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New filings point to “Buffalo Billion” case’s complexities, potential weaknesses

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New filings point to “Buffalo Billion” case’s complexities, potential weaknesses

At a pretrial conference in early April, an attorney for Peter Galbraith Kelly, Jr., a former energy company executive charged with two counts of bribery, presented a color-coded chart to a federal judge.

“I think the chart helps explain what is animating the multiple letters and concerns from the defense,” the attorney, Daniel Gitner, told the court, according to a transcript. “By way of quick orientation while your Honor is looking at it, the indictment, in our view, charges several schemes…There is no count in which all [eight] defendants are charged. In fact, no defendant is charged with even a majority of the counts. There is no scheme in which all defendants are charged.”

The chart—or, to be more precise, an updated version of the chart made publicly available on May 19 as part of a deluge of motions from the defense—lists Kelly, Jr. and his co-defendants along the x-axis and the fifteen total corruption-related counts against them on the y-axis.

All the charges, the government has maintained since September, against the six business executives and two former state officials “stem from two wide-ranging and overlapping criminal schemes involving bribery, corruption, and fraud in the award of hundreds of millions of dollars in New York State…contracts and other official benefits,” as stated in a superseding indictment this month.

In one scheme, the government claims, executives of real-estate development companies in Syracuse (COR) and Buffalo (LPCiminelli) bribed lobbyist Todd Howe, who was also working as a consultant with SUNY Polytechnic Institute and at least one of its nonprofit affiliates (for which he was apparently paid $25,000 per month via the SUNY Research Foundation). Howe allegedly conspired with Alain Kaloyeros, SUNY Poly’s then-president, to subvert ostensibly open bidding processes by tweaking the language of requests for proposals (RFPs) to favor the two developers.

In the other alleged scheme, the energy company, Competitive Power Ventures, and COR—both Howe clients—paid bribes to Joseph Percoco, who at the time was either a top aide to Governor Andrew Cuomo or, for a stint in 2014, the manager of Cuomo’s reelection campaign.

All eight defendants have pled not guilty and maintain their innocence. And further: they dispute what might be termed the charges’ presentation or substructure.

The “indictment is so complicated,” Gitner told the court in April. “The defense thinks, and I think it screams, frankly, from the indictment, there are actually four schemes.”

Gitner depicted them as follows: (1) in orange, the Buffalo RFP Allegations, involving Kaloyeros and three LPCiminelli executives; (2) in blue, the Syracuse RFP Allegations, involving Kaloyeros and two COR executives; (3) in red, the Syracuse Bribery Allegations, involving Percoco and the COR execs; and (4) in green, the Energy Company Bribery Allegations, involving Percoco and Kelly, Jr. There’s some overlap between one and two, two and three, and three and four. (One box is colored grey, denoting a lone, somewhat peripheral charge against the COR execs for allegedly lying to the feds.)

“But it is even more complicated than that, Judge,” Gitner went on. “If you look horizontally and not vertically, you can see that some of the defendants are charged with conspiracy that joins two schemes.”

He added: “So it is not simply that they are tied together through the schemes that I explained earlier, but also conspiracies that seem, from my point of view at least, to be duplicitous in the sense that they are charging two schemes as one.”

Defense counsel have adduced the chart and the segmentation it reflects in their push to split the case up into two or more trials.

If you cannot quite grasp all this in real time, you are probably not alone. When Gitner finished his spiel, the judge said, simply: “I love your chart.”

“Thank you,” Gitner said. “I have another copy if you if you would like it.”

“One is enough,” the judge replied.

Later in the conference, Assistant U.S. Attorney Janis Echenberg expressed what reads as a degree of annoyance at Gitner’s chart deployment: “I didn’t know we were doing color-coded demonstratives today.”

“I love charts,” the judge replied. “Any time you want to give me a chart . . .”

“I’m going to do one by hand for you,” said Echenberg. “The way we would describe the scheme, and I think it is very clear from the indictment, is a Venn diagram.”

***

Todd Howe is the case’s connective tissue, a cooperating witness who seems to have figured in all the alleged schemes, however many you think the indictment shows. But Howe’s integrality could pose problems for the government, since his past is “littered with erratic behavior and litigation,” as the New York Times reported last year in an extensive biographical sketch.

In a March letter to defense counsel included in the May 19 filings, the government detailed several of Howe’s past, apparently heretofore undisclosed misrepresentations. They include:

  • Identifying himself in emails as a partner of Whiteman Osterman and Hanna, a law firm, “even though he was not a partner.” (He was president of a WOH subsidiary lobbying firm.)
  • Assuring Alain Kaloyeros that, as the state attorney general’s probe began in Sept. 2015, the SUNY Poly president had “100%” support from New York’s leadership. Howe has since admitted “that he did not speak to Percoco in response to Kaloyeros’ email [on the topic],” despite implying exactly that.
  • In Jan. 2015, before forwarding it to two Whiteman Osterman and Hanna colleagues (neither of whom are defendants in the case), altering an email sent to him by the then-secretary to the governor, adding (or, if you prefer, ventriloquizing): “I’d like to grab dinner in NYC over the next few weeks to pick your brain. AC suggested we do [so] sooner than later. Whenever [is] good for you.”

The third item may have the least relevance to the case, since it does not involve Howe deceiving a defendant. But it is perhaps the most striking: Howe appears to be exaggerating to his coworkers his proximity to the governor (“AC”).

If “we identify any additional Altered Howe Materials,” prosecutors wrote in the March letter, “we will disclose those materials to you.”

***

It has been widely reported that Alain Kaloyeros stands accused of bid-rigging. That may suffice as shorthand but perhaps belies some bureaucratic quirks complicating the government’s case.

In the three wire fraud-related counts against him, Kaloyeros is alleged to have defrauded Fort Schuyler Management Corporation, a 501(c)(3) real-estate corporation affiliated with SUNY Poly, “in its award of significant taxpayer-funded development contracts by representing to [Fort Schuyler] that the bidding processes for those contracts were fair, open, and competitive,” when they actually were not, thanks to secret communications between defendants prior to the release of the RFPs.

With respect to the Buffalo RFP, for instance, in Sept. 2013—about one month before its formal issuance—Kaloyeros sent a draft of the Syracuse RFP to an LPCiminelli executive, according to the criminal complaint. The “‘Developer Requirements’ section of this draft…stated, among other things, ‘Over 15 years proven experience.’” Days later, the government alleges, another LPCiminelli executive sent Kaloyeros a “company profile” that noted the firm had “over 50 years of experience.” When finally issued, the Buffalo RFP stated that Fort Schuyler was seeking developers with over “50 years of proven experience.”

According to the Investigative Post, a nonprofit news organization based in Buffalo, “Fort Schuyler officials changed the requirement to 15 years [from 50] after being challenged by other developers and questioned by Investigative Post.”

“It was simply a clerical error that was quickly remedied,” then-SUNY Poly spokesman David Doyle later told the Buffalo News.

That explanation might strain credulity (“50 was a bit obnoxious,” one LPCiminelli exec allegedly emailed another on Nov. 1, the same day the putative error was corrected), but even assuming the worst, it seems unclear if and how, precisely, the alleged preliminary correspondence and secret “tailoring” would have broken the law.

“Significantly, there are no allegations that the RFP (or any rule, guideline, or statute applicable to the RFP) set forth any parameters regarding pre-RFP communications—an understandable silence given that such communications are typical in this context,” the Buffalo defendants argue in a recent joint filing, adding, “Fort Schuyler was created precisely because it would not be subject to the kinds of State procurement rules that apply to SUNY Poly.”

Defense counsel appear to have borrowed this latter point from government watchdog groups, which have long warned that entities like Fort Schuyler prioritize expediency over transparency and other typical safeguards.

“State-affiliated non-profits exist in a legal grey area,” five watchdog groups wrote to Empire State Development president Howard Zemsky in October. “They are not state agencies subject to the procurement requirements within the Finance Law—nor are they state authorities subject to the Public Authority Reporting Act or Public Authority Law.”

In the past, Fort Schuyler has maintained that state procurement policies served only as “guidelines.” (In the wake of the scandal, ESD enacted changes to Fort Schuyler and another SUNY Poly affiliate’s bylaws.)

Beyond Fort Schuyler’s quasi-public structure, questions of harm could hobble the government’s case. “Wire fraud requires that some ‘actual harm or injury’ to the concrete pecuniary interests of the victim, not some metaphysical harm, ‘was contemplated by the schemer,’” the Buffalo defendants have argued.

“Notably absent [from the indictment], however, are any allegations that the conduct alleged: (1) had any actual or even potential impact on the price [Fort Schuyler] paid on any contract; (2) deprived [Fort Schuyler] of the benefit of its bargain on any contract; or (3) concerned information that had any independent value or bore on the ultimate value of any transaction,” Kaloyeros’ attorney, Michael C. Miller, wrote in a separate filing. “Absent also are any allegations that Dr. Kaloyeros derived a pecuniary benefit from the supposed conspiracy, or that [Fort Schuyler] received anything other than a great end-product at a reasonable price on any project during Dr. Kaloyeros’ tenure.”

Defense counsel have even suggested that what is alleged does not amount to “bid-rigging,” since “the RFP did not seek any actual bids for any actual contract” but instead sought only to name “preferred” developers.

“The answer to the question ‘What did they win by winning the Buffalo RFP?’ is ‘Nothing,’” attorneys for the Buffalo defendants wrote—“nothing but the chance to enter into negotiations for an as-yet-to-be-determined project at some point down the road.”

Of course, LPCiminelli eventually did enter into a contract to construct the sprawling SolarCity factory at RiverBend. Investigative Post has estimated the project netted the developer $20 million; more recently the news outlet, after reviewing “more than 5,000 pages of LPCiminelli’s payment applications,” detailed the agreement’s pretty sweet perks. But it remains to be seen how a federal court will navigate the considerable layers of bureaucracy intrinsic to the case.   

***

One more detail, for now: The Buffalo defendants are also accused of bribing Todd Howe—who worked for a lobbying-related subsidiary of Whiteman Osterman and Hanna and, simultaneously, as a consultant of Fort Schuyler, also a kind of subsidiary—“in exchange for, to influence, and to reward the taking of official action in his capacity as an agent and representative of SUNY Poly, in connection with obtaining the Buffalo RFP.”

Set aside the question of whether Howe, a contracted consultant, ever acted, at least in the eyes of the law, as an “agent” of SUNY Poly or Fort Schuyler. Attorneys for the Buffalo defendants point out that the government, to date, has not accused the developer (nor, more specifically, the defendants) of making any clandestine payments to the consultant; to support the bribery charge, the government appears only to cite LPCiminelli’s $100,000 per year retainer agreement with Whiteman Osterman and Hanna “through which the [Howe-run subsidiary] would provide ‘strategic advice and counsel regarding business generation initiatives across New York State.’”

“Those flat-fee payments to the law firm were made by the Buffalo Developer—not the individual Buffalo Defendants—disclosed in its regular corporate records, and made pursuant to proper invoices generated pursuant to a proper engagement letter,” according to the Buffalo defendants’ counsel.

In a subpoena dated Nov. 21, 2016, the government demanded of LPCiminelli, “to the extent not previously produced, any and all documents sufficient to show the source of funds, or billing codes applied to, any fees, payments or bonuses paid to Todd Howe between 2010 and the present.”

An LPCiminelli attorney replied the next month that the company had “no documents responsive to this subpoena.”

More than four months later, in April, Assistant U.S. Attorney Matthew Podolsky sent an email to the same LPCiminelli attorney. “Is it your position,” Podolsky wrote, “that LP Ciminelli has no documents that show the source of funds, fees, payments or bonuses paid to Todd Howe…as requested in the subpoena, or [rather] that those records have already been produced? If the latter, can you please identify anything in your prior productions responsive to our request?”

“Our response remains the same,” the LPCiminelli attorney replied on April 12. “There are no responsive documents.”

He went on: “It appears the Government has the mistaken impression that LPCiminelli paid Todd Howe. It did not. Nor did the individual Buffalo defendants.”

The press office of the U.S. Attorney’s Office for the Southern District of New York declined to comment on the case. In any event, we can expect to hear from the government by June 30, when its responses to the recent motions are due.

The trial, which the government expects to last six to eight weeks, is scheduled to start on Oct. 30.

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