2010-10-29 / Front Page

Future Charges For Smith?

Aqueduct Investigator: Bidding Was Rigged
By Howard Schwach

State Senator Malcolm Smith is named in the state Inspector General’s report for wrongdoing in relation to the bidding process. State Senator Malcolm Smith is named in the state Inspector General’s report for wrongdoing in relation to the bidding process. New York’s inspector general said on October 21 that a number of top state legislative leaders, including State Senator Malcolm Smith, who represents Rockaway, and the governor’s office angled for campaign contributions and political advantage when they awarded a lucrative video slot machine Racino contract for Aqueduct racetrack to a consortium of politically-connected bidders that was later disqualified.

The report was referred to the U.S. Attorney’s Office and the Manhattan District Attorney’s Office.

Inspector General Joseph Fisch said the selection in January of Aqueduct Entertainment Group (AEG) by Governor David Paterson, Senate Democratic Conference leader John Sampson, Senate President Pro Tempore Malcolm Smith and Assembly Speaker Sheldon Silver followed a process that removed lobbying restrictions and let campaign cash flow to decision makers.

An artist’s rendering of the proposed Aqueduct Racino. An artist’s rendering of the proposed Aqueduct Racino. “This process was doomed from the start, and at each turn, our state leaders abdicated their public duty, failed to impose ethical restraints and focused on political gain at a cost of millions to New Yorkers,” Fisch said. “Unfortunately and shamefully, consideration of what was in the public’s best interest, rather than the political interest of the decision makers, was a matter of militant indifference to them.”

According to the report, Senate leaders leaked an internal memo containing competitors’ bid information to AEG, originally a low-ranked bidder, helping it move up. An assistant to Senate Secretary Angelo Aponte e-mailed the memo to AEG consultant Hank Sheinkopf. Aponte, when questioned, claimed not to recall why that was done. Sheinkopf invoked his Fifth Amendment right against self-incrimination in declining to answer.

ASSEMBLYWOMAN AUDREY I. PHEFFER ASSEMBLYWOMAN AUDREY I. PHEFFER Fisch has forwarded findings by his investigators, who subpoenaed documents and witnesses, to the prosecutors. He has also sent the findings to the state Legislative Ethics Commission to review the actions of Sampson, Aponte and Smith.

Paterson spokesman Morgan Hook said they were reviewing the report, but added it was “indisputable.“ Paterson subsequently refashioned the selection process, leading to a new contractor who broke ground on Friday, after years of delay.

The 308-page report describes heavy lobbying behind Aqueduct Entertainment Group’s selection last year to install and operate video slot machines at the track in Queens. Fisch has referred the findings to the offices of a federal prosecutor and the Manhattan district attorney.

“In regards to the identity of the people whose activity we criticized, this is the highest,” Fisch said.

The probe found lobbying for the multibillion-dollar contract brought more than $100,000 in campaign donations to legislative leaders and the governor, with $1.2 million spent by the bidders on lobbyists. The largest share came from the winning but apparently unqualified bidder, AEG, which also got the benefit of leaked Senate documents.

“It’s what everybody knew was happening but could never prove it,” said Blair Horner of the New York Public Interest Group. “And now you have it in black and white from an enforcement agency that this is how things operate. ... It will become grist for the reform mill.”

A number of local politicians, including Smith, Assemblywoman Audrey Pheffer, Congressman Gregory Meeks and former City Councilman and now State Senator Joseph Addabbo Jr. were mentioned in the report.

The report said that Pheffer paid little attention to any of the components other than community involvement, but that she was “aware of the evaluations of the various executive agencies [that were negative on AEG] but deemed those evaluations within the purview of others and chose to focus, apparently exclusively, on the vendor’s relationship with the community.”

Pheffer told the Inspector General, “The ones that were important to me was as representatives of the community, what we dealt with. The only thing we were interested in was how they were going to relate to the community. We really went by our gut feeling.”

The report states, however, “While [community involvement is] worthy of consideration and it is reasonable for a representative of an area to focus on the effect on the local community, advocating for a particular vendor to be awarded a billion dollar franchise solely on a ‘gut feeling’ not fortified by financial and licensing examination further reflects the subjective and standardless nature of this process.”

Pheffer told The Wave earlier this week that it was “not her job” to investigate the groups and their investors.

“My concerns were the community and only that,” Pheffer said. “I wanted the winning bidder to adhere to what the community wanted – the community’s needs. How do you address the crime problem, jobs for community members, traffic.”

She said that she believed that Smith had “stepped away from the decision-making process.”

“Who looked beyond the plans, who knew what the Inspector General wrote about in his report? We didn’t know, and we didn’t look.”

Congressman Gregory Meeks is cited in the report for his close ties to the Reverend Floyd Flake, and to Darryl Green, two of the investors involved with the AEG bid and with Malcolm Smith.

Meeks, however, testified that his only discussions with the two, and with Governor David Paterson, were to insure that there was an adequate minority representation in whichever group was chosen.

The report said, “The Inspector General has found no evidence that Congressman Gregory Meeks played any meaningful role in the selection of AEG, despite his close relationships with AEG principals, undermining his testimony that he did not act as an advocate for the group.”

It is for Smith, however, that the report holds the greatest peril, and he is one of the three men recommended for investigation by both the state’s Attorney General and the Manhattan District Attorney.

“[Smith’s] involvement in the VLT selection process was problematic given his widely reported connection to AEG,” the report said. “As early as May 19, 2009, only one week after the vendor’s submission, 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, 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. After it was revealed that Flake was part of AEG, Smith claimed that he consciously avoided speaking to Flake at all during the pendency of the selection process.

“Smith also affirmed that he and Darryl Green 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 decisions’ made by Smith and did not represent a conflict of interest.

“The spokesperson further reported that Smith had divested himself of any interest in Darman Group over a decade ago. He said that Smith would participate in the VLT selection process.”

The Inspector General added, “Smith’s actions belie any recusal on his part.”

The report added, “Further evidencing that Smith did not in fact remove or attempt to distance himself from the selection process, in a November 13, 2009 e-mail with an attached chart of the most recent updated VTL bidders information, Majority Counsel Mayer commented, ‘Assume you received this for today’s meeting.’ Of note, Mayer copied both Senators Smith and Adams on the e-mail. In addition, in a December 17, 2009 email exchange, Mayer asked Higgins to evaluate the potential of a Shinnecock casino on Aqueduct and, upon receiving a response, instructed Higgins to forward the information solely to Smith. If Smith intended to recuse himself, he apparently did not share his recusal with counsel.

“In fact, while publically Smith maintained a fa├žade of recusal, testimonial and documentary evidence reveal that Smith was very much involved in advocating for AEG, including advocacy to the Governor. Governor Paterson related that toward the end of 2009, he ‘got the impression’ that Smith had a preference for AEG. Upon being pressed, the Governor acknowledged, ‘Then fine, yes, he spoke to me about AEG.’

“It is further clear that, at a minimum, Smith utilized his position to act as AEG’s eyes and ears in the Senate. Most notably, in a January 13, 2010 email exchange, two weeks before AEG’s tentative selection, AEG-affiliated lobbyist Hank Sheinkopf and AEG member Lawrence Roman discussed the favorites among the decision makers as divulged by Smith and others.”

The final component in the report says that “in total, the Inspector General determined that competing vendors and their associates contributed more than $100,000 to relevant officials during the bidding process. The Inspector General found that AEG coordinated its contributions with the Democratic Senate Campaign Committee and one of its component entities even instructed a subcontractor apparently unconnected to the Aqueduct project to make a contribution in order for the monies to be pooled with other contributes from other AEG members.

“The Inspector General determined that lobbying activity pervaded the selection process transforming a public procurement into what one witness aptly characterized as a ‘political freefor all.’ Particularly in regard to the Senate, this rampant, unbridled lobbying emphasized the benefits of political access to the detriment of analysis and relevant criteria and produced an environment which fostered the ethically problematic conduct found by the Inspector General in regard to several Senate officials, including Senators Smith, Sampson and Adams.”

To add insult to injury, Smith, Sampson and others attended the victory party for AEG after it was announced by Paterson that the company had won the bidding process.

Fisch’s report could affect the November 2 elections since most officials named and criticized in the report are Democrats, and up for reelection. But he also identified former Senate Republican leader Joseph Bruno as a chief author of the 2008 law that led to largely unrestricted bidding on what promises to be New York’s most lucrative contract.

Fisch, a dapper, white-haired lawyer with a downstate accent, is a Harvard Law School graduate who began his public career in 1959 at the storied State Investigation Commission. He could have retired a decade ago, but accepted Paterson’s offer to become inspector general two years ago.

After AEG was disqualified, the contract to build and operate about 4,525 of the machines at the thoroughbred track in Queens was awarded to Genting New York LLC.

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