XIV. Enforcement Terrorism — 1997

By the time Bill Clinton and Al Gore were sworn in for their second term in January 1997, the first wave of investigation and smear campaign had failed to do anything other than affirm that The Hamilton Securities Group was doing a great job for the government and the government team at FHA was doing a great job for citizens. Consequently, 1997 settled into the first of eight grinding years of enforcement terrorism — the inexhaustible resources and often invisible weaponry that the “Sheriff of Nottingham” uses to exhaust the target’s resources and to turn over investigation personnel, judges and false witnesses who failed to frame the target while throwing more “mud” up on the judicial, whisper campaign and media “wall” looking for anything that might stick.

To get a sense of the level of professionalism involved, the HUD OIG started to interview all of Hamilton’s employees and HUD staff, with many interviews starting off with questions regarding my personal sexual habits. This is a technique used to start false rumors and destroy businesses when the absence of evidence gives enforcement teams nothing to go on. As described by one member of the HUD OIG staff, when there is no evidence of any wrongdoing, the intimation of certain sex practices can still get an indictment from a Washington, DC grand jury. My feedback indicated that the Hamilton employees overwhelmed them with facts and did not fall prey to the smear tactics.

The turnover started at the top. Secretary of HUD Henry Cisneros left HUD to face charges tried before Judge Stanley Sporkin that he had lied to the FBI regarding how much money he had given his mistress. I had worked at HUD when the allegations regarding pedophilia at the White House and the so-called “Franklin Cover Up” had exploded onto the front page of the Washington Times. One of my deputies had taken me aside when I was being pressured by Kemp to do illegal funding awards to warn me that Kemp was involved in sexual activities this scandalous.[65] The notion of Cisneros facing criminal charges for legal financial transactions between consenting adults while Kemp had been chosen by the Republicans to run for Vice President seemed a bit upside down. When you considered that Hamilton was being run out for ensuring that the government got fair market value for its assets, poor people had an opportunity to earn money legally without government subsidies or engaging in narcotics trafficking and street crime and communities had access to government financial information, things made more sense.

If anything, the wave of investigatory assaults on Hamilton and the team at FHA seemed to be a pretext for Cuomo to take over the agency and convert it to the service of enforcement, gentrification and housing bubbles. Cuomo had many ties to the enforcement community. His father had been Governor of New York, his ex-wife Kerry (they were separated in 2003 and subsequently divorced) was a Kennedy, whose father Bobby Kennedy had been Attorney General and whose uncle, Senator Ted Kennedy from Massachusetts, home of Harvard University, was a senior member of the Senate Judiciary Committee.

If Cuomo was going to rise to higher political office and help his close ally Al Gore become President, he needed to get credit for being a leader in re-engineering government. He needed to do it in a way that attracted the support of $500 billion–$1 trillion of annual money laundering flowing through the U.S. financial system. If the Bush sons as Governors could be expected to have Texas and Florida sewn up, that meant Al Gore, Hillary Clinton and the Democrats would need to win the money and votes in California and New York during the 2000 campaign. It turns out, this meant getting rid of the people who were leading authentic re-engineering. In April 1997, Hamilton received notice that our ongoing contract would be rebid — a process expected to take some time. In the meantime, Cuomo was competing with the HUD OIG to see who could integrate more revenue generating enforcement goals, War on Drug activities and DOJ partnerships into HUD programs and budgets faster.

Jamie Gorelick left the Department of Justice in January and then moved to Fannie Mae as a Vice Chair — a title held by Franklin Raines who had joined the Administration as head of the Office of Management & Budget (OMB) in the fall of 1996. Gorelick at Fannie Mae and Raines at OMB (later to return to Fannie Mae as Chairman) were to play leading roles with former Goldman Sachs partner Robert Rubin, Larry Summers and former (and subsequent) Arnold & Porter partner Jerry Hawke (whose son, Dan Hawke, was Ervin’s attorney) at the U.S. Treasury, Alan Greenspan at the Federal Reserve, and Andrew Cuomo at HUD in engineering the largest housing and mortgage bubble in history. They shared a mutual silence as $4 trillion went missing from HUD, DOD and other government accounts for which the U.S. Treasury and New York Federal Reserve Bank and its member banks — as depository for the U.S. Treasury — were responsible. [84] Gorelick would later leave Fannie Mae to become a partner of Wilmer, Cutler & Pickering, then led by Lloyd Cutler who had served as White House Counsel in the Clinton Administration after the death of Vince Foster. Cutler had been a board member of NHP, Harvard’s HUD property management company.

Given the efforts underway with numerous legislation and treaties designed to intentionally shift American jobs abroad, the simultaneous effort by the same governmental and financial system leadership to encourage Americans to take on increasing amounts of debt without warning them that their income was likely to fall brought new meaning to the old expressions “fraudulent inducement” and “predatory lending.” As a result, Americans lived beyond their means. With many using their home equity to maintain their standards of living, equity slowly and invisibly drained out of moderate and middle income communities into private hands through Fannie Mae and other large financial institutions that led the explosion in the mortgage and mortgage securities markets.

In October 1996, Jeffrey H. Smith rejoined Arnold and Porter after serving as General Counsel of the Central Intelligence Agency from May 1995 to September 1996. Director of the CIA John Deutch resigned in December 1996 after his embarrassing confrontation regarding CIA drug dealing in the now infamous town hall meeting in Los Angeles.[66] At the meeting, Deutch committed publicly to an investigation by the CIA’s Inspector General, Frederick Hitz, of the “Dark Alliance” allegations regarding CIA complicity in narcotics trafficking. The publication of this report in two volumes was to have an impact on the course of events in 1998.[67]For her service to the U.S. intelligence community, Jamie Gorelick received a Director of Central Intelligence Award from the CIA in 1997.[68]

The most significant turnover impacting The Hamilton Securities Group was behind closed doors. It was the transfer of the qui tam lawsuit (still filed in secret and unknown to us) from Judge Charles Richey who had warned that he was reluctant to give DOJ extensions of the seal (which kept the lawsuit secret) without evidence of wrongdoing. According to press reports, Judge Richey contracted a fast-acting cancer and died. Ervin’s qui tam was turned over in early 1997 to Judge Stanley Sporkin, the former General Counsel of the CIA when the Memorandum of Understanding between DOJ and CIA had been crafted.[69]

The dirty tricks employed by Judge Sporkin, DOJ, HUD OIG and Ervin’s attorneys throughout the qui tam have been described in more details in other articles. [70]

Highlights include:

  • Sporkin insisted that he had never received filings by The Hamilton Securities Group, even though my attorneys reported to me that they had a receipt of delivery signed by his office.
  • The allegations in the qui tam lawsuit tracked allegations made in a separate filing by Ervin against HUD that was filed before another judge in Federal District Court. In sealed hearings in the qui tam, DOJ attorneys for years argued that there was real merit to the allegations, which justified more time for them to investigate. In open court in the other action, DOJ attorneys took the position that the allegations were baseless. Hence, DOJ attorneys took opposite positions in the two courts — one open and one in secret — and Sporkin supported these actions. The transcripts show the DOJ attorneys reminded him that they could not consolidate the case under one judge because that would prevent them from taking opposite positions in the two cases.
  • The public document was used by HUD OIG and private parties to lobby Congress and the media to smear Hamilton. One reporter from the Washington Post told me that the HUD Inspector General had personally assured them that Hamilton was guilty of criminal violations and that John Ervin had mailed documents to them that could fill up half an office, floor to ceiling. She said that she believed that the Washington Post was only one of many publications and she only one of many, many reporters who had been the target of such a mailing campaign. She reported that in late 1997, Ervin had a staff of 17 people at Ervin & Associates working full time on the litigation.
  • Despite no evidence of any wrongdoing brought forward by Ervin as well as after multiple investigations and full access to all the parties and documents needed for years by the government, Sporkin nonetheless extended the seal (by law a qui tam authorizes only a 60 day investigation) into a four-year fishing expedition. This ended only when my colleagues and I launched a website in 2000 with the story of what was happening and made hundreds of supporting documents accessible through the Internet. When, after five years, transcripts of Sporkin’s hearings were unsealed, critical transcripts were mysteriously missing.
  • Under the qui tam statute, if the party accused of wrongdoing is subpoenaed, they are required to be informed that they are a target of a qui tam, even though the complaint is still under seal. In our case, DOJ and Sporkin took the position that DOJ could circumvent this disclosure provision by delegating the subpoena issuance to HUD OIG.

My favorite Sporkin quote was his retort from the bench when one of our attorneys pointed out that the law and a recent Supreme Court case clearly indicated that a filing we had made in Superior Court could not be moved over to Sporkin’s court and control in Federal District Court — that Sporkin had no legal right or basis to do what he was doing. Sporkin said something to the effect of “I disagree with the law and if you have a problem with that, take it up with Congress.”

When it comes to describing the treatment of The Hamilton Securities Group and myself by Judge Sporkin and DOJ and HUD attorneys, it is essential to underscore how lucky I have been. I had the knowledge and control to ensure that Hamilton was run according to very high standards. Hamilton had been blessed with a very strong team — starting with an outstanding Chief Financial Officer and excellent contract leadership for our work at HUD. I had an excellent reputation in the marketplace. I had personal wealth and family support to ensure that I had attorneys, food, clothing and shelter. With the presence of a strong legal team and resources over a long period, many private and public witnesses and honest officials in government and the judicial system were able to help — often at great risk to themselves. I had a wonderful church and tremendous spiritual support. And over time I connected with thousands of people around the world trying to illuminate corruption and build community. So I am alive, I am fully intact and I am not alone. That is more than I can say about the millions of children and innocent adults worldwide who have been destroyed, killed and incarcerated by the drug running, weapons trading and cover ups made possible with the help of the same type of extraordinary legal and harassment skills I faced. Among them was Gary Webb, who died in December 2004 from gunshot wounds to the head — ruled a suicide.

With Jamie Gorelick gone from DOJ, much of the work at DOJ continued under the jurisdiction of Frank Hunger, Al Gore’s brother-in-law, who was head of the civil division, and the new Deputy Attorney General, Eric Holder. Holder had come over from the Washington, D.C. U.S. Attorney’s office which was the lead office with the day-to-day lead responsibility for DOJ on Ervin’s qui tam. Holder continued the policies of support for Operation Safe Home, the War on Drugs and prison privatization and helped arrange Marc Rich’s pardon at the end of the Clinton Administration before joining Covington & Burling. Frank Hunger was also to join Covington & Burling after helping run Al Gore’s unsuccessful presidential campaign in 2000.

Al Gore’s former chief of staff Jack Quinn resigned as White House Counsel at the end of 1996 and returned to his old law firm, Arnold & Porter. He was replaced by former (and later) Covington & Burling partner Charles Ruff in early 1997. (Quinn was later to return to visibility when he assisted the Gore campaign in 2000 and helped to engineer Arnold & Porter client Marc Rich’s White House pardon.) [71]  Ruff, a former Watergate prosecutor and top Justice Department official was the Washington D.C. Corporation Counsel who had critical background to help the Clinton Administration engineer the federal takeover of many aspects of the Washington, D.C. government, including the local courts and prison system. The former Assistant U.S. Attorney, Judith Hetherton, who was leading the Hamilton investigation as HUD OIG General Counsel had worked for Ruff. Ruff, like Gorelick, had served as President of the D.C. Bar Association. After her efforts to frame The Hamilton Securities Group failed, Heatherton became staff to the Ethics Committee at the D.C. Bar Association.

The federal takeover of the District of Columbia began in August 1997 with the Balanced Budget Act and the National Capital Revitalization and Self Government Improvement Act of 1997. This was the beginning of a wave of gentrification in the District, with easy mortgage finance encouraging people to move back in from the suburbs or young people and immigrants to buy new homes. The law also provided for private prison capacity that would result in, among other things, a request for proposal by the Federal Bureau of Prisons in February 1998 that Cornell would win in 1999 for 1,000 people for ten years, or a total award of $342 million. In a significant leadership position was Senator Lauch Faircloth, a Republican retired hog farmer from RJR’s home base of North Carolina, who as chair of the DC appropriations subcommittee had taken a significant interest in demanding investigations of Hamilton Securities and the HUD loan sales. The Federal takeover was a pork fest for HUD real estate developers under Andrew Cuomo’s leadership. The flood of developers cashing in on HUD Hope VI projects, with Scott Nordheimer in a leading position was well underway.[72]

While the HUD Operation Safe Home swat team round ups continued to create the need for private prison capacity at taxpayer expense,[73] and government officials and Wall Street board members played musical chairs, inventing new ways of handing out contracts and financing the housing bubble, private companies were cashing in on their resulting good fortune:

  • Cornell Corrections increased their revenues and capacity thanks to DOJ’s Federal Bureau of Prison and several state governments.[74]
  • Dillon Read exercised their options to purchase additional shares in Cornell Corrections.
  • In the summer of 1997, Dillon Read’s partners and investors, led by John Birkelund, sold Dillon Read to the Swiss Bank Corporation, which merged the following year with UBS, the largest Swiss bank.
  • With HUD policies reversed by Cuomo to those in favor of traditional private and not-for-profit real estate constituencies, Harvard Endowment and Pug Winokur’s Capricorn Investment sold NHP, the large HUD property manager to AIMCO, a large Denver HUD property manager.
  • Pug Winokur’s firm Capricorn Holdings, an investor with Harvard in NHP, a leading HUD property management company, sold a significant portion of their controlling position in DynCorp, an important HUD and DOJ contractor, with Pug stepping down from Chairman of the Board of DynCorp to remain a member of the board and Chairman of the Compensation Committee, the board committee that recommends compensation for senior management as well as compensation policies for the corporation.[75]

Dyncorp

A few words are appropriate to describe DynCorp and its former Chairman and lead investor, Herbert S. “Pug” Winokur. Pug and his investment operation Capricorn Holdings were later to come under scrutiny when Pug resigned from the Harvard Corporation board at a time of controversy regarding his role as board member and chairman of the Finance Committee of Enron. Pug was serving on the board when Enron went bankrupt, after a period in which Harvard Endowment (where Pug was also on the board) was aggressively and profitably selling the stock. This raised questions as to whether the Endowment had the benefit of “insider information.”

Read on …

In the meantime, Gary Webb had problems of his own. After extraordinary efforts by the corporate media to try to discredit his story,[77] he was demoted by the San Jose Mercury News in the summer of 1997 and then left the paper in December 1997 to work on his book, Dark Alliance, which was published the following year.

The fall of 1997 was an intense time in Washington, D.C. given fundraising and Whitewater investigations that would continue to distract from Mena and South Central LA narcotics trafficking allegations and use sex between consenting adults in the Oval Office to blossom the following year into the Clinton impeachment proceedings. On September 18th, Cornell Corrections announced its next public offering with Dillon Read (renamed SBC Warburg Dillon Read since its purchase by the Swiss Bank Corporation) as the lead senior manager. The offering proceeded on October 10th, raising $57.3 million at a price of $19 5/8 per share, a 64% increase from the first offering in October 1996, a year before. This implied a value of $25,962 per person in Cornell’s jails and facilities — a significant portion derived from the Federal Bureau of Prisons and U.S. Marshals, both at DOJ.

On October 14th, then-HUD Secretary Andrew Cuomo fired Hamilton with no notice, seized monies owed to The Hamilton Securities Group for work already performed and launched a concerted smear campaign. At the same time, a variety of dirty tricks, including through Hamilton’s bank, auditor and insurance companies, drained our resources. In November, an amount equivalent to our remaining contract authority — approximately $10 million — was awarded to HUD OIG’s Operation Safe Home by special appropriation by the Senate HUD appropriation subcommittee. Legal action to try to stop HUD’s seizure of Hamilton’s monies and illegal investigatory leaks ended up in Stanley Sporkin’s court — giving the former general counsel of the CIA another chance to use his skills to protect criminal enterprise. As a result, all of Hamilton’s efforts to support responsible management of HUD’s programs or to create tools and jobs for communities came to an end.

Arnold and Porter Check

Arnold & Porter: When we caught our bank engaging in dirty tricks, they used Arnold & Porter partners to threaten me. I was suprised to be threatened by a firm that had worked for Hamilton as well.

I had to smile when we ended up with new attorneys the following year. One assured me that Sporkin would love what we were doing for community transparency and job creation. They had heard him in the meetings of attorneys speaking about the inner city. They insisted he very much cared about young people in the inner city. By then I had learned to just smile and not try to explain about how it was that despite everyone caring so much in conversation about the Popsicle Index going up, for some mysterious and inexplicable reason it just kept going down.