Posted on 07/16/2002 3:22:51 PM PDT by Dan Zachary
Why the DNC chairman can’t preach about business accountability.
Democratic National Committee chairman Terry McAuliffe has been a leading critic of President Bush's business dealings with the Harken Energy Corporation, as well as the president's corporate-reform efforts. "It's time this CEO, President Bush, took responsibility for his actions as a private businessman," McAuliffe said shortly after the Harken matter appeared in the press. On another occasion, McAuliffe strongly called on the president to release decade-old Securities and Exchange Commission files on the Harken stock sale, adding, "Every day, more questions arise." And McAuliffe's DNC website says flatly: "Despite his empty calls for corporations to hold themselves accountable for their misdeeds, President Bush continues to refuse to take responsibility for his own questionable business practices in the past."
But even as he questions the president's credibility on the issue of corporate responsibility, there are questions about McAuliffe's own past as a private businessman — questions that suggest how difficult it will be for the DNC chairman to be a credible voice for greater accountability. In the late 1990s, some of McAuliffe's business ventures came under investigation by the U.S. Department of Labor, which filed suit against two labor-union officials, both of them with the International Brotherhood of Electrical Workers pension fund, for entering into questionable business arrangements with McAuliffe. Both officials later agreed to pay hundreds of thousands of dollars in penalties for their actions, and the union itself had to reimburse its pension fund by nearly $5 million.
In one deal, McAuliffe and the fund officials created a partnership to buy a large block of commercial real estate in Florida. McAuliffe put up $100 for the purchase, while the pension fund put up $39 million. Yet McAuliffe got a 50-percent interest in the deal; he eventually walked away with $2.45 million from his original $100 investment. In another instance, the pension fund loaned McAuliffe more than $6 million for a real-estate development, only to find that McAuliffe was unable to make payments for nearly five years. In the end, the pension fund lost some of its money, McAuliffe moved on to his next deal, and fund officials found themselves facing the Labor Department's questions. A SWEET, SWEET DEAL
The lawsuit that details McAuliffe's dealings with the electrical workers' pension fund is Herman v. Moore, filed in May 1999. The title refers to Jack Moore, a friend of McAuliffe's who ran the pension fund (Herman was Alexis Herman, the Secretary of Labor when the suit was filed). McAuliffe and Moore met when they were both supporters of Democratic Rep. Richard Gephardt's 1988 presidential campaign. At the time, Moore was a long-time electrical workers' union official who had virtually unchallenged authority to choose where to invest the pension fund's $6 billion store of capital.
According to Herman v. Moore, on November 19, 1990, the fund entered into a partnership with a firm called American Capitol Management Company, which was owned by McAuliffe and his wife, Dorothy. The purpose of the partnership, according to the suit, was "to acquire, hold, improve, lease, operate, and sell a shopping center and various apartment complexes located in central Florida."
The suit continues:
In 1991, the limited partnership acquired the Woodlands Square Shopping center and five apartment complexes through $39 million in capital contributions from the fund. American Capitol Management Company made one capital contribution of $100....At the outset, each partner held a 50-percent interest in the limited partnership. If the limited partnership's properties sold at a profit, American Capitol Management Company and the fund would share in the gains according to their percentage partnership interests.
The next year, according to the suit, McAuliffe proposed another venture for the partnership: the purchase of a parcel of land near the apartment complexes which could be divided up into more than 500 single-family lots. Instead of another lopsided buying arrangement, the fund came up with the idea of lending McAuliffe up to $10 million to buy the property, which was known as Country Run. As collateral, McAuliffe put up the Country Run land itself, plus his 50-percent interest in the apartment/shopping center venture.
But not long after the Country Run loan was finalized, McAuliffe got out of the apartment/shopping-center deal. According to the lawsuit, in June 1992 the pension fund paid McAuliffe $450,000 for a portion of his 50-percent share. Then, in August 1993, the fund paid McAuliffe $2,000,000 for most of the rest of his share — for a total return of $2.45 million on that original $100 stake. It was an unusually generous deal for the fund's officers to give McAuliffe — especially since it meant that McAuliffe no longer had the property which he had put up as collateral for the Country Run loan.
In the years that followed, the Country Run project went nowhere; according to the lawsuit, by the end of 1996, lot sales to homebuilders were less than half the number that had been predicted. The pension fund's loan to McAuliffe, according to the suit, "was in default continuously from December 1992 until October 1997." In 1997, McAuliffe found another partner and bought out the loan. In the end, Labor Department investigators found, the pension fund got a relatively meager return on its money — significantly less than it would have earned in a more conservative investment.
"The fund lost money as a result of the [Country Run] loan in 1992 and the purchases of additional partnership interests from American Capitol Management Company [the buyout of McAuliffe] in 1992 and 1993," says the lawsuit. "In addition, if the fund had not made these investments, it would have had the money it invested in Country Run and the additional partnership purchases available to invest in prudent investments that would have earned a greater return."
On October 16, 2001, Jack Moore and another official named in the suit agreed to pay six-figure penalties for their role in the McAuliffe ventures, and the electrical workers union was forced to reimburse the pension fund for its officers' failure to act "with the care, skill, prudence, and diligence...that a prudent person acting in a like capacity and familiar with such matters would use." McAuliffe was not charged with any wrongdoing; his $2.45 million payday, while a violation of common-sense norms of business propriety, did not break any laws.
HE'S NOT PRESIDENT
McAuliffe's real-estate deals have attracted relatively little attention in the press. Last October's consent agreement that ended the Labor Department lawsuit, coming after the terrorist attacks of September and just before the collapse of Enron, received almost no coverage. But the details of McAuliffe's business career may take on new importance now that he has become one of the president's chief critics on the issue of business ethics.
A Democratic-party spokeswoman dismisses suggestions that McAuliffe's record might damage his credibility. "First of all, Terry McAuliffe isn't president of the United States," says the DNC's Jennifer Palmieiri. "He doesn't have the responsibility or the ability to restore confidence in the markets." Second, Palmieiri says, "We're holding Bush to Bush's standard — the standard he has laid out for corporate CEOs. He should follow that example. He has not been upfront with what his own situation was." Finally, Palmieiri says, the business records of Bush's Democratic critics are far less important than the fact that they support the Sarbanes corporate reform bill. "Whatever their business dealings are, and whatever they have done in the private sector," Palmieiri says, "they still want to support the most responsible reforms available."
Nevertheless, McAuliffe's business career might attract increased scrutiny should he continue his high-profile criticism of the president's business history. Already there have been mentions of McAuliffe's extraordinarily well-timed investment in the now-bankrupt Global Crossing, in which McAuliffe invested $100,000 and made $18 million. There has also been talk about the six-figure profit McAuliffe made for helping Prudential Insurance Company win a government contract. And there has been talk about McAuliffe's role in a politically connected Washington bank in the 1980s and early 1990s.
As McAuliffe himself has said, every day, more questions arise.
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More rascals, clowns, thieves, and corrupters:
| FOB and FOFOB... the clinton friend files |
As I recall, Dubya also looked Tom Daschle in the eye and said in a soft voice, "Don't ever lie to me." But you know and I know that a number of untruths have passed Daschle's lips in his communications with the President, and NOT MUCH in the form of retaliation has yet occurred.
Like water wearing away a stone, drip by drip the dripping slime from the corpse of "the most ethical Administration in History" will reveal the truth about those eight years gullible Americans were spun, misinformed, lied to, and defrauded.
Weed out the corruption, WHEREVER it is...but I gotta admit the idea of McAuliffe in an Orange jumpsuit REALLY brings a smile to my face!
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