This Month in Corruption: Same Old Saga Stays with Us

Tuesday, January 31, 2017

As a faithful reader of the State House News Service, I have been noticing for years how often the Press Releases section of the service’s subscriber-only web site contains an account of wrongdoing and/or unsavory behavior in the public sector or in sectors regulated by public agencies/overseers.

At the end of last month, I decided to do a post summarizing some of those more recent accounts and  I put a headline on it that said, “This Month in Corruption: Snapshots of the Public Trust Betrayed.”
In the back of my mind was that I could turn this into a regular feature.  But, unsure as to whether the bad behavior pipeline was really as full and as fast-flowing as I perceived it to be, I held off on designating “This Month in Corruption” a regular feature.

Well, my concerns about supply were exaggerated, to say the least.  Herewith the ill-cultivated fruits of January, as presented by the State House News Service:
Postal Worker's Steroid-Import Enterprise.  On January 4, a federal postal worker copped a plea concerning the purchase and importation of illegal anabolic steroids.  According to a press release from the Office of the U.S. Attorney for Massachusetts, John A. Psehoyas, age 54, pleaded guilty to one count of importing a controlled substance and agreed to resign from the U.S. Postal Service. 

“Psehoyas was a customer service supervisor at the Lynnfield, Mass. Post Office,” the release related.  “From August 2014 to March 2016, Psehoyas purchased anabolic steroids, a controlled substance, from online sources.  He had the parcels containing steroids shipped to him from China, Turkey and Romania.  The parcels were addressed to multiple addresses to avoid suspicion, but Psehoyas tracked the parcels using a USPS tracking system.”
U.S. District Court Senior Judge Douglas P. Woodlock is scheduled to sentence Psehoyas on April 6.

Rating Agency Rapped for Fees-Motivated Analyses. On January 17, Attorney General Maura Healey announced that Moody’s, the big credit analysis and rating agency, will pay $12 million to Massachusetts in relation to its conduct in the rating of securities packaged as mortgage loans.  This was part of an $863-million-plus settlement Moody’s made on January 13 with 22 states.
While Moody’s emphasized its independence and objectivity, Healey’s office noted, it “allowed its analysis to be influenced by its desire to earn lucrative fees from its investment bank clients and assigned credit rating to risky assets packaged and sold by Wall Street investment banks that failed to disclose the risks posed by those securities.

Moody’s put out a statement declaring that it “stands behind the integrity of its ratings, methodologies and processes,” and adding that “the settlement contains no finding of any violations of law, nor any admission of liability.”
A Bank’s 'Secret Commissions' Scheme.  On January 18, the Office of the U.S. Attorney for Massachusetts announced that State Street Corporation had entered into a deferred prosecution agreement under which it would pay a $32.3 million criminal penalty to resolve the government’s criminal investigation into a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades.  State Street also agreed to offer an equal amount as a civil penalty to the federal Securities and Exchange Commission.

“State Street cheated its customers by agreeing to charge one price for its services and then secretly charging them something else,” said Acting U.S. Attorney William D. Weinreb. 
Acting Assistant Attorney General David Bitkower chimed in, “The bank fundamentally abused its clients’ trust and inflicted very real financial losses.”

Also quoted in the release was Harold H. Shaw, Special Agent in Charge of the Boston Field Division of the FBI, who said, “State Street engaged in an elaborate overcharge scheme which resulted in millions of ill-gotten profits and violated the trust of their clients.  This agreement…demonstrates the FBI’s commitment to aggressively pursue financial fraud, uncover schemes that undermine investor confidence, and hold financial institutions accountable.”
A ‘Shell Game’ in the Hedges. On January 18, Massachusetts Secretary of State Bill Galvin moved to bar three Cambridge-based hedge funds and Yasuna Murakami, the man who operates them, from any securities business in Massachusetts.  Secretary Galvin alleged that the funds operated as Ponzi schemes.

Murakami took about $15.3 million into the funds from at least 47 investors, Galvin maintained.
“This case represents a classic example of a shell game of moving the money from one investor to another with some left over to fatten the coffers of the money manager,” Galvin said.  “It is yet another example of how rogue actors use every trick in the book to entice otherwise sophisticated investors to turn over their money based on promised high returns.”

In addition to barring Murakami and his firm from the securities business, Galvin’s office is seeking to disgorge “all of the profits from the alleged wrongdoing,” provide the investors with restitution, and levy an administrative fine.
Owww! The Pain of Bad Billing for Dental Work.  On January 25, the Office of Attorney General Healey announced that a Newton dentist, Dr. Julia Faigel, had agreed to pay $475,000 to the state’s Medicaid program (MassHealth) to resolve allegations of improper billing for work performed at 21 different dental offices the doctor owned and operated.

There was a “pattern of problematic billing” in these offices that “cost MassHealth thousands of dollars and violated state regulations,” Healey announced.
A Cherry-Picking Financial Advisor. On January 25, a Waltham-based financial advisor agreed to plead guilty in connection with defrauding his clients by engaging in a multi-year “cherry-picking” scheme. 

Michael J. Breton, age 52, managing partner of an investment advisory firm, Strategic Capital Management, had been facing charges of securities fraud, reports the Office of the Acting U.S. Attorney for Massachusetts.

According to that office, “Breton allegedly purchased shares in those companies shortly before the earnings announcements and then allocated the shares after the earnings announcements.  Thus, Breton allocated the shares to one of his accounts or to the client accounts after knowing whether the company had announced positive or negative news about its earnings, which determined whether the trade was likely to be profitable in the short term,  Throughout the scheme, Breton allocated more profitable trades to himself and allocated unprofitable trades to his clients, thereby stealing more than $1.3 million in potential profits from his clients.”
Variable Annuities of the 'Unsuitable' Variety. On January 30, Secretary of State Bill Galvin ordered LPL Financial LLC to offer approximately $2.5 million in restitution to retirees and other older investors in the health care field in connection with the sale of unsuitable variable annuities.  The order also featured a $975,000 fine against LPL.

Last month, the Secretary of State’s Securities Division charged LPL with failure to supervise one of its investment advisers “who sold variable annuity products to clients which were unsuitable for the clients,” Galvin’s release stated.
“The facts in this case make clear that seniors and retirees continue to be prey to unscrupulous advisers targeting 401(k) and 403(b) roll-over assets to gain high commissions on unsuitable products,” Galvin said.



No Consolation but MA at Least Knows a Pathological Candidate when it Sees One

Friday, January 13, 2017

Nearly half a century has passed since the presidential election of 1968. We’re still learning things about that race that make your stomach turn.

On Saturday, December 31, the New York Times published an article by John A. Farrell, author of a forthcoming biography of Richard Nixon. 
“Nixon’s Vietnam Treachery” describes how Farrell made a startling discovery while conducting research at the Richard Nixon Presidential Library in California: notes written by Nixon’s top aide, H.R. Haldeman, confirming that Nixon tried to sabotage Vietnam War peace negotiations in the fall of ’68.  He feared that a peace settlement engineered by Lyndon Johnson before the election would assure his defeat at the hands of Johnson’s vice president, Hubert Humphrey.   

“Haldeman’s notes return us to the dark side,” Farrell wrote in the Times. “…we must now weigh apparently criminal behavior that, given the human lives at stake and the decade of carnage that followed in Southeast Asia, may be more reprehensible than anything Nixon did in Watergate.”
Farrell wrote that Haldeman’s notes,  unsealed only  nine years ago, “contain other gems, like Haldeman’s notations of a promise, made by Nixon to Southern Republicans, that he would retreat on civil rights and ‘lay off pro-Negro crap’ if elected president.  There are notes from Nixon’s 1962 California gubernatorial campaign, in which he and his aides discuss the need to wiretap political foes.”  The Farrell piece may be found in its entirety, and I strongly encourage everyone to read it, at:

So, we have been given proof that the 37th president of the United States was so driven to become the most powerful man in the world he did not care if U.S. soldiers had to keep on dying and suffering grievous battle wounds if that is what it would take to put him in office.

Every person who runs for president is possessed by a rare form of ambition, of course. Nixon was not the first candidate in which that ambition boiled over into pathology.  Nor would he be the last, as is apparent in the president-elect to anyone who opens his eyes and is ready to accept the evidence of his senses.
In the case of Nixon and now Trump, we citizens of the Commonwealth can mutter the refrain, “Don’t blame me, I’m from Massachusetts."  In the instant the slogan is voiced, we know it provides no consolation.

Forty-eight years ago in November, Humphrey beat Nixon here by 702,374 votes.   Of the 2,331,752 residents of Massachusetts who voted in that election, 63% wanted Humphrey. [Interesting footnote: The president/vice president ticket of George Wallace and Curtis Lemay received 87,088 votes in Massachusetts, 3.73%, in the final election.]
I’m glad I won't be around five decades from now when presidential historians and biographers will still be unearthing the sickening evidence of Trump’s ability to justify the means by the ends.


Company that Sold Land for Casino Says It Was Gamed Out of Rightful Price

Friday, January 6, 2017

The Massachusetts Gaming Commission has a big fight on its hands with the guys who sold the land for a casino in Everett to Steve Wynn.  If the commission loses, it could be out millions of dollars.

FBT Everett Realty filed a civil suit against the commission in Suffolk Superior Court, Boston, on Nov. 15, accusing it of “tortious interference” in FBT’s contract with Wynn Resorts, of Las Vegas, Nevada. [FBT is represented in the case by the Boston law firm of Todd & Weld, which boasts on its web site, "Our clients turn to us for the highest level of trial advocacy because they know that we begin to prepare every case for trial from the day it comes in the door."]
Under a binding legal option, FBT had committed in December of 2012 to selling the land to Wynn for $75 million.  But, due to subsequent “interference” by the commission, Wynn cut the agreed-upon price by $40 million, the lawsuit says, and forced FBT to accept the lower figure by threatening legal action against FBT.

The commission’s interference was motivated, the lawsuit claims, by a desire to deprive FBT of a “casino-related premium” on the land because the commission mistakenly believed a convicted felon, Charles Lightbody of Revere, who’d once been a member of FBT, was still involved in the ownership group, and the commission did not want him to make money on the transaction.   Felons are prohibited by Massachusetts law from profiting on a casino operation.
The lawsuit documents tell a version of the well-publicized tale of how Lightbody, during phone calls to a friend in prison, was caught on tape apparently crowing about the casino.  Here are some of the key paragraphs from the suit:

“On July 2, 2013, Lt. Kevin Condon of the IEB was informed by then-Major Frank Hughes of the existence of a series of recorded phone calls between Charles Lightbody and Darin Bufalino, an inmate in state prison.  In these calls, which were being monitored by state and federal law enforcement, the two men discussed the Everett casino project and gave law enforcement the impression that Mr. Lightbody retained some kind of ownership interest in FBT.  Lt. Condon has testified that the tapes were concerning to him because he ‘believed that would affect the entire gaming process if a person like Charlie Lightbody was involved in it.’  [Note: The IEB is the gaming commission’s internal law enforcement unit, the Investigations and Enforcement Bureau.]
“Shortly after Lt. Condon and Major Hughes listened to the Lightbody/Bufalino tapes, Lt. Condon determined that the IEB should interview the principals of FBT.  Those interviews took place between July 9 and July 16, 2013.  The three members of FBT, Dustin DeNunzio, Anthony Gattineri and Paul Lohnes, were interviewed, as was Mr. Lightbody, a former member of FBT.  The IEB also sought to interview Gary DeCicco, another former member of FBT, but Mr. DeCicco refused to speak to the IEB.

“During their consensual interviews with the IEB, Messrs. DeNunzio, Gattineri and Lohnes each identified Mr. Lightbody as a former owner of FBT.  The IEB (erroneously) believed, however, that the FBT principals had lied during their interviews regarding the ownership status of Mr. Lightbody in FBT.  The IEB believed either that Mr. Lightbody was still a hidden owner of FBT or, alternatively, that the FBT principals had falsified paperwork making it appear as though Mr. Lightbody had exited FBT in August 2012, rather than at some later date.
“The IEB and the Gaming Commission were angry at the FBT principals’ perceived malfeasance and the possibility that they would receive a substantial profit from the sale of the Everett Parcel if Wynn Resorts received a casino license.  This is evident from internal emails and other documents memorializing internal discussions at the IEB and Gaming Commission, the content of the IEB’s suitability report on the Wynn application, public meeting transcripts, and sworn witness testimony from a subsequent federal criminal trial.”

This thread in the suit concludes with:
“In order to impose a financial penalty on FBT and its members, one that the Gaming Commission knew it had no lawful authority to impose, the Gaming Commission devised a plan to ensure that FBT did not receive any casino-related premium for the sale of its land to Wynn Resorts.”

The enabling legislation for casino gambling, Chapter 23K of the Massachusetts General Laws, says that “ensuring public confidence in the integrity of the gaming licensing process and in the strict oversight of all gaming establishments through a rigorous regulatory scheme is the paramount policy objective” of the law. 
The power and authority granted to the gaming commission under Chapter 23K is supposed to be “construed as broadly as necessary for the implementation, administration and enforcement of the law.”

Did the commission and its investigators have a responsibility to pursue aggressively the facts concerning Lightbody’s standing in, or involvement with, FBT Everett Realty? 

Did the commission act appropriately when it took Lightbody’s former and/or supposed affiliation with FBT, fashioned it into a club, handed it to Wynn, and encouraged his company to use it as a device for saving $40 million?
Doubtful, I’ve always thought.

It’s not hard to see why DeNunzio, Gattineri and Lohnes are eager to put the commission’s action in this regard to a legal test.  (Wouldn’t you, Mr. and Mrs. Prospective Jurors, do the same?) These guys paid $8 million for the former Monsanto Chemical property in Everett in 2009 and were poised, three years later, to secure a 900 percent-plus (gross) profit by selling it to Wynn for $75 million.
As a direct result of steps by the gaming commission, they lost 53 percent, $40 million, of what they almost had and have always believed they should have collected.

I don’t think there were many who thought DeNunzio, Gattineri, Lohnes, et al. had made a good move when they acquired the property because it was severely and extensively contaminated and because its prospects for conventional redevelopment purposes were, at the time, quite dim.  They took a big chance and got extremely lucky when the state legalized casino gambling and Steve Wynn came to town, burning to vanquish the competition at Suffolk Downs/Mohegan Sun and capture the sole available casino license for Eastern Massachusetts. 
That’s the American way. 

Congratulations and good luck to each of them, I say.

Do not be surprised if the gaming commission tries to have the suit dismissed on the ground that Wynn was not named as a defendant by FBT.  If it were dismissed, FBT would almost certainly be glad to insert Wynn in the case and refile it.  Then the serious negotiations would commence. 
I was not smart enough to go to law school.  That should (but won’t) stop me from hazarding a guess, i.e., Wynn and the commission could end up contributing as much as $10 million each to make this thing go away.