Friday, December 03, 2010

The "Brooklyn buy-in" for the Aqueduct "racino" involves the Darman Group and the state minority contractors' group (and Forest City, tangentially)

As I wrote November 29, Forest City Ratner continues to rely significantly on The Darman Group, a firm run by Darryl Greene, which was unfit to participate in a bid for the Aqueduct "racino" because of Greene's criminal record.

Indeed, in the past two years, Greene's firm has expanded beyond its Queens office, as indicated in the screenshot below, to Brooklyn and Philadelphia.

The Brooklyn office is at 182 Duffield Street, a row house adjacent to the MetroTech development, which is owned by Forest City Ratner's First New York Management division.

(Photos by Jonathan Barkey)

The IG's Aqueduct report

Greene and his firm came in for some tough treatment in the state Inspector General's 10/21/10 report that criticized the Governor’s Office and state Legislative leaders for failing to fulfill their public duty in the January 2010 selection of Aqueduct Entertainment Group (AEG) to operate Video Lottery Terminals (VLTs) at Aqueduct Racetrack in Queens. (Full report here.)

According to the IG, AEG should have been disregarded at the start, and that the chaotic process resulting in AEG’s multi-billion dollar award was a “political free-for-all” marked by unfair advantages and more than $100,000 in campaign donations.

The report has been forwarded to United States Attorney Preet Bharara and New York County District Attorney Cyrus R. Vance, Jr., for appropriate action and referring Senators John Sampson and Malcolm Smith (Greene's former partner) and Senate Secretary Angelo Aponte to the Legislative Ethics Commission.

According to the New York Post's coverage, IG Joseph Fisch was shocked by the extent of the scandal:
"As one who has devoted an entire professional career spanning over half a century to public service, and as a taxpayer and resident of New York, I am outraged and profoundly saddened by the conduct conducted throughout this process by the people who hold a responsibility to service the public, a responsibility that they betrayed," Fisch told reporters.
The "Brooklyn buy-In"

Missing from much of the coverage, however, was mention of the "Brooklyn Buy-In," which involved Sampson, Greene, the New York State Association of Minority Contractors (a signatory of the Atlantic Yards Community Benefits Agreement), and, tangentially, Forest City Ratner.

There was coverage of the relationship between Smith, Greene, and the Rev. Floyd Flake, but that deserves a closer look.

The plan for minority participation
According to the IG's report:
AEG’s submission indicated that the consortium included Greenstar Services Corporation (construction), The Navegante Group (gaming), PS&S (architecture), Clean Power (environmentally sound energy usage), Siemens (electrical engineering), and The Darman Group working with Empowerment Development Corporation (development and minority participation).

AEG, through The Darman Group (Darryl Greene) and Empowerment Development Corporation (the Reverend Floyd Flake), presented its minority- and women-owned business goals, including, but not limited to, the following: “[T]o achieve or exceed ten percent (10%) and five percent (5%) of preconstruction contract dollars to minority owned and women owned professional service firms respectively.” With regard to actual construction dollars, AEG proposed a goal of achieving or exceeding 20 percent and 10 percent to minority- and women-owned business participation respectively, with preference given to Queens-based firms. To accomplish this, AEG noted its intent to implement a program entitled the “Community Labor Exchange (CLE),” under which one of every four construction jobs would be offered to project area residents.
This sounds not dissimilar to plans regarding Atlantic Yards, though the percentages for the latter are higher.

Personal ties

The IG's report states:
As early as May 19, 2009, only one week after the vendors’ submissions, it was reported in the media that Smith had relationships with AEG members Reverend Floyd Flake and the Darman Group. Smith testified that from 1986 to 1991, he was employed as Flake’s district manager when Flake was a member of Congress. Moreover, Senator Smith is a parishioner of Reverend Flake’s church located in Queens.

Smith’s testimony to the Inspector General reveals that he was undoubtedly cognizant of the media coverage and the appearance of impropriety arising from Flake’s participation in AEG and Smith’s role in the decision making process.

Smith also affirmed that he and Darryl Greene had been business partners in the late 1990s and had formed the Darman Group, another AEG member partnered with Flake. As early as May 19, 2009, a spokesperson for the Senate confirmed both relationships but proclaimed that they had not and would not influence “any governmental decision” made by Smith and that the connections did not pose a conflict. The spokesperson further reported that Smith had divested himself of any interest in the Darman Group over a decade ago. Therefore, prior to the coup while serving as the uncontested leader of the Senate, Smith publicly declared that, even considering the aforementioned apparent conflicts of interest, he could and would participate in the VLT decision making process.
"Lucrative potential" for Greene and Flake

The IG's report describes a new joint venture with "lucrative potential" for Greene and Flake:
As discussed above, the Reverend Floyd Flake, a Queens pastor, former congressman and owner of the Empowerment Development Corporation, joined forces with Darryl Greene, a principal of the Darman Group Inc. and a former business partner of Senator Smith, to create an equally owned special purpose entity known as Darman-Aqueduct Joint Venture to facilitate involvement in AEG. This arrangement was memorialized in two “Side Letter Agreements” between the group and AEG setting forth the conditions under which the special purpose entity would receive an option to purchase a membership or other equity interest in AEG, conditioned upon AEG being selected for the franchise at Aqueduct. One of the agreements provided that as a result of participating in AEG’s bid for the development of a VLT facility at Aqueduct, an investment in AEG may be made in an amount up to $1,250,000 to be paid by delivery of a promissory note, with the repayment terms to be agreed upon at a later date. The second agreement provided for the development of a mixed use facility (housing and/or retail development), and the special purpose entity would receive an option to purchase up to $10,000,000, also to be paid by delivery of a promissory note. Both agreements had lucrative potential for Flake and Greene. Additionally, unbeknownst to the Reverend Flake, Greene was also providing consulting services to AEG for which he billed $30,000 and would be receiving $25,000 a month should AEG win the bid.

As previously detailed, Senator Smith had longstanding business and personal relationships with both the Reverend Flake and Darryl Greene and a direct business relationship with Greene’s Darman Group.
(Emphasis added)

So Greene had another side deal going.

The "Brooklyn buy-in" emerges

While Smith had longstanding business and personal relationships with Flake and Greene, after a new power structure emerged in the Senate, AEG then focused on John Sampson. According to the IG:
At a minimum, AEG’s tactics and Sampson’s actions, create the appearance of an ulterior motive for AEG’s selection unrelated to its merits as a vendor – its responsiveness to the Senate leadership and willingness to heighten Smith’s or Sampson’s political profile through patronage and influence.
The report details an exchange between AEG public relations consultant Andrew Frank and Navegante executive Rick Stevens, who later sent colleagues an email stating "Darryl [Greene] and the reverend [Flake] need to share their incentives to get the Brooklyn buy-in.”

So, what was the “Brooklyn buy-in”? Stevens explained it to an AEG principal, Michael Wagmen:
In a nutshell, Sen. Sampson has seen the LOI [AEG’s letter of intent with the Reverend Flake and Greene]. Darryl and the reverend represent Queens. The lame duck majority leader, Smith is giving way to Sampson who is from Brooklyn. Sampson wants some of his constituents from Brooklyn to share in the benefits the Queens contingency is receiving. This is the short version
Engaging Brooklyn firms

Consultant Frank testified that the “incentives” regarded Greene being paid for work on AEG’s Minority and Women Business Enterprise Program. To Greene, spreading the wealth was business as usual:
Greene... explained to the Inspector General that he had heard that upon his assumption of leadership of the Senate, Senator Sampson expressed concern that Brooklyn-based firms and employees be included in the minority benefits plan. In explaining AEG’s purported desire to make known to Senator Sampson that if selected, AEG would take pains to include minority workers from Brooklyn as well as Queens, Greene expounded:
[T]here was never a quid pro quo so to speak. Any time you worked in this area, you are going to run into that dynamic. Whoever is the elected official is going to be concerned about what is in it for my constituency. If you are wise, you going to try to make sure they understand and you are going to be true to that if you are wise. You are going to make sure that their constituencies, the residents of the areas, are included among the beneficiaries of the project.
Time for fundraising

As the IG reported, the next step involved fundraising, for an organization that, I'd point out, is part of the Atlantic Yards CBA:
Consistent with this description of the “Brooklyn Buy-in,” on September 22, 2009, an official from Greene’s company, the Darman Group, e-mailed Frank regarding a fundraising event for a Brooklyn-based minority contracting organization, the New York State Chapter of the National Association of Minority Contractors (NYSAMC), with tickets costing $150.00 per person, “sponsorships” ranging from $3,000 to $10,000, and further soliciting advertisements from $75 to $1,500. Frank immediately forwarded the e-mail to Wagman, Stevens and Woolf, stating:
This is the kind of stuff we have to make decisions about from a financial perspective . . . this is the Brooklyn group that is important to Sen. Sampson.
He is also having a fundraiser NEXT TUESDAY night. I encourage the same participation from our team as we did for Sen. Adams.
(Emphasis in original).
Tellingly, Wagman replied: “Sounds like we don’t have a choice but to do it.”
At least three AEG representatives attended the Yankee stadium fundraiser for Sampson. Around that time, another fundraiser for Sampson was held at Forest City Ratner's MetroTech offices.)

AEG e-mails obtained by the IG showed that that the consortium paid $1,500 to NYSAMC but tried to conceal the source of the monies, knowing that AEG could not publicly write the check. One email stated, "NYSAMC – this is the MBE organization from Brooklyn who we must support...."

The confirmation of the $1500 was sent to the Darman Group.

And what did Sampson say?"
The Inspector General questioned Senator Sampson about the “Brooklyn buy-in” but, not atypical of Senator Sampson’s responses, received an equivocal answer and lack of recall...
Jay-Z and Greene withdraw

The IG's report states:
In addition, the exclusion of “anyone convicted within the past 15 years of a felony” was specifically directed at Darryl Greene and Shawn Carter, more commonly known as Jay- Z, two members of AEG with criminal records. Almost immediately after the announcement of the conditions, AEG removed Greene from it membership. Jay-Z, withdrew several weeks later after the initiation of the instant investigation and service of a subpoena on him.
Footnotes explain that Greene had been convicted of a criminal offense during the previous 15 years involving “a theft of public funds,” and Jay-Z had been convicted of misdemeanor and received a sentence of three years’ probation. Moreover, despite media reports, Jay-Z had no financial investment in AEG on his part, scant knowledge of AEG’s proposal, and no lobbying by him.

The role of the Governor's office

Some of Gov. David Paterson's aides came in for severe criticism:
AEG’s ultimate unlicensability should have come as no shock to the decision makers and requires no further exposition as questions in this regard had arisen since the commencement of the bidding process. What is remarkable is that [Peter] Kiernan, Counsel to the Governor, who portrayed himself as an “honest broker” throughout the process, and who was purportedly unwilling to convey his preferences to the Governor, filtered the executive agencies’ reports to denude them of recommendations prior to reaching the Governor, and who, according to the Governor, may not have fully informed him of AEG’s licensing problems, now saw Lottery’s analysis detailing these very factors as a “gift from heaven.”
The report states:
Nonetheless, when queried regarding the Governor’s recusal, [Secretary to the Governor Lawrence] Schwartz initially (and incredibly) claimed he did not recall this unique event of the Governor’s tenure which occurred a mere four months prior to his testimony before the Inspector General. Upon presentation of the formal recusal letter, he recalled it and his and Kiernan’s decision to reject AEG
The conclusion adds further damning detail:
Secretary to the Governor Lawrence Schwartz, the self proclaimed “Chief Operating Officer” of the state, claimed to have served in the role of remedying the mistakes of the prior procurement effort and expediting the process, yet failed to take any action to accomplish these aims... Schwartz further incredulously claimed to not recall myriad meetings he organized and attended, various e-mail correspondence between himself and other individuals, and numerous conversations in which he engaged, and claimed unawareness of the Governor’s selection of AEG despite personally engaging the Governor’s press office in a colloquy about the very subject.

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