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In
a surprise court appearance last
Wednesday hedge fund owner Art Nadel pled guilty in a New
York Federal court.
It was a bitter
disappointment to swindled investors, as well as to interested onlookers anxious
for a trial, to get a glimpse of not only how he did it, but who he
did it with.
Nadel’s guilty
plea may have removed the best—maybe the only—chance to make
accountants and bookkeepers and managers at feeder hedge funds, all of
whom had front row seats to the scandal, face public scrutiny
while testifying about what went on at Scoop Management.
Most people find
it impossible to believe he acted alone.
Nadel isn't
tall, rangy, and CIA-connected, like
fellow Ponzi All Star Allen Stanford,
or even burly, like Bernie Madoff, but meek-looking, and unprepossessing physically.
He's the Woody Allen, or, for those old enough to remember, the
Wally Cox of Ponzi World.
There's lots of anger among jilted investors,
who stand little chance of getting back anything more than a few pennies on the
dollar of the $168 million they're estimated to have lost.
Why do Florida lawyers all seem like extras from "Body Heat?"
If
they're counting on Tampa attorney Burton Wiand's help, they may be waiting a
long time. Many actions taken by Wiand since being named
the federal receiver charged with
unraveling Nadel's finances last January seem open to question.
Real suspicions
should also focus on what he hasn't done.
Reading court transcripts can sometimes be
eye-opening...
Long-time SEC
lawyer Wiand dragged his feet (top snippet) on
supplying Nadel's files, which he'd seized in the civil action
he's involved in against Nadel, to federal prosecutors in New York charged with
convicting him in criminal court, clearly higher priority.
Perhaps more
importantly, his testimony in September revealed that he's not going after any
money, other than his own ($750,ooo reportedly so far), with anything like the
vengeance his job description promises jilted investors.
When he
went back to court asking for more money last summer, the brief he filed
said, "One of the
receiver's highest priorities is to locate and recover any additional funds."
Yet three
months later, almost nine months after he was appointed, Wiand's testimony
revealed that he's aware, though somewhat vaguely, of $5 million he's owed from
Christopher and Neil Moody... but he hadn't gotten around to
asking them about it.
Wiand to investors: "The check's in the mail"
If
things look bad for Nadel's hapless investors, the outlook for the citizens of Venice,
Florida, where Nadel owned the same business that earlier trained Mohamed Atta
to fly, looks absolutely bleak.
For them, Nadel’s descent,
"from hedge fund owner to handcuffs,"
may feel a little like going from the frying pan into the fire.
The
chief lieutenant of the new owner of the former Huffman Aviation, who is often
named President of the various
financial entities of his boss, was at the heart of
a Wall Street scandal that was—until
the financial meltdown last year—the
biggest and costliest scandal Wall Street had ever seen.
The name of the
new owner, which a Venice City Attorney told the
Venice City Council they had no right to know, is Eugene Gorab.
Gorab, who claimed to be worth more than 100
million dollars in
an interview with the Sarasota Herald Tribune
last year, made his pile buying and selling hotels and casinos.
He worked for a hugely successful tycoon named
Barry Sternlicht, who, while Gorab was working for him, owned
more casinos than anyone on the planet.
We know what you're thinking. But wait. It gets worse.
Gorab owns
the
majority stake in private equity fund Greenfield Partners in
Norwalk Connecticut, just a few exits up the Merritt Parkway from Greenwich,
where Fairfield
Partners helped Bernie Madoff relieve investors of unwanted capital.
More interesting
by far is that Gorab owns Clayton Holdings, a company whose failures in due-diligence
played a direct role in
the multibillion dollar collapse of the nation's housing market.
Clayton Holdings
is the nation's largest due-diligence company: a firm
which is hired by investment houses to make sure blocks of loans meet the
seller's own standards.
Despite the fact that the underlying
home loans didn't get within shouting distance of meeting those quality standards, Clayton
Holdings paid off like a slot machine, signing off
on the mortgage investments, the instrument of mass destruction
which has succeeded in bombing the American economy back to the
Stone Age.
Gorab, who
didn't own Clayton Holdings until recently,
wasn't responsible. He bought the company as Clayton’s former
President received immunity from New York’s Attorney General Andrew
Cuomo in return for testimony about underwriting "exceptions" his firm’s
project managers gave its Wall Street accounts.
Will Eugene Gorab—the
man who now owns Huffman Aviation—let
the world take a look at Clayton's books?
When
pigs fly, is our guess.
The Straw Men
Definition of “straw man”: noun (CRIME) n
(also man of straw): Someone, often an imaginary person, who is used to
hide an illegal or secret activity.
Example: “The fraud depended on hundreds of bank
accounts being opened on behalf of straw men.”
The three lads who
say they're the owners of Huffman Aviation refuse to release the names of
their just-created company's investors. So how
can we say we know Eugene Gorab owns Huffman Aviation?
Simple: Gorab, for starters, already owns
Volo
Aviation in Sarasota. He has, give or take, $100 million in aviation
investments, which is $100 million
more than the three lads claiming to be the owners. More importantly, the trio were
all working for Gorab when they bought it.
And he didn't fire them for competing with
the company where they work.
Finally, we know Gorab owns Huffman because,
even though there's a new front man at Volo Aviation
at the Sarasota Airport, he's Gorab's chief lieutenant, the President of Gorab's Volo.
Eugene Gorab is adept at moving the pea
around under the cup. We would have expected no less.
Meet Thom Harrow. He's "working to keep your trust."
Thom
Harrow, most
recently listed as President of Volo Holdings, has been an officer
of a
myriad of Gorab's shell companies, which change with bewildering regularity,
which may well be the point. Example: the "ownership
of Volo Sarasota just changed hands, again.
Harrow now operates at
least four FBO’s (including the one in Sarasota) under the banner of APP, which
stands for Airside Property Partners.
Airside
Property Partners, in turn, is owned by Airside Investors, which
owns the website airproperty.net.
Only God, and
the state of Delaware, knows who owns Airside Investors. But if their names were
to magically appear, we bet the name "Gorab" would be there.
Thom Harrow, it, turns out, has had an
interesting, and some might say—hell we'll say it—checkered career.
Remember the old TV commercials for
The Rock?
Prudential
Securities? Their commercials all ended with this catchy phrase:
"The
most important thing we earn is your trust."
As it turns out, it wasn't true.
Harrow was a senior executive at Prudential
Securities during the late 80’s and early 90’s, while executives and brokers at
the company were busily engaged in what reporters— in
those far more innocent times—called the largest fraud
in US history.
Prudential brokers and executives
defrauded investors of $8 billion.
No other Wall Street scandal to that time had come
even close to
touching the debacle at Prudential. Mike Milliken (junk-bonds,
remember?) at Drexel Burnham,
was a piker by comparison, settled for $650 million, a pittance by the $8 billion
gold standard
Prudential was setting.
According to
NEWSWEEK:
"In this topsy-turvy world due diligence was a sham, brokers were hounded — even
fired — for questioning the quality of deals, and no executive displayed much
interest in knowing what was really going on."
Does
that sound familiar? Due diligence was a sham? And now Thom Harrow's partner
owns the company doing more due diligence than any other.
Kurt
Eichenwald covered the story for TIME magazine, then wrote a book about the
scandal called, appropriately enough, "Serpent on the
Rock."
According
to a review of his book in the New York Times:
"Eichenwald
presented an appalling indictment of managers who did dozens of deals with a
convicted embezzler, spent millions of investors' dollars on lavish trips to
places like Cancun and Maui, and made cozy arrangements with developers to make
themselves rich no matter how their clients fared."
But wait...We get ahead of ourselves. In
fairness, Thom Harrow himself
wasn't charged with a crime. He deserves the benefit of the doubt. He might have
been one of the good guys who stuck
around to clean up the mess.
We like
to think the best about people. We're sure you do, too.
Locking-in profits for decades to come.
Discovering
that Harrow was working for "The Rock" when it melted into something
like butter was no easy
task.
For the most
part
Harrow's bios neglect to mention it.
But in
his bio included in the literature of a Louisiana company, presumably a friendly
audience, he left it in.
Thom Harrow is, currently, the Treasurer of
a
Baton Rouge Louisiana-based
non-profit charity called
Provident Resources Group.
Provident's literature shows them
to be involved in providing resources (hence the name, we assume) in the
following fields:
CitiState (sic), Education, Healthcare, Housing, and
Senior Living.
Here's how they describe themselves:
"Based in
Baton Rouge, La., Provident Resources Group is a not-for-profit organization
with the mission of serving the needs of the elderly; promoting and advancing
health care; assisting the poor by providing affordable housing; lessening the
burdens of government; promoting and advancing education; and preserving the
environment."
In the pursuit of
its charitable mission, Provident has become a national non-profit
organization committed to the development, ownership and operation of
state-of-the-art health, education, senior living, and multi-family housing
facilities and services across the country.
“Furthermore,
Provident actively strives to assist state and local governments in lessening
the burdens they face in providing many needed services to their citizens.”
Its all good. Right?
When
we realized what the company actually does, it came as something of a shock.
When not "actively striving in pursuit of its charitable mission, they build and
run private prisons.
Eleven
Private Correctional Facilities, to be exact, in Texas, Oklahoma, Ohio, Pennsylvania,
Georgia,, and Alaska.
That "lessening the burden" of
government in this fashion was someone's idea of a "charitable mission" came as
a shock to the Wall Street Journal as well. The paper reported on Provident in a
May 1, 2002 story under the headline:
"Charities Said To Be Playing Enron-Style Partnership
Game.
"At the D.
Ray James Prison in south Georgia, the inmates have been kept behind bars by
all types of lawmen: sheriffs, chiefs of police and more than a few wardens.
But never, until now, have they been kept in jail by a charity."
What Provident
offers the corrections world, in the most charitable way, of course, reported
the Journal is “offering off-the-books financing for public and
private prison operators."
"Provident does
this by creating special subsidiaries and partnerships that take advantage of
controversial accounting rules and allow its clients to keep debt off of their
balance sheets."
Provident "isn't
a conventional charity. It is run by a group of lawyers, investment bankers
and financial consultants. Lehman Bros. Holdings Inc. and other Wall Street
titans do its financial work."
With that
"impressive firepower, Provident is trying to carve a unique niche for itself
in the corrections world, offering off-the-books financing for public and
private prison operators."
It has "helped
the state of North Carolina and Cornell Cos., a for-profit prison company,
buff their financial profiles."
Provident "does
this by creating special subsidiaries and partnerships that take advantage of
controversial accounting rules and allow its clients to keep debt off of their
balance sheets." In exchange for its role, Provident "arranges to receive
potentially lucrative fees, some of which it calls exempt from federal income
tax.
In the last nine
months Provident entities, with help from Lehman, have sold more than $420
million of debt to investors."
Like Enron. Only
unindicted.
We thought:
maybe we're just being cynical. It can happen. Then we found this headline:
"PERINATAL
UNIT CLOSING; NO MORE MATERNITY PATIENTS AT GRANADA HILLS COMMUNITY HOSPITAL
Provident got
involved with a struggling community hospital in the San Fernando Valley...
offering to help. Reporter Evan Pondel in the
January 22, 2003 Los Angeles Daily News
picks up the story:
"In an
effort to rescue the hospital, Wallace struck a deal with a controversial
charity for help. Soon thereafter, California's attorney general approved
Baton Rouge, La.-based Provident Foundation Inc. to take control of the
hospital's board."
The organization
has been operating as a not-for-profit group since 1999, and analysts say
Provident is by no means a conventional charity.
Matt Hull,
analyst with Avondale partners in Nashville, Tenn., said in a previous
interview that the company is run by a group of lawyers, investment bankers
and financial consultants -- many of whom are former Lehman Brothers
employees.
James
Doulgeris was hired by Provident to serve as interim CEO, and his firm,
Healthcare
Resource Specialists, was tapped to provide crisis and turnaround management
strategies for the hospital.
"We are in the
center of settling our bankruptcy with creditors ... and the decline in
patients we serve in the perinatal unit has been accelerating," said Doulgeris.
"There are no
plans to close other departments, and emergency services for expectant mothers
still will be available through the hospital's emergency room."
Uh-oh. We could feel
it. Bad news was coming,
According to analyst Hull::
"Company President Stan Hicks, 53, who served
as a member of the national finance committee for the Clinton-Gore campaign in
1992, appears to manage a company that, by some reports, receives lucrative
fees under the guise of being a charity."
Millie Hernandez has worked at the hospital
for 17 years. She understands that Provident has invested in prison facilities
and has a murky business reputation.
"There's only so much you can take,"
Hernandez said. "The hospital can't function like this for much longer."
Granada Hills Community
Hospital closed for good shortly thereafter.
"Meet the new Boss. Same as the old Boss."
When the new owner of the former Huffman
Aviation FBO took over operations at the Venice Airport last month, the Sarasota
Herald Tribune was quick to note that the only noticeable change in operations
“was a Shell fuel truck on the premises to replace the Chevron brand that former
owner Art Nadel sold.”
The statement was meant to be reassuring. In
reality, it was not.
It was business as usual.
And there's anger in Venice,
where recent owners of the FBO (Fixed-Base of Operations) at the Venice
Municipal Airport have been civic failures on an epic scale.
Art Nadel’s $400 million Ponzi
scheme robbed real people—teachers, firemen— of hard-won retirements…
And prior owner Wally Hilliard,
who masqueraded as a Mormon deacon while being involved—according to the DEA,
which confiscated his Lear jet, denying his pretense of having been an “innocent
owner”—in international heroin trafficking.
Hilliard's transgression was
made immeasurably worse—worse beyond measure—when Mohamed Atta and
a dozen other terrorists exploited the opportunity to create a cozy home base
for themselves in the year before the 9/11 attack.
To say the recent past of the
former Huffman Aviation at the Venice Airport has been “troubled”
is like saying that the economy is going through a “correction.”
It's true, as far as it goes, but it doesn't convey the anguish these
two men have caused the country, and also the citizens of Venice.
The ingredients for another world-class
scandal at the Venice Airport are frighteningly visible. Sleazy characters in
expensive suits. Abuse of power. Cover-up.
During the special meeting of the Venice City
Council called to consider the lease transfer before the federal bankruptcy
judge's deadline, questions were repeatedly raised about why Tri-State would
release no financial information on its owners.
Surprisingly, the supposed new owners weren’t
forced to answer. Leaping to their defense was an assistant city attorney who
repeatedly advised the council they had no reason to object to Wiand’s choice.
Calling the backgrounds of the new managers
"blue chip," he said, "As staff we think they have passed the test probably more
so than any tenant we've had at the airport."
The city's mayor, Ed Martin, made a remarkable admission that indicated he wasn’t fooled.
"We're not in a position to determine who
these people are,” he said. “Whether they are U.S. nationals, or whether they
have criminal ties."
Well, Ed. Now you know.
NEXT:
Sovereign Wealth Funds, Private Equity, Abu Dhabi, The Carlyle Group, & the
Venice Municipal Airport
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