexander, Lamar 
Franklin Hobbs 2/23/1996 $1,000 Weld, William F 
Kenneth Schmidt 2/21/1996 $500 Alexander, Lamar 
David Niemiec 2/12/1996 $250 Weld, William F 
Peter Flanigan 2/2/1996 $500 New York Republican County Committee 

Peter Flanigan 1/29/1996 $250 Miller, James C III 
John Haskell 1/26/1996 $1,000 Smith, Gordon 
Peter Flanigan 1/23/1996 $1,000 Smith, Gordon 
Peter Flanigan 1/10/1996 $1,000 Weld, William F 
Peter Flanigan 1/2/1996 $1,000 National Republican Senatorial Committee 

Peter Flanigan 12/13/1995 $15,000 RNC/Repub National State Elections Committee 

Franklin Hobbs 12/9/1995 $1,000 Malcolm Forbes - 

Peter Flanigan 12/6/1995 $4,500 Republican National Committee 

David Niemiec 11/22/1995 $5,000 Republican National Committee 

John Haskell 11/10/1995 $1,000 Boschwitz, Rudy John Haskell 11/7/1995 $1,000 Alexander, Lamar
John Haskell 10/3/1995 $200 Millard, Charles 
John Haskell 8/31/1995 $15,000 Republican National Committee 

Peter Flanigan 7/31/1995 $500 Thompson, Fred 
Franklin Hobbs 7/13/1995 $1,000 Alexander, Lamar 
David Niemiec 5/5/1995 $5,000 National Republican Congressional Committee 

Peter Flanigan 3/22/1995 $500 New York Republican County Committee 

John Birkelund 3/9/1995 $1,000 Alexander, Lamar 
John Birkelund 3/7/1995 $1,000 Time Future Inc 
Peter Flanigan 2/25/1995 ($1,000) Gramm, Phil 
Peter Flanigan 2/22/1995 $15,000 Republican National Committee 

Peter Flanigan 2/14/1995 $1,000 Dole, Bob 
Peter Flanigan 1/27/1995 $250 Alexander, Lamar 
Peter Flanigan 1/25/1995 $2,000 Gramm, Phil 
* Preliminary, Subject to Change For data, see www.opensecrets.org Donor Lookup Donor Lookup 

If you want to see a bi-partisan system at work, follow the money. In the middle of a Presidential election, a Democratic administration engineered significant equity value into a Republican firm’s back pocket. If you step back and take the longer view, however, what you realize is that many of the players involved appear to have connections to Iran Contra and money laundering networks. A surprising number of them went to Harvard and other universities whose endowments are significant players in the investment world. And as it turned out, while the U.S. prison population was soaring from 1 million to 2 million people and US government and consumer debt was skyrocketing, Harvard Endowment was also growing – from $4 billion to $19 billion during the Clinton Administration. Harvard and Harvard graduates seemed to be in the thick of many things profitable.



Chapter 11 
Hamilton Securities Group 
Hamilton
I left the Bush Administration in 1990, persuaded that digital technology and the Internet could be used by entrepreneurs to create new wealth in an investment model that created alignment between global investors and the land, environment and people. If we financed places with equity instead of debt, we could create a way for global investors to profit from reducing consumption of scarce resources, integrating new technology into our infrastructure, healing the environment and improving my rule of thumb for the health of a community – the Popsicle Index.[52] The Popsicle Index is the percentage of people in a place who believe a child can leave their home and go to the nearest place to buy a popsicle or snack and come home alone safely.[53

When I was a little girl growing up in West Philadelphia, the Popsicle Index was close to 100%. The Dow Jones was 150. Today, in my old neighborhood the Popsicle Index has fallen about 90% to 10% while the Dow Jones has risen more than sixty times to over 10,000. In short, we have a win-lose relationship between investors and communities. In addition, we also have a win-lose relationship between government and communities. For more than fifty years we have had steadily rising government budgets for programs and enforcement (often justified on the theory that they will make the Popsicle Index go up) and a steadily falling Popsicle Index. 

In 1991, at the same time that Dillon was bankrolling the Cornell Corrections start-up, I started an investment bank and financial software firm in Washington called The Hamilton Securities Group. Hamilton was named after Alexander Hamilton, one of the key drafters of the U.S. Constitution. While I served as Assistant Secretary of Housing-FHA Commissioner at HUD, I tried on numerous occasions to persuade Secretary of HUD Jack Kemp and his staff not to propose new policies that would result in the abrogation of government contracts or contractual obligations with respect to financial assets. I had a deputy who always reminded me that Alexander Hamilton had gone through a similar process of ensuring that the government did not illegally abrogate its obligations and debts when he was the first Secretary of the Treasury of the United States – and that Hamilton had always prevailed. Numerous Alexander Hamilton quotes became part of our way of cheering ourselves up in the midst of cleaning up nauseating levels of corruption. Sayings like “A promise must never be broken.” 

One of The Hamilton Securities Group's goals was to map out how the flows of money worked in the U.S. and create software tools that would make this information accessible to communities. We believed that the way to re-engineer government was for citizens to have access to the information about the sources and uses of taxes and government spending and financing in their communities, and to participate in the process of making sure that these investments were managed to restore our neighborhoods to a “Popsicle Index” of 100%. Transparency is essential for private markets to work and for government investment to be economically productive, accountable to those who fund it and managed according to the laws that are supposed to govern such investment. Otherwise, we will veer toward subsidizing private interests that are powerful politically or forceful, including through dirty tricks and economic warfare, as opposed to those that are productive. 

After I started The Hamilton Securities Group, I was approached by Nick Brady, still Secretary of Treasury, to serve as a Governor of the Federal Reserve. When I declined, John Sununu, then White House Chief of Staff, had me appointed to the board of Sallie Mae, the corporation that helps to provide financing for student loans. While on the board of Sallie Mae, I was taken aside by the Chairman who explained that it was essential for me to ask Nick to sponsor me for membership in the Council on Foreign Relations (CFR). When I said that this was not something I felt comfortable doing, he said, quite alarmed in a generous and caring manner, “You don’t understand, if you don’t join the Council, you will be out for good.” 

I did not join the CFR and in retrospect – after years of watching how the CFR and its members operate – believe I made a sound decision. My dream was to find solutions. That required getting in the trenches to prototype money maps, tools and transactions. Prototyping of this type requires high degrees of trust with diverse networks – in communities and financial markets alike. Some of these networks would not welcome a central banker or members of organizations like the CFR that provide the intellectual smokescreen for the centralization of financial data and flows and economic and political power. 

Over time I was increasingly shocked by the speed and ease with which many intelligent and seemingly competent members of the CFR appeared to eagerly justify policies and actions that supported growing corruption. The regularity with which many CFR members would protect insiders from accountability regarding another appalling fraud surprised even me. Many of them seemed delighted with the advantages of being an insider while being entirely indifferent to the extraordinary cost to all citizens of having our lives, health and resources drained to increase insider wealth in a manner that violated the most basic principles of fiduciary obligation and respect for the law. In short, the CFR was operating in a win-lose economic paradigm that centralized economic and political power. I was trying to find a way for us to shift to a win-win economic paradigm that was – by its nature – decentralizing. 

The Hamilton Securities Group was financed with the money I made as a partner of Dillon Read and the sale of my home in Washington and then financed internally with reinvested profits from operations. Several years after starting, we won a contract by competitive bid to serve as the lead financial advisor to the Federal Housing Administration FHA at HUD. As a result, I had the opportunity to serve the Clinton Administration in the capacity of President of The Hamilton Securities Group in addition to having served as Assistant Secretary of Housing-FHA Commissioner in the first Bush Administration.[54

One of our assignments for HUD was serving as lead financial advisor for $10 billion of mortgage loan sale auctions. Using online design books[55] and our own analytic software tools as well as bidding technology from Bell Laboratories we adapted for financial applications, we were able to significantly increase HUD’s recovery performance on defaulted mortgages, generating $2.2 billion of savings for the FHA Mutual Mortgage Insurance and General Insurance Funds. 

While we plowed all of our profits back into the expenses of building databases and software tools and into banking a community-based data servicing company, we were still profitable, generating $16 million of fee revenues and $2.3 million of net income in 1995.[56

While the loan sales were a great success for taxpayers, homeowners and communities, it turned out that they were a significant threat to the traditional interests that fed at the trough of HUD programs, contracts and related FHA mortgage and Ginnie Mae, Fannie Mae and Freddie Mac mortgage securities operations. 

For example, if you illuminated the sources and uses of government resources on a neighborhood by neighborhood basis, you would see that government monies were spent in ways that created fat stock market and personal profits for insiders at the expense of more productive outsiders who are providing most of the tax and other resources used. Insiders could include big developers and property management companies that specialized in HUD-subsidized properties like then Harvard Endowment-owned National Housing Partners (NHP) and their affiliated mortgage banking operations like NHP’s Washington Mortgage (WMF), or for investment bankers like Dillon Read or Stephens, Inc. who issued municipal housing bonds for agencies like the Arkansas Development and Finance Agency (See “Narco Dollars in the 1980s – Mena Arkansas” above). When I suggested to the head of HUD’s Hope VI public housing construction program during the Clinton Administration that she could spend $50,000 per home to rehab single family homes owned by FHA rather than spending $250,000 to create one new public housing apartment in the same community, she got frustrated and said “How would we generate fees for our friends?” 

Our efforts at The Hamilton Securities Group to help HUD achieve maximum return on the sale of its defaulted mortgage assets coincided with a widespread process of “privatization” in which assets were, in fact, being transferred out of governments worldwide at significantly below market value in a manner providing extraordinary windfall profits, capital gains and financial equity to private corporations and investors. In addition, government functions were being outsourced at prices way above what should have been market price or government costs – again stripping governmental and community resources in a manner that subsidized private interests. The financial equity gained by private interests was often the result of financial, human, environmental and living equity stripped and stolen from communities -- often without communities being able to understand what had happened or to clearly identify their loss. This is why I now refer to privatization as “piratization.” 

One of the consequences was to steadily increase the political power of companies and investors who were increasingly dependent on lucrative back door subsidies – thus lowering overall social and economic productivity. Hence, the doubling of FHA's mortgage recovery rates from 35% to 70-90% ran counter to global trends and ruffling feathers. FHA, with Hamilton's help, was requiring investors like Harvard Endowment to pay full price for assets while it appeared that they and investors like them were engineering progressively deeper and deeper windfall discount prices as part of government privatization programs elsewhere in the U.S. and globally. A Federal False Claims Act lawsuit against Harvard and journalist coverage regarding their role as a USAID government contractor in Russia illuminated the extent of the windfall profits that they and members of their networks were able to engineer at the expense of the Russian people, investors and the American people.[57] A criticism that I now have that I did not understand at the time was that even efficiently and honestly executed privatization transactions such as the HUD loan sales policies which insist on open competition at the highest price run the risk of advantaging players who were the most successful at laundering money for the “black budget.” All solutions to this problem bring us back to the importance of place-based transparency of government resources and the importance of investing in the equity of small businesses and small farms. 

Things took an even darker turn when we started Edgewood Technology Services, a data servicing company in a largely African-American residential community in Washington, D.C.[58] Our investment in Edgewood gave us the ability to develop a skilled dedicated workforce that could help us build much more powerful databases and software tools. It also helped us understand the investment opportunity to train people working at minimum wage jobs or living on subsidies to develop more marketable skills and earning power by doing financial data servicing and software development.

From the financial information that emerged from our portfolio strategy work for HUD and from our investment in Edgewood, we discovered that it was less expensive to train people to do these jobs than to fund their living on government subsidies indefinitely, let alone going to prison. For example, a woman with two children living in subsidized housing in Washington, D.C. on welfare and food stamps cost the government $35-55,000 or more. In 1996, the General Accounting Office (GAO) published a study showing that on average total annual expenditures for federal, state and local prisoners was over $150,000 per prisoner. Presumably this included all overhead and capital costs but did not include the costs of supporting minor children of such prisoners. If government funded the care of her two children while she was in prison, those costs would be in addition. 

What we found at Edgewood was that there was a portion of the work force that, due to obligations to children and elderly parents, was not able to commute. Some of these people could be a productive work force working near their home and developing computer and software skills at their own pace. If training was combined with the creation of jobs, the economics of training people to do these jobs were sustainable and with proper screening and management could be profitable for the private sector. The potential savings to the public sector was astonishing, not to mention the potential improvement in quality of life for cities, suburbs and rural communities. With government leadership and large corporations actively working to move jobs abroad, people in all areas of the U.S. would need these kinds of new skills and jobs. Moreover, small businesses would need access to the kinds of venture capital and financial equity we were proposing to invest in community venture capital. That meant that communities needed to circulate more deposits and savings internally rather than depositing and investing their funds in large banks and corporations that used those funds to win local market share away from small businesses and farms. 

During this period, The Hamilton Securities Group helped HUD develop a program to permit owners of HUD-subsidized projects to treat some of the costs of community learning centers as "allowable costs" that could be funded from property cash flows. This allowed apartment building operations in communities experiencing welfare reform, cutbacks in domestic programs and unemployment from jobs moving abroad to provide facilities and programs that could help residents improve their ability to generate income. It encouraged linkages between private real estate managers and community colleges and other organizations committed to helping people learn new skills. 

As I traveled and researched around the country, it became apparent that data servicing jobs like those we were prototyping at Edgewood were highly competitive with jobs in the illegal economy. In other words, data servicing jobs paying $8-10 per hour and offering health care benefits and the opportunity to improve skills had the potential to attract a surprising number of people away from dealing drugs, prostitution and other street crime. The Hamilton Securities Group’s primary competition for the younger multi-racial portion of this work force appeared to be organized crime and the industries dependent on the continuation of organized crime activities, including enforcement and private prisons. 

Meanwhile, The Hamilton Securities Group’s growing software and database infrastructure about public and private resource flows in communities indicated that the vast majority of government subsidies were either not necessary or not economic – whether welfare and HUD subsidies or prisons and the huge and growing infrastructure of community and social development and private real estate and government contractors that they supported. There was a much more economic way for government to reduce domestic subsidies and crime. Billions of dollars of government investment had a negative return on investment. We were paying millions of people –whether on welfare or government contracts or HUD property subsidies – to do things that were not productive. Change those expenditures to a positive return on investment, and extraordinary improvements in productivity were possible. There was much work needed to be done that warranted investment – from repairing our infrastructure to rebuilding communities. As part of the potential opportunities, with both the private sector and federal government predicting very significant increases in the need for data servicing support and other jobs that could be outsourced through telecommunications, there appeared to be a significant opportunity. We shared our data and results with HUD, The Department of Health and Human Services (HHS), Congress and the Office of Management and Budget at the White House, and with leaders within the real estate and community development industries. 

The initial response was very positive from a number of quarters, particularly those people most concerned with the growing federal debt and issues of productivity. I will never forget one of our meetings with a senior White House official. We showed him our initial estimates of the savings that were possible from potential reduced subsidy expenditures as well as lower default rates on federal mortgage and loan programs as a result of increased employment and income in low and moderate communities. He was ecstatic about the potential to save billions while reducing poverty – all recently made possible by new technology. He and many other government officials – when they saw the initial estimates emerging from the loan sales and our aggregates of the extraordinary amounts of federal monies being wasted by place – realized the potential when a negative financial return on investment is reengineered to a positive return on investment in a place. 

Private investment leaders were also enthusiastic. During one presentation, the head of portfolio strategy for one large corporate fund said with astonishment, “This is terrific. We can save the country and make a fortune doing it.” Making a fortune was a good thing. One of our biggest concerns was achieving a sufficient investment performance on pension fund capital to ensure that retirement benefits were adequately funded. Hamilton was proposing a financial model that would also help fund retirement obligations as a result of pension funds profiting from the wealth created by reducing poverty. 

Others were not so positive, including special interests whose business had become managing “the poor” and who would be out of a business if new tools and opportunities were to significantly decrease the number of people who were poor. Many of these were traditionally powerful Democratic constituencies, including private for-profits, foundations, universities and not-for-profit agencies that had built up a significant infrastructure servicing and supporting programs to house, feed and supervise poor people. If people were no longer poor, what was their purpose? When we made a presentation to a group of leading foundations, in partnership with a Los Angeles entertainment company interested in using entertainment skills to make training fun, the head of low-income programs at Fannie Mae told me that it was the most depressing presentation he had ever seen. It implied that the poor did not need his help – that his life and work had no meaning. It appeared he did not want to end poverty. His personal meaning was derived from poverty continuing, if not growing. Real estate interests that were hoping to gentrify neighborhoods as a result of welfare were also not pleased. They would make more money turning over populations rather than helping the current population improve without moving. Their allies were enforcement teams like the HUD OIG that won funding and generated revenues from helping to get one group out, so another group could be moved in. 

We were warned that the HUD Inspector General’s office had a very negative response to the "neighborhood networks" model of community learning centers, with one of the enforcement team members referring to such efforts as “computers for niggers.” Essentially, the vision we were proposing was in competition with their enforcement business, which consisted of dropping 200 person “swat” teams into a neighborhood to round up and arrest lots of young people who were in the wrong place at the wrong time and could not afford an attorney. This required a fundamentally different approach and philosophy. One model proposed helping the people in a place improve. The other proposed rounding them up and pushing them out so that new people could be moved in. 

The highly successful HUD loan sales had also run into a problem with the staff of the HUD Inspector General’s Office. According to HUD staff, the HUD OIG staff wanted the HUD loan sale staff to withdraw loans from sale portfolios so they could pursue civil money penalties against the building owners. If the loans were sold, it would be better for the FHA fund and for building residents and the surrounding communities. However, it would make less money for the “Sheriff of Nottingham” business in HUD OIG. The IG and General Counsel staff were apparently indifferent to overall best interests of the government on a government wide basis let alone taxpayers and communities. 

Years later, when HUD Inspector General Susan Gaffney was asked during a deposition what the recovery rates were on HUD’s defaulted mortgage portfolio before, during and after the loan sale program that The Hamilton Securities Group pioneered, she said she had no idea. Her attitude suggested that this was not an important piece of information. Which suggests that she found something that had billions of impact on the FHA Funds each year to be of no interest. The focus in federal enforcement was on activities that made money and garnered funding support and headlines directly for the enforcement teams. This “for-profit” philosophy was surprisingly blatant. I was reminded of the Congressman who jumped up from dinner to cast his vote in appropriations committee and as he rushed off said to me, “Let’s face it, honey, I’m only here to protect my shit.” 

In late 1995, The Hamilton Securities Group began work on Community Wizard, a software tool designed to facilitate community Internet access to all public data and some private data on local resource use, including federal tax, expenditures and credit data. The initial response to the tool from Congress, HUD and our technology networks was astonishing. People were ecstatic to realize that they did not have to continue to live and work in the dark financially. It was a relatively easy thing for new software tools to help people learn about the flow of money and resources in their community. Additional software tool development also resulted in numerous tools to analyze subsidized housing in a place-based context, including detailed pricing tools that combined significant databases on government rules and regulations with all of our pricing data from the various loan sales, with databases about mortgage, municipal and stock market financing of homebuilding and home ownership. Such tools would allow people to take a positive and pro-active role in insuring that government resources were well used. Such tools would allow investors to improve the performance of local investment -- particularly venture and equity investment in small businesses and farms.

There was only one problem. If communities had easy access to this data, the procentralization team of Washington and Wall Street would be in trouble. Everything from HUD real estate companies to private prisons would be shown to make no economic sense – other than to generate private profits and capital gains for insiders. And billions of government contracts, subsidies and financing would be shown to make no economic sense – other than to generate private profits and capital gains for insiders. Indeed, communities were better off without many of these activities and funding. Through our software, private citizens would see the cost of decades of accumulated “fees for our friends.” 

A case in point was a meeting I had with a former partner of Dillon Read who I had hoped to recruit to Hamilton in 1996. He came to our offices and during my presentation of our plans for community venture, told me that the situation was hopeless and that our tools would make no difference. I powered up Community Wizard and our software tools on the monitors and asked him where he lived. He said “Bronxville, New York.” I had one of my team print out from our databases a list of federal expenditures in his neighborhood. When he saw the first item, he exploded with rage, “$4 million last year for flood insurance? That is ridiculous. That is corrupt!” $4 million of flood insurance sounded pretty innocent to me and I said, “why is that corrupt?” He said, “Bronxville is on a hill. I have lived in Bronxville for many years and I have never seen or heard of a flood.” It is typical that someone with years of experience in a place can spot potential waste and re-engineering opportunities much faster when presented with detailed government financial information than someone who does not know the place. 

As the former Dillon Read partner started to read through the details of the annual expenditures, he became more and more upset. The next day we were scheduled to speak by conference call after he returned to New York. I called and called at the appointed time but the line was busy. When I finally got through, he said he had been on the line with the Deputy Mayor of Bronxville for hours going through the data we had provided him. He said, “All this corruption is going to stop.” 

I said, “I thought you said it was hopeless.” 

And then he said something to the effect of "that was until I got the numbers for my neighborhood.” He understood that the corruption is funded one neighborhood at a time. If each neighborhood cuts off or re-engineers the flow of wasteful or corrupt government funds, the situation can transform in a significant way nationally and globally. You have to cut off the money to the bad guys at the root. And he had realized how much money per person was being wasted when he saw the waste on a human scale where he could both see how the resources could be properly used and could do something about it. 

This was, however, before we even addressed the question: “Who was bringing in narcotics and where was all the money from the trafficking and other illegal activities going?” If enough people stopped dealing drugs and taking drugs, then who needed more prisons and all these enforcement agencies and War on Drugs contractors? And how did all of this connect with the stock market and the mortgage markets and the fraud in those markets? 

Ask and answer those questions – as communities would now be able to start to do with tools like Community Wizard and our tools – and much Iran-Contra style narcotics trafficking, the private prison industry and the “Sheriff of Nottingham-style” enforcement programs so in vogue at the White House, DOJ and HUD OIG might just be dead in the water. Unfortunately, that might have profound implications for the existing financial market as many corporate and government securities depended on the continued flow of wasted government expenditures. 

As part of our efforts, we started to publish maps on the Internet of defaulted HUD mortgages in places with significant defaulted mortgage portfolios and to encourage HUD to offer place-based sales that would allow bidders to bid on different types of HUD related mortgages and properties in one place. If successful, it would permit us to also create bids that optimized total government performance in a particular place – including assets from other agencies as well as contracts, subsidies and services. 

One of the maps we put up in the spring of 1996 showed the properties that were financed with defaulted HUD single-family mortgages in South Central Los Angeles, California. The map showed significant HUD defaults and losses in the same area as the crack cocaine epidemic described by Gary Webb in Dark Alliance. Such heavy mortgage default patterns are symptoms of a systemic and very expensive problem – including systemic fraud. This could occur, for example, in situations such as those in which mortgages were being used to finance homes above market prices with inflated appraisals (one of the patterns of HUD fraud documented by the Soprano TV show) or where defaulted mortgages or foreclosed properties were being passed back to private parties at below market values, or where these types of mortgage fraud were supporting mortgage securities (such as those issued by Ginnie Mae, Freddie Mac and Fannie Mae) that did not have real collateral behind them. This is the type of mortgage fraud that launders profits in a way that can multiply them by many times. Los Angeles was also the area with the largest flow of activities in the Department of Justice’s Asset Forfeiture Fund. Whether drug arrests and incarcerations, legal support for HUD foreclosures and enforcement or asset seizures and forfeitures – these maps were illuminating areas that were big business for “Sheriff of Nottingham-style” operations.


Chapter 12 
A Note on Protecting the 
Brand with Dirty Tricks 
Dirty Tricks
The process and technology of compromising and controlling honest business and government leaders and journalists – or destroying them when they can not be controlled – are closely guarded secrets known mostly to those who inhabit the covert world or, such as myself, are privileged to have survived their initiation and real world training program. [59] To understand how the process works and the extraordinary resources invested in such dirty tricks first requires an appreciation of the importance of “brand” to the management of organized crime as it is practiced through Wall Street & Washington.

The Wikipedia online encyclopedia defines “brand” as: 

“...the symbolic embodiment of all the information connected with a product or service. A brand typically includes a name, logo and other visual elements such as images or symbols. It also encompasses the set of expectations associated with a product or service which typically arise in the minds of people. Such people include employees of the brand owner, people involved with distribution, sales or supply of the product or service, and ultimately consumers.” 

A successful venture capitalist like John Birkelund would tell you that a great brand can make or break a company and its stock market value. 

The supremacy of the central banking-warfare investment model that has ruled our planet for the last 500 years depends on being able to combine the high margin profits of organized crime with the low cost of capital and liquidity that comes with governmental authority and popular faith in the rule of law. Our economy depends on insiders having their cake and eating it too and subsidizing a free lunch by stealing from someone else. This works well when the general population shares in some of the subsidy, grows complacent and does not see the “real deal” on how the system works. However, liquidity and governmental authority will erode if the general population becomes aware of how things really work. As this happens, they begin to understand the power of innovative technology and re-engineering of government resources to create greater abundance both for themselves and other people. As this happens, they lose faith in the myth that the current system is fundamentally legitimate. This jeopardizes the financial markets that depend on fraudulent collateral and practices to continue to work. It also jeopardizes the wealth and power of the people who are winning with financial fraud. 

In short, transparency blows the game and cannot be allowed. No expense will be spared to insure that the insiders – at the expense of the outsiders – control financial data. As Nicholas Negroponte, founding Chairman of the MIT Media Lab, once said, “In a digital age, data about money is worth more than money.” 

As a consequence, extraordinary attention and sums of money are invested in affirming the myth and appearance of legitimacy. This includes creating popular explanations of why the rich and powerful are lawful and ethical and the venal poor, hostile foreigners, crafty mobsters and incompetent and irresponsible middle class bureaucrats are to blame for the success of narcotics trafficking, financial fraud and other forms of organized crime. 

If the normal successful retail industry – for example, women’s clothing or cars – has an advertising and marketing budget of – let’s just pick a number of say 10% of revenues – then what do we think that an estimated $500 billion-$1 trillion of annual U.S. money laundering flows will spend to protect its market franchise? Working with our number of 10%, how do we think $50-100 billion would be spent to protect the brand – particularly when governmental budgets can be used to fund the effort? 

As a result, extraordinary amounts of money and time are spent destroying the credibility of those who illuminate what is really going on. All of this despite the obviousness of the economic reality that those whose wealth is growing the most must have an economic relationship to the business generating the most profit. Or, as in the words of John Gotti,Jr., in response to allegations that the Gotti crime family was dealing drugs, “Who can compete with the government?” 

Only when you understand the value of the brand can you understand the extraordinary investment and criminal methods used to stop and suppress our software product Community Wizard and try to frame The Hamilton Securities Group and myself.


Chapter 13 
“You are Going to Prison” — 1996 
Though a fictional movie, Enemy of the State with Will Smith and Gene Hackman shows how targeting a person works in Washington, D.C. Will Smith plays a Washington lawyer who is targeted in a phony frame-and-smear campaign by U.S. intelligence agency personnel who are afraid that he has evidence of their assassination of a Congressman. The spook types have high-speed access to every last piece of data on the information highway – from Will's bank account, to his telephone conversations, to his exact location – and the wherewithal to destroy his career and threaten his life. The organizer of an investment conference once introduced me by saying, "Who here has seen the movie Enemy of the State? The woman I am about to introduce to you played Will Smith's role in real life." 

One day I was a wealthy entrepreneur with a beautiful home, a successful business and money in the bank. The next day I was hunted, business assets seized, living through some eighteen audits and investigations, a smear campaign directed not just at me but also members of my family, colleagues and friends who helped me, and nine years of highly personalized litigation against The Hamilton Securities Group. For many years, I and those helping me lived with serious physical harassment and surveillance at the hands of mostly unseen, dark forces. Events such as home break-ins, stalking, poisonings, having houseguests followed, friends, colleagues and family warned to not associate with me, a dead animal left on the doormat, and worse became commonplace.[59

The problems started at the end of 1995 and relentlessly evolved into significant investigation and litigation in 1996.[60] Both frontal and covert attacks came in waves that made no sense to me until we started to map out in chronological form the parallel efforts to suppress Gary Webb’s "Dark Alliance" story, and the timing of stock market profit taking by investors in HUD property managers and private prison companies such as Cornell Corrections. There was a war going on for the rich corporate cash flows determined by the federal budget – between those who made money on building up of communities and a peace economy, and those who made money on the failure of communities and a war economy. As stock market prices and the Dow Jones Index rose, this economic warfare grew in fierceness. For example, a comparison of how DOJ handled The Hamilton Securities Group – a firm that helped communities succeed – versus how it dealt with Enron – a company that criminally destroyed retirement savings and communities – underscores much about the system's true intentions.[61

In March 1995, the first billion-dollar HUD loan sale was a significant success. The performance stunned both traditional HUD constituencies and Wall Street. Barron's published an article, “Believe It or Not, HUD Does Something Right for Taxpayers” (Jim McTague, April 10, 1995). Many were caught off guard by the success of the sale, including the prices that resulted from the combined ingenuity of the investment banking and software technology involved. It established the team at FHA, with The Hamilton Securities Group as lead financial advisor, as significant leaders in authentic reengineering, as opposed to what sounded to me like the press release reengineering coming from Al Gore and Elaine Kamarck’s Office of Reinventing Government. 

A hint of the trouble to come was the response from Mike Eisenson, head of the Harvard Endowment’s private equity portfolio. Mike, later to become known for his role in financing George W. Bush's oil company, Harken Energy, was responsible for Harvard's investment along with Harvard board member DynCorp Chairman Pug Winokur in National Housing Partnerships (NHP), one of the largest HUD property management companies. As we were preparing to bid the first billion dollar loan sales, Mike picked up his phone when I called him and said to me “Fuck you!” He then proceeded to explain that he hated our bidding process – the only way Harvard could win was by paying more money than the other bidders. One of the reasons that this was a problem was that NHP would be forced to compete for its defaulted mortgages and would be held to market standards on property management fees or would lose management business on properties where HUD transferring the mortgage gave the new owner the right to transfer the property management. NHP was said to be Mike's single biggest investment. To sell it at a profit, he needed to do NHP to do an IPO. That meant NHP needed more government insider deals, not less. 

The bid process I had created was pitting large and small real estate, mortgage and securities investors against each other in a manner that significantly increased competition relative to traditional bidding practices. This resulted in HUD attracting significant new investment interest in buying their defaulted mortgages and significantly higher recoveries on those mortgages. As a result, in approximately $10 billion of loan sales lead by The Hamilton Securities Group, HUD was able to generate $2.2 billion in savings to the FHA Fund. Later audits confirmed that the loan sales had a positive impact for communities in which the properties were located. 

One of the many ironies of the loan sales was that J. Roderick Heller III, Chairman and CEO of NHP had asked me to start Hamilton to serve as lead investment bank to NHP. When I joined Rod and Mike at the Harvard Club in the early 1990's to sign the contract, they tried to significantly change the terms of the deal and essentially abrogated Rod's verbal contract. If we had proceeded to help NHP as originally planned, we would not have served as lead financial advisor to HUD/FHA. If the Harvard private equity group resented us helping the government regulator of the largest investment in their portfolio, they had no one to blame but themselves. 

Another indication of the trouble to come was that I started to receive bizarre e-mails from Tino Kamarck, the husband of Elaine Kamarck who ran Gore's Office of Reinventing Government at the White House. I had met Tino, who was then #2 at the Export Import Bank and later to be Chairman, when he worked on Wall Street but did not know him well. Out of the blue and by e-mail, he expressed extraordinary and inaccurate notions of my lifestyle and personal habits and proposed that he and I have an affair. I suspected at the time that he had ulterior motives. Sex in Washington, D.C. rarely has anything to do with sex – it’s usually about dirty tricks and dirty politics. One of the inspirations for my starting my own firm had been twenty minutes of listening to Jack Kemp, Secretary of HUD while I was Assistant Secretary, order me to lengthen my skirts.

This meeting had nothing to do with my skirts. I suspected that it was an unsuccessful attempt by Jack to get me to lose my temper. I was running the FHA money too cleanly. Despite my offer to move elsewhere in the Administration, Jack preferred to force me out in a manner that could be blamed on me. 

To give a sense of the interconnectedness of things, one of our problems appeared to be Jonathan Kamarck, who was on staff in the Senate appropriations subcommittee that was such a significant supporter of HUD’s Operation Safe Home and was uncomfortable with the impact of the HUD loan sales on traditional real estate interests. Jonathan told me that he was Tino’s cousin and so presumably was close to both Tino and Elaine Kamarck. By the time the allegations against The Hamilton Securities Group were discredited and Harvard Endowment had reaped large profits cashing out of their HUD related investments, Elaine was working for Harvard and Tino was working for a real estate firm in Boston that had intimate ties with Harvard and had managed to snag a contract with HUD to do some of the work that The Hamilton Securities Group had been doing. Years later I visited with one of Jonathan’s colleagues on the Senate appropriations subcommittee who had been promoted to chief of staff to the subcommittee chair, Senator Kit Bond, who expressed concern that “HUD was being run as a criminal enterprise.” When only months later the subcommittee engineered a large increase in HUD’s appropriations, I was reminded of what Bill Moyers, former White House Press Secretary, had said on the CIA’s alliance with the Mafia, “Once we decide that anything goes, anything can come back to haunt us.” 

The politics took a serious turn when someone from the HUD Inspector General’s Office reported that they were in a meeting with Andrew Cuomo, then Assistant Secretary of Community Development at HUD and soon to be Secretary, and the HUD Inspector General Susan Gaffney. Cuomo reported that he was arranging to get rid of The Hamilton Securities Group and me. Cuomo was considered to be very close to Al Gore and his White House office and efforts to “reengineer government.” Within months, it was reported to me by Nic Retsinas, then Assistant Secretary of Housing, that the White House had ordered him not to hire The Hamilton Securities Group on the next round of contracts – an order which he said he ignored. Later, an associate of the Assistant Secretary of Administration, the appointee who oversees the contracting HUD office, reported to me the same White House orders. (See new article by Catherine Austin Fitts: “Unanswered Questions About Andrew Cuomo” at the end of this chapter.) 

Notwithstanding the orders from on high to the contrary, in January and April of 1996 a new HUD/FHA contract and task order were awarded to The Hamilton Securities Group under which HUD was to pay Hamilton a base of $10 million a year for two years to serve as the FHA’s lead financial advisor. Our successes – from profitable HUD/FHA contract awards to analysis generated by software and database innovations that had Alan Greenspan asking for briefings from our analytics team for the Federal Reserve staff – was a surprise to some who had thought our commitment to technology would not make a significant difference in marketplace transactions and bottom line dollars and sense. 

This was a period of risk and transition for many. Dillon Read and John Birkelund were recovering from the unexpected failure of the firm's lead investor, Barings. After helping the Dillon partners buy the firm back from Travelers in 1991, Barings had collapsed as the result of an Asian trading scandal in early 1995. With Dillon as lead investors, Cornell Corrections was losing money. Former Dillon Chairman and Treasury Secretary, Nick Brady, was learning about the difficulties of starting up his own firm, Darby Overseas Investments, Ltd, in Washington, D.C. The Clinton team was wondering what would happen to them if the Republican takeover of Congress in the 1994 elections translated into their being thrown out in the 1996 elections. Mike Eisenson’s compensation was constrained by publicity regarding salaries paid by Harvard Management and only later was he inspired to start his own firm (with – imagine this – a contract from Harvard Management that paid $10 million a year – the same as The Hamilton Securities Group’s HUD contract.) One can only wonder what was going on behind the scenes at the CIA and DOJ after the Memorandum of Understanding was rescinded in August 1995. Presumably, the rescission left the CIA obligated to report all narcotics trafficking to DOJ and required DOJ to see to it that the CIA satisfied such obligations. Hence, any transparency of the kind that Hamilton was creating with its software tools could significantly increase the criminal liabilities of CIA, DOJ and their contractors. When people are afraid or managing rising risk, they are sometimes jealous of a start-ups success and frustrated by their inability to openly insist that newcomers respect traditional market relationships, let alone illegal, covert lines of authority and cash flows. 

In the late spring of 1996, I had dinner at a National Housing Conference event with Scott Nordheimer, a HUD developer who had been pursuing business with DOJ’s Federal Bureau of Prisons. Scott had recently gotten out of prison as a result of a securities fraud conviction and believed that the future for our data servicing business was in prisons. He tried very aggressively to persuade me that the opportunities in prisons were significant – in contrast to the job-creating opportunities of our community-based model, which he said would not be "politic." When I declined Scott's invitations to meet with the Federal Bureau of Prisons, I suspect that he went ahead and gave DOJ our data servicing business plan. He was soon to become very successful in HUD’s Hope VI program. This was a matter of some controversy as HUD was forcing out tenants who had a felony record while allowing the building to essentially be owned and managed by partnerships with a convicted felon in the lead.[62

At the dinner in the late spring of 1996, Scott looked quite pleased with himself and explained that a decision had been made to frame me and that I was in serious trouble. He said, “Well, we tried to have you fired through the White House but that did not work, so now the big boys have gotten together and decided you are going to prison.” 

The other board members of The Hamilton Securities Group and myself had been extremely careful in the way that we had built and managed the company. We had seen other firms targeted with government dirty tricks and had done everything in our power to ensure that we could withstand corrupt audits and trumped-up, political investigations. I responded to Scott’s dire predictions, “It will never work, Scott. We are too clean.” Scott replied, “You don’t get it. The fix is in. There is nothing you can do.” That was the first time I sensed that it was a matter of great personal desire for some one or group to see me in a prison cell and that some aspect of this was personal. 

On August 6, 1996, Hamilton received the first subpoena in what became years of subpoena warfare by the HUD Inspector General (investigating under delegated authority by DOJ.) At the time, I did not know that DOJ was holding secret hearings in Federal district court as a result of a qui tam filing in June 1996 by Ervin & Associates, in which Hamilton was falsely accused of civil and criminal violations. The investigation was conducted under the pretext of a “qui tam lawsuit” – a lawsuit brought by a private party as a bounty hunter for the government looking to make 15-30% of the government “damages” (which could be trebled) recovered from a private party found to have made “false claims” against the government. The delegation of subpoena authority to HUD was used by the government to circumvent the requirement to disclose this to the targets of the qui tam, including The Hamilton Securities Group. 

Ervin & Associates was founded by John Ervin, a former employee of Harvard's HUD property management company, NHP. Ervin had won contracts to service defaulted and co-insured HUD mortgages and in 1994 won a contract to collect financial statements for HUD-supported apartment buildings. Through these contracts, Ervin had a rich flow of data on HUD-assisted and financed, privately-owned apartment buildings. In a later deposition, Ervin testified that he was able to refer cases worth many millions of dollars for civil money penalties to the HUD OIG. In short, he claimed to be a part of the profit making business of the HUD OIG is Operation Safe Home. As HUD disposed of more and more mortgages through the loan sales, Ervin’s business diminished. Presumably, at some point, this may have diminished his ability to generate profitable leads and revenues for HUD OIG. 

The first subpoena was the beginning of a two-year period during which I was not allowed to know of the existence of the qui tam lawsuit that resulted in the destruction of my company and a four-year period during which I was not allowed to read or hear the allegations made against my company and me or know who made them. It was five years before I had access to transcripts of sealed court hearings (unattended by me or my counsel, of course) in the qui tam case. It was seven to eight years before Ervin and the government were required to put forward evidence attempting to support their baseless claims and before The Hamilton Securities Group and our attorneys had the opportunity to refute the false charges in a court of law sufficient to shut down the smear campaign being used against me as an investment banker in the market place. Throughout this period, both the HUD Inspector General and private parties shared bits and pieces of the supposedly sealed allegations repeatedly with both the press and members of Congress. 

Four days after we received our first subpoena, on August 10th, 1996, Jack Kemp, the Secretary of HUD when I was Assistant Secretary, announced he was the Republican candidate for Vice President. Jack was considered someone who would be effective at persuading women and minorities to support the Republican ticket. The reality of Kemp’s real philosophies and history were much darker and much less inclusive. Initially at the request of my attorneys, I was later to document some of my experiences with Kemp's darker underside, including his efforts to provide subsidies illegally to a project reported to be developed by Andrew Cuomo when Andrew was an attorney in New York helping to raise money for his father, Mario Cuomo, then the Governor of New York.[63

Eight days later, on August 18th, 1996, Gary Webb’s “Dark Alliance” story broke in the San Jose Mercury News implicating the CIA and, ultimately, DOJ in complicity to traffic in narcotics. This narcotics trafficking had occurred during the Iran-Contra period when Bush was Vice President and Oliver North as staff were in charge of the National Security Council. Bush’s close friend and supporter Nick Brady and partner John Birkelund at Dillon Read were leading investment banking for RJR Nabisco, which according to the European Union was complicit in laundering significant profits for global narcotics cartels and mafia at this time. Bill Clinton was Governor and Hillary Clinton was a partner at the Rose Law firm in Arkansas where a portion of the revenues from the Mena operation were allegedly laundered through the state housing agency. The very same Arkansas agency was ultimately governed by Governor Clinton and served as bond counsel by the Rose Law Firm. Stanley Sporkin at that time was serving as the General Counsel of the CIA while the now-infamous Memorandum of Understanding with DOJ was crafted. If you follow the likely cash flows in and out of the alleged Mena and Arkansas state housing bond operations and the alleged narcotics trafficking and HUD mortgage defaults in South Central Los Angeles, and the allegations surrounding the events and subsequent cover ups, there was an uncomfortable closeness of networks between those in Webb’s story and those in power. 

I had not read or heard about the “Dark Alliance” allegations at the time. An expression of the extraordinary compartmentalization of our society, the members of my team who later confided that they had been aware of the story, had not mentioned it to me. They did not see the connection between the threat posed by our leadership in reengineering government or providing community access to software tools and databases about federal resources by place, and government complicity in narcotics trafficking and related HUD fraud alleged to be laundering the proceeds. 

I was buried in the workload avalanche of running a company while dealing with subpoenas and a smear campaign unleashed initially by a team of reporters from U.S. News & World Report. I did not notice in early October when the Washington Post published the “results” of its “independent” investigation into Gary Webb’s allegations, saying that there was insufficient evidence to support Webb’s claims. I was also unaware that while the White House was trying to have my contracts ended, Elaine Kamarck in Vice President Al Gore’s Office at the White House was busy working with DOJ Deputy Attorney General Jamie Gorelick to make sure that the private prison industry was blessed with oodles of contracts. 

While I and my colleagues endured multiple subpoenas and smear campaigns and Gary Webb was in the process of defending his story at the San Jose Mercury News (later to lose his job the following year), Dillon Read filed a registration statement with the SEC for Cornell’s initial public offering on July 17th, amending it on August 26th, September 10th, and September 30th with a final prospectus filed on October 4, 1996. This was good news for Dillon Read and its investors. Thanks to the successful efforts of the Clinton Administration to pass new crime legislation and ensure DOJ bureaucracy support for outsourcing contracts to run federal prisons to private prison companies – including a gush of contracts to Cornell from the fall of 1995 to the spring of 1996 – Dillon Read’s Cornell stock purchased at an average price between $2-3 per share, was now worth $12 a share, a 400-600% increase. In addition to their stock profits, Dillon pocketed big underwriting fees as well as the lead investment bank arranging the stock offering. In nine months, the Clinton Administration’s increase in contracts and acquisition of entities with contracts supporting 1,726 prisoners had literally made the company. The IPO reflected a stock market valuation of $24,241 per prisoner. What that means is that every time HUD’s Operation Safe Home dropped swat teams into a community and rounded up 100 teenagers for arrest, the potential value to the stockholders of the prison companies that managed the juvenile facilities and prisons was $2.4 million. Operation Safe Home could easily afford to do so as a result of significant increases in appropriations arranged that summer and fall through the HUD IG Susan Gaffney's biggest congressional supporters -- Jerry Lewis (Republican-San Bernardino, California), Chairman of the House appropriations committee, and Senator Kit Bond (Republican-Missouri), Chairman of the Senate HUD appropriations subcommittee. 

All that was needed for prison privatization to work was the suppression of truth – about who was really bringing in the drugs and why it was essential for citizens to not see or understand the real deal on “how the money worked” in the places in which they lived and worked. If there had been a map of the real deal about how the money works in communities and in government, along the lines of the software being developed by Hamilton when the qui tam lawsuit put us out of business, the private prison industry might not have gotten off the ground. If one were to document the true criminality or the true economic waste within the system, it was pretty apparent that the real criminals and the real financial drain were not the kids being rounded up by HUD’s Operation Safe Home and not the owners and employees of The Hamilton Securities Group. 

Always ready with the best of spin, Hillary Clinton published It Takes a Village in September while Bob Rubin, as Secretary of Treasury (at this writing a senior executive in the Office of the Chairman at Citigroup), talked about the importance of economic development in the inner city. Rubin’s former firm, Goldman Sachs, one of the largest bidders on the HUD loan sales, had been one of the largest investment bankers in Arkansas during the Mena period. Linda Ives was the courageous mother of an Arkansas teenager killed by police in August 1987 when he and a friend apparently accidentally encountered a cocaine drop at the Mena operation. Ives, working with journalist Mara Levitt, persisted in illuminating many of the events surrounding her son’s death – initially ruled a suicide – and the corruption in Arkansas.[64] Ives could tell us why it takes an entire village to raise a child when leaders like Hillary Clinton and Bob Rubin and their partners and colleagues are making money in the vicinity. 

I have found that, just when things look their darkest, something happens that can transform the course of events. On November 15, 1996, CIA Director John Deutch was confronted with alleged evidence of CIA narcotics trafficking before a large audience of citizens and media cameras. Deutch was there to address Garry Webb’s “Dark Alliance” allegations — which described CIA complicity. The confrontation was later memorialized in the award winning online video by the Guerilla News Network, "Crack the CIA." Deutch stated on camera that Webb's allegations would be investigated by the CIA Inspector General, leading to Congressional hearings. Those hearings included the one right after Hamilton's office and records were taken over by the court. 

It would take me two years of standing in the face of an onslaught of enforcement terrorism and terrifying physical harassment and surveillance before I was to see the videotape of that event and find and read Gary Webb's work. That was when I began the education through which I would come to understand why transparency of neighborhood financial flows was sufficiently threatening to the stability of the global financial system such that powerful interests might insist on the destruction of The Hamilton Securities Group and our software tools.

Unanswered Questions about Andrew Cuomo 
By Catherine Austin Fitts (September 2006) 

“HUD is Being Run 
as a Criminal Enterprise” 
In 2000, three and a half years after Andrew Cuomo became Secretary of the Department of Housing and Urban Development (“HUD”), I met with a senior staff assistant to the Chairman of one of the appropriations committees for HUD. When I asked what was going on at HUD, the staff assistant said, "HUD is being run as a criminal enterprise." I replied, “I don’t disagree.” 

Cuomo’s reign at HUD was not the first time that HUD had been run by a New Yorker with ambitions for higher office. From 1989-1990, I served as Assistant Secretary of Housing and Federal Housing Commissioner in the first Bush Administration and watched Jack Kemp, a former Congressman from Buffalo, try to balance the politics of getting ahead with the needs of citizens and communities at a federal agency in which special interests had traditionally had the upper hand. 

At the beginning of the Clinton Administration in 1993, Kemp was replaced by former San Antonio mayor Henry Cisneros who recruited a new team of HUD political appointees, including Andrew Cuomo as Assistant Secretary of Community Planning and Development. 

After leaving HUD in 1990, I had started an investment bank and financial software developer, The Hamilton Securities Group. In September 1993, under Cisneros, Hamilton was hired by the Federal Housing Administration (FHA), the mortgage insurance arm of HUD, in a competitive bid process to serve as lead financial advisor. Hamilton’s responsibilities included designing and implementing a $10 billion loan sale program between 1994 and 1997 and providing portfolio strategy support for what was then a $400 billion portfolio of mortgage insurance-in-force, mortgages and real estate.

A few weeks after Clinton’s re-election in November 1996, Cisneros resigned to manage the results of a Department of Justice investigation into his disclosure regarding payments to his former mistress. He was replaced by Andrew Cuomo after an unexpected federal investigation regarding HUD grants removed the Mayor of Seattle from consideration. ii In one short period, the Department of Justice knocked out the Secretary and the leading contender for Secretary, paving the way for Andrew Cuomo. 

The following year, Cuomo fired Hamilton in a highly political manner, canceling the loan sales program on the false pretext that HUD could not do loan sales without Hamilton. Creating political air cover for Cuomo’s cancellation were allegations filed by a litigious HUD contractor who was subsequently showered with a generous contract and settlement by HUD under Cuomo. The contractor’s allegations were the basis of a combined HUD Inspector General and Department of Justice investigation which, like the investigation of the Mayor of Seattle, came up empty.

One of the chief beneficiaries of Cuomo’s ascendancy to Secretary and the subsequent cancellation of the loan sales were the developers, owners and managers of apartment buildings that were subsidized by HUD and often financed through FHA and Ginnie Mae. Ginnie Mae is the HUD unit which guarantees securities issued to finance pools of mortgages insured by FHA. Many of these apartment buildings had been originally financed through tax shelter syndications. 

The largest HUD subsidized portfolio at the time was the one owned by Insignia, chaired by Andrew Farkas. On September 5, 2006, as Andrew Cuomo was running for the democratic nomination for Attorney General of New York, Wayne Barrett published “Andrew Cuomo’s $2 Million Man” in the Village Voice. Barrett reported that Cuomo’s compensation from Farkas’s company, Island Capital, in 2004 and 2005 totaled $1.2 million and that Farkas, family members and business associates had donated $800,000 to Cuomo’s campaigns since he left HUD. Barrett describes Cuomo’s role as Secretary of HUD in approving an out of court settlement with Insignia (regarding litigation alleging a HUD subsidy being improperly used to pay kickbacks) shortly before Insignia’s sale to AIMCO in 1998. 

With Insignia valuations reflecting the benefits of its settlement of the kickback litigation, the cancellation of the HUD loan sales and related policies increasing the private value of HUD subsidized portfolios, Farkas sold out to AIMCO in 1998 for $910 million, described by his attorney as a “fantastic price.” 

A question that remains unanswered is whether the price of the Insignia sale to AIMCO in 1998 was simply fantastic or whether – given the pattern of events around it – it was inflated with government resources and decisions arranged in a criminal manner. 

This question raises a second question – whether the $2 million that Farkas and his network have paid to Cuomo and his campaigns since then represent a kickback from the Insignia sale to AIMCO and whether Cuomo’s compensation is simply fantastic or something more. 

Andrew Farkas & HUD Landlord 
In 1995, HUD officials asked Hamilton to help them define their options related to their portfolio of subsidized apartment buildings. HUD had provided significant amounts of “project-based” subsidies to fund these apartment buildings. A project-based subsidy is one that funds and is attached to a building as opposed to tenant-based vouchers that fund payment of rents by a tenant. Essentially, a project-based subsidy goes to the building owner and manager. A tenant-based voucher can move with the tenant from building to building. Many of the apartment buildings supported by expiring HUD project-based subsidies had been financed with mortgages insured by FHA and enjoyed the financial benefits of a variety of federal tax benefits. 

There were a significant number of apartment buildings in the HUD subsidized portfolio that had project-based subsidy contracts expiring during the second half of the 1990’s. Federal decisions as to whether to renew expensive project-based subsidy contracts or instead offer more cost effective tenant vouchers, whether to refinance existing mortgages or auction them if they defaulted and whether or not some partnerships would be subject to recapture of prior tax benefits would have a dramatic impact on the profitability of companies like Insignia. Data supplied by HUD to Hamilton at the time showed that the tenant population in question was primarily women and children with high percentages of elderly and minority. A significant number were drawing on welfare, health care and other federal payments. 

As the debate and the budgetary implications of the expiring contracts on HUD subsidized apartment buildings developed, I received an unexpected call at Hamilton from Andrew Farkas. He explained that it was essential that all subsidies go to the owners of the properties in the form of “project based” assistance. He said that if the subsidy were used to fund tenant vouchers that the tenants would simply use the voucher to buy drugs (the mechanics of exactly how this would transpire were unclear) and then their children would go homeless. I was so taken aback by his tone that I suggested to him that portraying his tenants as people who were not worthy of government funding might not be the best way to argue his case for project-based subsidy. He seemed quite displeased with my suggestion. 

If Farkas was not happy with Hamilton’s advice as lead financial advisor, he was not the only one. It was our job to regularly estimate or quantify the impact of HUD’s decisions on the federal budget and on communities. Our work was identifying the price that HUD was paying to fund projects in ways that served special interests rather than satisfied objective criteria of financial performance regarding government investment and the health of our housing infrastructure and communities. This financial transparency was causing some government leaders to reconsider their options, while others remained committed to politics as usual. 

After Insignia, NHP was the second largest HUD subsidized owner and manager until it was also purchased by AIMCO. At a dinner of the National Multi-Housing Council in early 1996, NHP’s chairman was clear with me. Renewal of expiring long-term HUD subsidy contracts were important to NHP’s profits. The federal government was morally obligated to subsidize him and other HUD landlords, regardless of the cost to taxpayers or performance for communities relative to more economically sound options. Performance was irrelevant compared to the long-term profits “promised” to HUD insiders. He would not say exactly who had made these “promises.” 

In 1996, I took the pricings on the HUD defaulted mortgage portfolio to staff of HUD’s Hope VI public housing construction program. I explained that HUD had substantial single-family inventory in those same communities. Empty single-family homes could be bought and repaired at a fraction of the price of new construction of public housing by private developer. The HUD official said, "but then how would we generate fees for our friends?" 

Our estimates at that time indicated that the federal government was spending $55,000 a year for a woman and 1.8 children (on average) to live in HUD subsidized private housing with welfare and food stamps in high cost areas in a manner such that they would and indeed could never become taxpayers and get off the dole. Our analysis showed that federal government was spending more per person to fund the HUD-housed poor than the annual average income of the American taxpayer who was being asked to fund the rising cost of the debt issued to pay for this.

HUD was spending $150-250,000 per unit to build Hope VI public housing while HUDforeclosed homes that could be bought and fixed up for $50,000 were available a block away. We were paying large corporations $35-150 dollars an hour to do things that people who lived in those neighborhoods – given advances in information and telecommunications technology -- could be trained to do. The implications were enormous: theoretically, at least, there was the opportunity, using more accurate place based information, to place public finances on a sounder footing in which the tax payers' investment returns were positive. The potential savings across the federal budget were in the billions. 

As the economics of various choices became clearer, tension emerged between HUD landlords and special interests looking for a new and richer round of “fees for our friends” and a new generation of reformers who saw an opportunity to reinvigorate America’s workforce and communities in the face of globalization and the movement of jobs and pension fund capital to countries with younger, more productive populations. 

The HUD landlords were best described by a statement made to me by Dick Ravitch, chairman of the AFL-CIO housing trust and a HUD developer from New York, over dinner at the Jockey Club: "As long as I can get government subsidies, what do I care if people have education or jobs?" Traditional interests were committed to using government subsidies and financing to ignore fundamental issues of productivity. While this would enrich private interests, it would accelerate the issuance of increasing amounts of federal mortgage and Treasury debt, weakening the federal credit and committing future generations to an impossible debt burden. 

The reformers were exemplified by the HUD loan sales team who had succeeded in more than doubling the recovery rates on defaulted HUD loans from 35% to 70-90%, generating $2.2 billion of funding for HUD and deficit reduction. Later audits would indicate that these methods were better for communities than HUD’s traditional methods. However, these higher recoveries were coming out of the profits of companies like NHP and Insignia at a time when investors who were making windfall profits on privatizations globally. Lower profits on HUD related properties then multiplied through to a lower value of their stock.

I was pretty sure where Andrew Cuomo stood in all of this. As reported by Lucy Komisar in “Fees for Our Friends, available on her website, “The Komisar Scoop:” 

Inspector General audit chief Chris Greer was in a meeting with Cuomo and HUD IG Susan Gaffney. Cuomo told them that he was planning to get rid of Fitts and Hamilton Securities. Greer recalled, “It had to do with some audits we were doing. There were proposals that would affect a bunch of folks in New York that had a lot of money and who could help Cuomo. One proposal was called ‘mark to market’ and had to do with the Section 8 [rental subsidies] program. I was managing all the multi-family programs at the time. Cuomo wanted to do away with what we tried to put in place, the ‘mark to market’ program. It would have killed a HUD tax-avoidance program…. 

Greer pointed out, “If there had been ‘mark to market,’ it would treat the HUD Section 8 program like private mortgages in private industry and market them at their true values. You wouldn’t have inflated subsidies, and you would have had more subsidies to give more people. Or you would save tremendous amounts of money that could be used for other purposes. Billions of dollars. Hamilton was a driver on that along with a couple of other folks in HUD. But Cuomo didn’t do it. Money was wasted on these mortgages, the money that went into the fat cats’ pockets.” 

He added, “Cuomo clearly had no use for Austin Fitts. The fights with Fitts were political. Everything Cuomo did was political; he was a totally political animal. He ran the CDP [Community Development Program] block grant in HUD for a long time and fixed the system so awards would be made to places he wanted them made to for political reasons, primarily in New York, because he had his eyes on going back and running for governor.” 

Sometime after being told by Greer that Cuomo, still Assistant Secretary of Community Planning and Development, had indicated that he was planning on getting rid of me and Hamilton, I learned that Cuomo had referred a complaint on the loan sales to the HUD Inspector General. The subsequent investigation was short and found nothing. That’s when John Ervin started to make noise. 

John Ervin Targets HUD Loan Sales 
John Ervin was the founder of Ervin & Associates, a HUD contractor that was servicing defaulted HUD multifamily mortgages. Ervin’s business was shrinking as the loan sale program sold off the mortgages and HUD no longer needed a contractor to service them. Hired while Kemp was Secretary, Ervin’s relationship with HUD deteriorated during Cisneros’s time until HUD fired Ervin for default related to contract performance. 

In mid-1996 Ervin filed two lawsuits, one against HUD and the other, a qui tam lawsuit  filed under seal, against Hamilton and several successful loan sale bidders. Both lawsuits alleged corruption in the loan sale program and were accompanied by extensive lobbying of Congress and the Washington press by Ervin. The qui tam investigation was delegated by the Department of Justice to the HUD Inspector General Susan Gaffney, continuing until 2001. 

I had been informed by the head of FHA in early 1996 that he ignored a White House request that he not award a new contract to Hamilton. At the time of Ervin’s secret filing against Hamilton in mid-1996, Scott Nordheimer, a multifamily developer active in both assisted housing and Hope VI housing, had informed me at a housing industry dinner that I would be the target of a frame, saying, “Well, we tried to have you fired through the White House but that did not work, so now the big boys have gotten together and decided you are going to prison.” Nordheimer was a convicted felon whose associated success in winning HUD development grants during Cuomo’s period at HUD became controversial as tenants with felony records were being evicted from HUD-funded developments. 

In October 1997, with Ervin’s and Gaffney’s efforts creating an environment supportive of “reforming” Cisneros’s financial reforms, Cuomo fired Hamilton for the convenience of the government, using as a pretext a mistake that a subcontractor had made (and which had been reported voluntarily to HUD almost a year before) on two highly profitable and successful loan sales, and withheld payment of $2.2 million owned to Hamilton.

The litigation between Ervin, Hamilton and HUD was finally settled in 2006 after Hamilton’s insistence on trials resulted in Ervin and HUD ending up empty handed with nothing to show for a decade-long fishing expedition other than the mistake Hamilton had voluntarily reported long before we were fired and which had no cash impact on HUD. Meanwhile, Hamilton had produced evidence indicating foul play by HUD, including an affidavit of a HUD Inspector General auditor who had been pressured to falsify her results and left the agency when she would not. 

So where would Ervin get the money to finance such an operation? In 1997, one reporter who interviewed Ervin at his office reported to me that he had a staff of 17 people working full time on the litigation and related campaigning. While all the sources of Ervin’s financing remains an unanswered question, we do know that HUD/Ginnie Mae under Cuomo awarded Ervin contracts in 1998 while Ervin was suing HUD.As a former Assistant Secretary, I can affirm how unusual it is to give contracts to a contractor who was fired for default, has no special skills and is suing the agency. We also know that HUD agreed to a $2MM settlement with Ervin in 2000 at the end of Cuomo’s tenure at HUD after Ervin’s allegations had been proved false and our attorney was adamant that there was no need for HUD to pay Ervin anything, let alone millions. As Cuomo exited HUD to run unsuccessfully for Governor of New York, I was left to deal with a well financed Ervin for another five years. 

Disappearing Pricing Data 
In 1994, Hamilton was retained by NHP to value its multifamily portfolio and related property management business in anticipation of NHP’s selling stock to the public. In the process, Hamilton created a detailed simulation of NHP’s apartment buildings and related tax shelter partnerships and mortgage financings that gave us insight into the impact of various federal policies on the financial value of privately owned HUD subsidized multifamily portfolios. 

The following year, with significant data provided by HUD, we reviewed the impact of various federal policies on the entire HUD- subsidized portfolio. Then, in 1996, we developed, priced and helped HUD sell several portfolios of mortgages collateralized by partially and fully subsidized HUD apartment buildings. Using this data and extensive publicly available databases, we built a suite of software tools that illuminated the value of HUD portfolios as well as the flows of government investment in places and the land, real estate and other assets it impacted. 

Using Hamilton’s pricing infrastructure, it would have been possible in early 1998 to quickly value how much of Insignia’s $910 million sale to AIMCO, agreed to on March 17, 1998, reflected increases in values resulting from Cuomo’s decisions to cancel the loan sales, settle Insignia’s litigation and change expiring contract policies to favor owners. Except for one problem. At the time of our firing by Cuomo in late 1997, HUD’s contracting office had required that HUD data, including publicly available data, be scrubbed from Hamilton’s computers. Then Hamilton’s entire pricing and digital infrastructure was moved under court control the week before Insignia’s sale to AIMCO at the request of HUD’s Inspector General. Many years later, when the court returned control of Hamilton’s inventory, many of the most valuable software tools were mysteriously missing.

Insignia was far from the only company cashing out during this period or the only interest threatened by illumination of government housing and mortgage data and government investment by place. During this time, numerous companies profiting from the large flow of government subsidies, financing and enforcement actions associated with poor people and poor communities, including private prison companies, were doing a brisk business. This was the early stage in the largest housing and mortgage market bubble in history combined with rising prices in the stock market. There were numerous companies and government agencies benefiting from a combination of insider information and the absence of transparency of government investment by place 

How many others who benefited from the destruction of Hamilton’s software tools and databases have financed Cuomo and his campaigns since he left HUD? This is another question about Andrew Cuomo that has yet to be answered. However, the subsequent decline in HUD finances while Cuomo was Secretary is well documented. 

Missing Money 
The federal fiscal year for 1999 started in October 1998, the month that AIMCO reported closing its purchase of Insignia and HUD engineered Ginnie Mae contracts to John Ervin, providing $800,000 in contract payments to Ervin over the next two years. 

HUD failed to produce audited financial statements that year. It’s opening balance from fiscal 1998 required undocumentable adjustments of $17 billion. To force the books to balance in 1999 required $59 billion in undocumentable adjustments. For its audit in 2000, Cuomo’s last year in office, HUD declined to make public the amount of undocumentable adjustments required to balance the books. 

HUD’s inability to produce audited financial statements in 1999 was attributed to HUDCAPS, a system installed and operated with the help of AMS, a contractor who had been paid $206 million since 1993. In contrast to Cuomo’s treatment of Hamilton, AMS was not fired, nor were payments due AMS withheld. Research to date shows no record of AMS or its employees being investigated as a result of the HUDCAPS failures and the extraordinary level of undocumentable adjustments to HUD’s books. 

Not surprisingly, HUD’s rental assistance programs remained on the high-risk list maintained by the Congressional auditor, the General Accounting Office, which is now called the General Accountability Office (GAO). 

These events raise another disturbing question about Andrew Cuomo. Why did HUD finances melt down under Cuomo’s leadership and what, if anything, does that have to do with the billions flowing to large HUD landlords from the government and the stock market, and the millions now flowing back to Andrew Cuomo and his campaigns years later? 

The Heart of the Matter 
In 1997, members of my team working with HUD (now led by Cuomo) asked me to authorize Hamilton helping HUD to prepare its next budget using assumptions on the multifamily portfolio that were known to be false. For example, we were to presume that HUD’s apartment portfolio would not be impacted by welfare reform legislation that had been enacted the year before. As federal data indicated, that high concentrations of tenants in privately owned HUD subsidized housing in large urban areas were getting federal welfare and/or food stamp subsidies, this made no sense. Our assessment was that the combined assumptions that HUD wished to use would make it easier for private owners to displace tenants in a way that would leave the tenants out in the cold without vouchers, while appropriations were preserved to fund project-based subsidies for HUD landlords. 

At one point, the Hamilton team leader for our work with HUD came over to my house to try to persuade me that we should help HUD do this. He said that if we did not help HUD with the budget, he was concerned that we would be fired. We agreed that HUD was probably going to persuade the Office of Management and Budget (OMB) that they could trust the budget, because Hamilton helped prepare it; hence, my concern that our involvement would be used to perpetuate a fraudulent budget. I asked him to define the value of our contract in terms of an acceptable level of children going homeless or dying. How many children should we help be forced to the streets so that we could keep our contract? Suddenly, he stopped and said something like, “Why am I doing this? So what if we lose our contract? We have better things to do in our life than be a party to murder.” To which I replied, “Now you have it.” 

I tell this story to remind the reader that we have become a society where the most dangerous serial killers who stalk our land kill with a pen and not with a sword. The most important unanswered question about Andrew Cuomo’s time at HUD goes beyond how or why he and his agency engineered gains into Andrew Farkas, John Ervin and so many other private pockets. The more important question is how many people went without basic necessities because Cuomo diverted resources away from honest taxpayers and the people that HUD was created to serve. How many children in New York and around the country went homeless or worse because vouchers or job training were not available? 

This is the most important unanswered question. 

Attorney General of New York 
Last month, while traveling outside of the US, I declined to read the materials on an investment, because the jurisdiction of the non-disclosure agreement that I was asked to sign was a state in the United States known for significant corruption in its enforcement and court system. In a highly competitive global market, why bother taking risk related to US corruption? The investment group understood completely and quickly delegated the agreement to a foreign entity, permitting me to sign under the jurisdiction of the country I was visiting. It is a country known for its lawfulness. They informed me that I was not the only person to make such a request. 

It may sound like a little thing, until you realize the growing number of investors around the world who do not want to be exposed to the banana republic style corruption now perceived to be epidemic in the United States. 

New York is the center of the financial markets in the United States. The health of these markets depends on investors’ faith in the integrity of their governance. The perception that the lead New York regulator is a politician who exploits the power of his or her office for personal ambition and finances will impact the flow and pricing of capital throughout the United States.

My recommendation, to both New Yorkers and members of the US financial and legal establishment concerned with America’s ability to attract capital in global markets, is that they ensure that the unanswered questions relating to Andrew Cuomo’s dealings with Andrew Farkas and Insignia and any other HUD related special interests that have financed him and his campaigns be investigated and answered before Andrew Cuomo is permitted to hold public office again.

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Enforcement Terrorism — 1997

footnotes
source
https://www.dunwalke.com/resources/documents/DillonRead_1.112506as.pdf