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Show Fraud investigation continues in Clearfield Housing project By JUDY JENSEN Editor Copyright 1988 Davis County Clipper CLEARFIELD The city housing authority has called a special spe-cial public meeting to be held April 12, at 8 p.m. to review the status of the $7.5 million tax-exempt revenue re-venue bonds that were issued by the city Dec. 3, 1985. The money from the bonds was to be used to build the 1 80 unit Heather Heath-er Estates apartments, that were to house low to middle income families. fami-lies. Ground has not broken on the project that was to have been completed com-pleted by December 1988, and it appears it will be impossible for the developer's president, Gary Routh, of Heather Estates Inc., to meet that deadline required by the initial bond agreement. To date, FBI agents investigating investigat-ing the possibility of fraud in the project, have not issued any indictments; indict-ments; however, a Salt Lake agent said he expects action to be taken within the next few months. Clearfield City manager Don Baird verified the fact that the records re-cords regarding the transaction have been seized by the FBI. The city hopes to question the principal parties who have been involved with the project at the April 12 meeting. According to Mr. Baird the city has many unanswered questions that they would like to have resolved, the most important of which is, where is the money that was to have been used for the project. The Clearfield investigation is just one of many being conducted by Federal officials across the United Un-ited States. It was revealed Friday that bond documents of the housing hous-ing authority of Riverside City, Calif, have also been seized by the FBI. The California bonds in question ques-tion were issued for construction of the Ironwood Apartments in the amount of $13 million, and another project, Whitewater Ltd. Partnership Partner-ship in the amount of $17.5 million. Both of those projects involved many of the same companies listed as taking part in the Clearfield apartments and other Utah projects pro-jects being investigated. Those companies include Matthews and Wright, Donaldson, Lufkin and Jenrette, and Imperial Securities as underwriters, Unified Capital Corporation, Cor-poration, Southwest Capital Corporation, Cor-poration, Bank of the Americas, Heritage National Bank Austin, CONTINUED ON PAGE 2 Fraud investigation continues CONTINUED FROM PAGE 1 Mercantile Capital Corporation, and InterFirst Bank Houston N.A., which merged with Republic Bank in 1987. The Clipper has learned that Grand Juries are investigating the tax exempt bonds issued by numerous numer-ous housing authorities in Texas, New York, Missouri, Hawaii, California, Cali-fornia, Utah and Pennsylvania. In these investigations, activities of the issuers, credit associations, trustees, mortgage lenders, underwriters, under-writers, developers, and their respective re-spective legal counsels are being reviewed for possible criminal dealings. In December 1987, Arthur A. Goldberg, a principal of Matthews and Wright, and Frederick L. Mann of Toronto, were charged with mail and wire fraud, bribery and conspiracy. They are accused of fraud that caused the collapse of a $400 million industrial development develop-ment bond issued by the government govern-ment of Palau, a United States protected pro-tected territory in the Western Pacific. Other charges against the two involved in-volved a $300 million housing bond issue in Guam and an $80 million housing bond issued by the Commonwealth Com-monwealth of the Northern Mariana Islands. Earlier in 1987, Guam had filed a $250 million lawsuit law-suit against Matthews and Wright. Matthews and Wright is listed as one of the underwriters on the Heather Estates bond issue, along with Donaldson, Lufkin and Jen-rette Jen-rette Securities and Imperial Securities Corporation, California. Alan R. Altura, president of Imperial Impe-rial Securities Corporation said, he had "absolutely no knowledge of our company being involved in Clearfield." He added that no representative rep-resentative from their company had ever signed papers. Edwin M. Higley, who is -involved not only in the Clearfield project as the original property owner, but also in the Salt Lake City Pioneer Village development as the builder, also questioned the authenticity of signatures on some of the papers he purportedly signed. "I'd bet a dollar that this is not my signature," he said as he reviewed certain documents from the Salt Lake project. According to Mr. Higley, the only reason the 303 unit complex in Salt Lake has not been completed, is that the project was forced into bankruptcy when the money for the $13.5 million in bonds would not be funded by Unified Capital. Mr. Higley started the project with his own personal wealth, assuming the delays in securing the bond funds committed to Unified as custodian cus-todian of the bond money would be shortly remedied. Nearly $5 million mil-lion later the bond money was still not being used for funding the Pioneer project. The project that was to be built "for the public purpose of assisting residents of the local governmental unit to obtain decent, safe and sanitary housing at rentals they can afford," sits vacant in its uncompleted uncom-pleted state. BoNo Development Corporation, Corpora-tion, owned by Mr. Higley, entered into an agreement with the Salt Lake Housing Authority to build the Pioneer Village Apartments. When Unified Capital, claiming some default on BoNo Construe- s tion's part, refused to honor their "Note Purchase Agreement" and "Real Estate Loan Commitment," dated Dec. 9, 1985 and Mercantile Capital Financial Corporation's "Irrevocable Letter of Credit" dated Dec. 24, 1985, it forced the Pioneer project into bankruptcy. It appears that these are the same bond documents that have caused the Clearfield project its problems and they are possibly the keys to the federal investigation. Both Unified Capital, purportedly purported-ly owned by Steven P. Tetrick, and Mercantile Capital Corporation, I 4. Ti I Numbers 1 through 7 are exempt bondholders. The TnVPStl(TatnrS Bondholder. typically involved in a money from the bond sale ' CallgOlUl 3 I , 1 revenue bond issue. The is then placed in a trustee tflPflTV fit developer asks the housing account. The trustee then 111CU1 J Ul I authority to issue bonds invests proceeds from the KntlH BoadRng for the project The issuer sale into an account from UUllli I I ' sells the bonds to an un- which the developer bor- transaction I saaJi I derwriter establishes 1 rows mon to huM " ""JUvHUH I I credit rating and re mar- project kets the bonds to tax- T , , . . . In the bond issues being I 1 I ' 1 investigated it appears Hou.LgTuAoruy J, Underwriter -N 5. Trustee numbers 8, 9, and 10's in- I . I I volvement led to the af- f I ledged Arbitrage. The cus- I 4 todian lender placed the . I I bond proceeds with the . A m 6. Custodian ... . ... , lender credit institution who in j , , - ' I ly 1 turn placed them with an . . I investment institution 1 Jj 8.Credit which invested the institution proceeds into an unrelated J project for the life of the I bonds, therefore the mon- i i 1 I I ey was unavailable for the l -.0$.0$.0$ Inrffiec, - 1 'Sf ln' h0B,iB whose owner is listed as James J. Keefe, are involved in the Clearfield Clear-field and Salt Lake projects. Mr. Tetrick and Mr. Keefe, both from California, were key principals princip-als in the creation of Lincoln N.C. Realty Fund Inc. which was created cre-ated in December 1985 and is now trading on the American Stock Exchange Ex-change after it raised $29.8 million to develop two projects in California Califor-nia and one project in Colorado. According to one investigator, Unified Capital reported to BoNo Construction and Heather Estates, that 50 percent of this money was available as lines of credit for the Utah construction; however, Paul F. Ferguson, Jr. controller of Lincoln, Lin-coln, said his company was unaware una-ware of any stock offering money being committed for any Utah developments de-velopments through Unified Capital. Unified also represented to the developers a 20 percent controlling interest in Unified Savings Bank. This bank was seized by federal regulators in 1986 and federal investigators in-vestigators said the records do not support the Unified Capital claim. Unified Capital further represented repre-sented that Bel Air Savings had an $18 million funding line of credit; however, Rhonda Hammer, Sr. Vice President of Bel Air was not aware of any such commitment with Unified Capital. It appears that both Unified Capital Corporation and Mercantile Mercan-tile Capital Finance Corporation may have been shell institutions that misrepresented their capital holdings to the housing authority. Documents seem to indicate that both companies collected large fees for their help with bond financing financ-ing for the projects. The as yet unaccounted for bond money is most likely tied up in investments in-vestments in two large insurance companies, MONY of New York and Travelers Insurance Company. Com-pany. If that is true, Unified could have broken the "Non Arbitrage Agreement" which was to guarantee guaran-tee that the bonds would not be resold for a profit, but rather the proceeds from the original sale of the bonds would be used "to construct con-struct low and moderate income rental housing." Unified was supposed sup-posed to act as custodian of the money. The original bonds were issued at an interest rate of 7.75 percent for Clearfield and 8.375 percent for Salt Lake. Bond proceeds appear to have been given to insurance companies at nine percent and 9.59 percent without return for funding the costs of development of the project. If this has happened the IRS may rescind the tax-exempt status of the bonds and investors would be required to pay back taxes, penalties and interest on their supposedly tax-exempt investment. in-vestment. On a $10,000 investment that could cost a typical investor upwards up-wards of $2500 from date of payment pay-ment to the IRS and those bondholders bondhol-ders relying on tax-exempt income would become taxable for future years of income on the bonds. The big losers in the Utah projects pro-jects may be the cities which not only lost the projects, but may find it difficult to sell bonds for future construction. The only winners, so far, are the scores of underwriters, bankers, and lawyers across the U.S. who have received substantial substan-tial fees and commissions for each bond issue. J At the April 12 meeting, Clearfield Clear-field hopes to begin to unravel the string of convoluted dealings that has led to the apparent scrapping of what promised to be a valuable addition to the city's housing picture. pic-ture. In the meantime, BoNo development develop-ment faces the challenge of the U.S. Bankruptcy court where Mr. Higley will try to explain the dealings deal-ings of Unified Capital Corporation and Mercantile Capital Finance Corporation. |