Dillon, Read & Co. Inc. and the Aristocracy of Prison Profits: Part V

HUD and DOJ Begin All-Out Legal War and “Enforcement Terrorism” to Destroy the Author’s Company, and Dillon Read Cashes Out on Cornell Corrections

By Catherine Austin Fitts
A Six-Part Series for The Narco News Bulletin

March 13, 2006

This is Part V of Catherine Austin Fitts’ six-part series on the hidden system of money laundering, drug trafficking and rigged stock market riches inside the financial world, government agencies and their private contractors. To read the introduction and Part I of this series, with a table of contents linking to other installments, click here.

“You are Going to Prison” — 1996

Though a fictional movie, Enemy of the State with Will Smith and Gene Hackman shows how targeting a person works in Washington, D.C. Will Smith plays a Washington lawyer who is targeted in a phony frame-and-smear campaign by U.S. intelligence agency personnel who are afraid that he has evidence of their assassination of a Congressman. The spook types have high-speed access to every last piece of data on the information highway — from Will’s bank account, to his telephone conversations, to his exact location — and the wherewithal to destroy his career and threaten his life. The organizer of an investment conference once introduced me by saying, “Who here has seen the movie Enemy of the State? The woman I am about to introduce to you played Will Smith’s role in real life.”

One day I was a wealthy entrepreneur with a beautiful home, a successful business and money in the bank. The next day I was hunted, business assets seized, living through some eighteen audits and investigations, a smear campaign directed not just at me but also members of my family, colleagues and friends who helped me, and nine years of highly personalized litigation against The Hamilton Securities Group. For many years, I and those helping me lived with serious physical harassment and surveillance at the hands of mostly unseen, dark forces. Events such as home break-ins, stalking, poisenings, having houseguests followed, friends, colleagues and family warned to not associate with me, a dead animal left on the doormat, and worse became commonplace.^[1]

The problems started at the end of 1995 and relentlessly evolved into significant investigation and litigation in 1996.^[2] Both frontal and covert attacks came in waves that made no sense to me until we started to map out in chronological form the parallel efforts to suppress Gary Webb’s “Dark Alliance” story, and the timing of stock market profit taking by investors in HUD property managers and private prison companies such as Cornell Corrections. There was a war going on for the rich corporate cash flows determined by the federal budget — between those who made money on building up of communities and a peace economy, and those who made money on the failure of communities and a war economy. As stock market prices and the Dow Jones Index rose, this economic warfare grew in fierceness. For example, a comparison of how DOJ handled The Hamilton Securities Group — a firm that helped communities succeed — versus how it dealt with Enron — a company that criminally destroyed retirement savings and communities — underscores much about the system’s true intentions.^[3]

In March 1995, the first billion-dollar HUD loan sale was a significant success. The performance stunned both traditional HUD constituencies and Wall Street. Barron’s published an article, “Believe It or Not, HUD Does Something Right for Taxpayers” (Jim McTague, April 10, 1995). Many were caught off guard by the success of the sale, including the prices that resulted from the combined ingenuity of the investment banking and software technology involved. It established the team at FHA, with The Hamilton Securities Group as lead financial advisor, as significant leaders in authentic reengineering, as opposed to what sounded to me like the press release reengineering coming from Al Gore and Elaine Kamarck’s Office of Reinventing Government.

A hint of the trouble to come was the response from Mike Eisenson, head of the Harvard Endowment’s private equity portfolio (lead investor in NHP, one of the largest HUD property management companies, along with Pug Winokur), who picked up his phone when I called him during this period and said to me “Fuck you!” He then proceeded to explain that he hated our bidding process — the only way Harvard could win was by paying more money than the other bidders. The bid process we had created was pitting large and small real estate, mortgage and securities investors against each other in a manner that significantly increased competition relative to traditional bidding practices. This resulted in HUD attracting significant new investment interest in buying their defaulted mortgages and significantly higher recoveries on those mortgages. As a result, in approximately $10 billion of loan sales lead by The Hamilton Securities Group, HUD was able to generate $2.2 billion in savings to the FHA Fund. Later audits confirmed that the loan sales had a positive impact for communities in which the properties were located.

Another indication of the trouble to come was that I started to receive bizarre e-mails from Tino Kamarck, the husband of Elaine Kamark who ran Gore’s Office of Reinventing Government at the White House. I had met Tino, who was then #2 at the Export Import Bank and later to be Chairman, when he worked on Wall Street but did not know him well. Out of the blue and by e-mail, he expressed extraordinary and inaccurate notions of my lifestyle and personal habits and proposed that he and I have an affair. I suspected at the time that he had ulterior motives. Sex in Washington, D.C. rarely has anything to do with sex — it’s usually about dirty tricks and dirty politics. One of the inspirations for my starting my own firm had been twenty minutes of listening to Jack Kemp, Secretary of HUD while I was Assistant Secretary, order me to lengthen my skirts. This meeting had nothing to do with my skirts. I suspected that it was an unsuccessful attempt by Jack to get me to lose my temper. I was running the FHA money too cleanly. Despite my offer to move elsewhere in the Administration, Jack preferred to force me out in a manner that could be blamed on me.

To give a sense of the interconnectedness of things, one of our problems appeared to be Jonathan Kamarck, who was on staff in the Senate appropriations subcommittee that was such a significant supporter of HUD’s Operation Safe Home and was uncomfortable with the impact of the HUD loan sales on traditional real estate interests. Jonathan told me that he was Tino’s cousin and so presumably was close to both Tino and Elaine Kamarck. By the time the allegations against The Hamilton Securities Group were discredited and Harvard Endowment had reaped large profits cashing out of their HUD related investments, Elaine was working for Harvard and Tino was working for a real estate firm in Boston that had intimate ties with Harvard and had managed to snag a contract with HUD to do some of the work that The Hamilton Securities Group had been doing. Years later I visited with one of Jonathan’s colleagues on the Senate appropriations sucommittee who had been promoted to chief of staff to the subcommittee chair, Senator Kit Bond, who expressed concern that “HUD was being run as a criminal enterprise.” When only months later the subcommittee engineered a large increase in HUD’s appropriations, I was reminded of what Bill Moyers, former White House Press Secretary, had said on the CIA’s alliance with the Mafia, “Once we decide that anything goes, anything can come back to haunt us.”

When Andrew Cuomo ran for the Democratic Party’s nomination for Governor of New York in 2002, press reports indicated he was concerned that voters would associate him with the mob. Photo courtesy of www.loper.org

The politics took a serious turn when someone from the HUD Inspector General’s Office reported that they were in a meeting with Andrew Cuomo, then Assistant Secretary of Community Development at HUD and soon to be Secretary, and the HUD Inspector General Susan Gaffney. Cuomo reported that he was arranging to get rid of The Hamilton Securities Group and me. Cuomo was considered to be very close to Al Gore and his White House office and efforts to “reengineer government.” Within months, it was reported to me by Nic Retsinas, then Assistant Secretary of Housing, that the White House had ordered him not to hire The Hamilton Securities Group on the next round of contracts — an order which he said he ignored. Later, an associate of the Assistant Secretary of Administration, the appointee who oversees the contracting HUD office, reported to me the same White House orders.

Notwithstanding the orders from on high to the contrary, in January and April of 1996 a new HUD/FHA contract and task order were awarded to The Hamilton Securities Group under which HUD was to pay Hamilton a base of $10 million a year for two years to serve as the FHA’s lead financial advisor. Our successes — from profitable HUD/FHA contract awards to analysis generated by software and database innovations that had Alan Greenspan asking for briefings from our analytics team for the Federal Reserve staff—was a surprise to some who had thought our commitment to technology would not make a significant difference in marketplace transactions and bottom line dollars and sense.

This was a period of risk and transition for many. Dillon Read and John Birkelund were recovering from the unexpected failure of the firm’s lead investor, Barings. After helping the Dillon partners buy the firm back from Travelers in 1991, Barings had collapsed as the result of an Asian trading scandal in early 1995. With Dillon as lead investors, Cornell Corrections was losing money. Former Dillon Chairman and Treasury Secretary, Nick Brady, was learning about the difficulties of starting up his own firm, Darby Overseas Investments, Ltd, in Washington, D.C. The Clinton team was wondering what would happen to them if the Republican takeover of Congress in the 1994 elections translated into their being thrown out in the 1996 elections. Mike Eisenson’s compensation was constrained by publicity regarding salaries paid by Harvard Management and only later was he inspired to start his own firm (with — imagine this — a contract from Harvard Management that paid $10 million a year — the same as The Hamilton Securities Group’s HUD contract.) One can only wonder what was going on behind the scenes at the CIA and DOJ after the Memorandum of Understanding was rescinded in August 1995. Presumably, the rescission left the CIA obligated to report all narcotics trafficking to DOJ and required DOJ to see to it that the CIA satisfied such obligations. Hence, any transparency of the kind that Hamilton was creating with its software tools could significantly increase the criminal liabilities of CIA, DOJ and their contractors. When people are afraid or managing rising risk, they are sometimes jealous of a start-up’s success and frustrated by their inability to openly insist that newcomers respect traditional market relationships, let alone illegal, covert lines of authority and cash flows.

In the late spring of 1996, I had dinner at a National Housing Conference event with Scott Nordheimer, a HUD developer who had been pursuing business with DOJ’s Federal Bureau of Prisons. Scott had recently gotten out of prison as a result of a securities fraud conviction and believed that the future for our data servicing business was in prisons. He tried very aggressively to persuade me that the opportunities in prisons were significant — in contrast to the job-creating opportunities of our community-based model, which he said would not be “politic.” When I declined Scott’s invitations to meet with the Federal Bureau of Prisons, I suspect that he went ahead and gave DOJ our data servicing business plan. He was soon to become very successful in HUD’s Hope VI program. This was a matter of some controversy as HUD was forcing out tenants who had a felony record while allowing the building to essentially be owned and managed by partnerships with a convicted felon in the lead.^[4]

At the dinner in the late spring of 1996, Scott looked quite pleased with himself and explained that a decision had been made to frame me and that I was in serious trouble. He said, “Well, we tried to have you fired through the White House but that did not work, so now the big boys have gotten together and [decided] you are going to prison.”

The other board members of The Hamilton Securities Group and myself had been extremely careful in the way that we had built and managed the company. We had seen other firms targeted with government dirty tricks and had done everything in our power to ensure that we could withstand corrupt audits and trumped-up, political investigations. I responded to Scott’s dire predictions, “It will never work, Scott. We are too clean.” Scott replied, “You don’t get it. The fix is in. There is nothing you can do.” That was the first time I sensed that it was a matter of great personal desire for some one or group to see me in a prison cell and that some aspect of this was personal.

John Ervin, during his Hamilton Securities deposition. Video courtesy The Hamilton Securities Group

On August 6, 1996, Hamilton received the first subpoena in what became years of subpoena warfare by the HUD Inspector General (investigating under delegated authority by DOJ.) At the time, I did not know that DOJ was holding secret hearings in Federal district court as a result of a qui tam filing in June 1996 by Ervin & Associates, in which Hamilton was falsely accused of civil and criminal violations. The investigation was conducted under the pretext of a “qui tam lawsuit” — a lawsuit brought by a private party as a bounty hunter for the government looking to make 15-30 percent of the government “damages” (which could be trebled) recovered from a private party found to have made “false claims” against the government. The delegation of subpoena authority to HUD was used by the government to circumvent the requirement to disclose this to the targets of the qui tam, including The Hamilton Securities Group

Ervin & Associates was founded by John Ervin, a former employee of Harvard’s HUD property management company, NHP. Ervin had won contracts to service defaulted and coinsured HUD mortgages and in 1994 won a contract to collect financial statements for HUD-supported apartment buildings. Through these contracts, Ervin had a rich flow of data on HUD-assisted and -financed, privately-owned apartment buildings. In a later deposition, Ervin testified that he was able to refer cases worth many millions of dollars for civil money penalties to the HUD OIG. In short, he claimed to be a part of the profit-making business of the HUD OIG’s Operation Safe Home. As HUD disposed of more and more mortgages through the loan sales, Ervin’s business diminished. Presumably, at some point, this may have diminished his ability to generate profitable leads and revenues for HUD OIG.

The first subpoena was the beginning of a two-year period during which I was not allowed to know of the existence of the qui tam lawsuit that resulted in the destruction of my company and a four-year period during which I was not allowed to read or hear the allegations made against my company and me or know who made them. It was five years before I had access to transcripts of sealed court hearings (unattended by me or my counsel, of course) in the qui tam case. It was seven to eight years before Ervin and the government were required to put forward evidence attempting to support their baseless claims and before The Hamilton Securities Group and our attorneys had the opportunity to refute the false charges in a court of law sufficient to shut down the smear campaign being used against me as an investment banker in the market place. Throughout this period, both the HUD Inspector General and private parties shared bits and pieces of the supposedly sealed allegations repeatedly with both the press and members of Congress.

Jack Kemp announced his candidacy for Vice President on August 10th. Gary Webb’s “Dark Alliance” story broke in the San Jose Mercury News eight days later.

Four days after we received our first subpoena, on August 10th, 1996, Jack Kemp, the Secretary of HUD when I was Assistant Secretary, announced he was the Republican candidate for Vice President. Jack was considered someone who would be effective at persuading women and minorities to support the Republican ticket. The reality of Kemp’s real philosophies and history were much darker and much less inclusive. Initially at the request of my attorneys, I was later to document some of my experiences with Kemp’s darker underside, including his efforts to provide subsidies illegally to a project reported to be developed by Andrew Cuomo when Andrew was an attorney in New York helping to raise money for his father, Mario Cuomo, then the Governor of New York.^{[5] [7]} Eight days later, on August 18th, 1996, Gary Webb’s “Dark Alliance” story broke in the San Jose Mercury News implicating the CIA and, ultimately, DOJ in complicity to traffic in narcotics. This narcotics trafficking had occurred during the Iran-Contra period when Bush was Vice President and Oliver North as staff were in charge of the National Security Council. Bush’s close friend and supporter Nick Brady and partner John Birkelund at Dillon Read were leading investment banking for RJR Nabisco, which according to the European Union was complicit in laundering significant profits for global narcotics cartels at this time. Bill Clinton was Governor and Hillary Clinton was a partner at the Rose Law firm in Arkansas where a portion of the revenues from the Mena operation were allegedly laundered through the state housing agency. The very same Arkansas agency was ultimately governed by Governor Clinton and served as bond counsel by the Rose Law Firm. Stanley Sporkin at that time was serving as the General Counsel of the CIA while the now-infamous Memorandum of Understanding with DOJ was crafted. If you follow the likely cash flows in and out of the alleged Mena and Arkansas state housing bond operations and the alleged narcotics trafficking and HUD mortgage defaults in South Central Los Angeles, and the allegations surrounding the events and subsequent cover ups, there was an uncomfortable closeness of networks between those in Webb’s story and those in power.

I had not read or heard about the “Dark Alliance” allegations at the time. An expression of the extraordinary compartmentalization of our society, the members of my team who later confided that they had been aware of the story, had not mentioned it to me. They did not see the connection between the threat posed by our leadership in reengineering government or providing community access to software tools and databases about federal resources by place, and government complicity in narcotics trafficking and related HUD fraud alleged to be laundering the proceeds.

I was buried in the workload avalanche of running a company while dealing with subpoenas and a smear campaign unleashed initially by a team of reporters from U.S. News & World Report. I did not notice in early October when the Washington Post published the “results” of its “independent” investigation into Gary Webb’s allegations, saying that there was insufficient evidence to support Webb’s claims. I was also unaware that while the White House was trying to have my contracts ended, Elaine Kamarck in Vice President Al Gore’s Office at the White House was busy working with DOJ Deputy Attorney General Jamie Gorelick to make sure that the private prison industry was blessed with oodles of contracts.

While I and my colleagues endured multiple subpoenas and smear campaigns and Gary Webb was in the process of defending his story at the San Jose Mercury News (later to lose his job the following year), Dillon Read filed a registration statement with the SEC for Cornell’s initial public offering on July 17th, amending it on August 26th, September 10th, and September 30th with a final prospectus filed on October 4, 1996. This was good news for Dillon Read and its investors. Thanks to the successful efforts of the Clinton Administration to pass new crime legislation and ensure DOJ bureaucracy support for outsourcing contracts to run federal prisons to private prison companies — including a gush of contracts to Cornell from the fall of 1995 to the spring of 1996 — Dillon Read’s Cornell stock purchased at an average price between $2-3 per share, was now worth $12 a share, a 400–600 percent increase. In addition to their stock profits, Dillon pocketed big underwriting fees as well as the lead investment bank arranging the stock offering. In nine months, the Clinton Administration’s increase in contracts and acquisition of entities with contracts supporting 1,726 prisoners had literally made the company. The IPO reflected a stock market valuation of $24,241 per prisoner. What that means is that every time HUD’s Operation Safe Home dropped swat teams into a community and rounded up 100 teenagers for arrest, the potential value to the stockholders of the prison companies that managed the juvenile facilities and prisons was $2.4 million.

All that was needed for prison privitization to work was the suppression of truth — about who was really bringing in the drugs and why it was essential for citizens to not see or understand the real deal on “how the money worked” in the places in which they lived and worked. If there had been a map of the real deal about how the money works in communities and in government, along the lines of the software being developed by Hamilton when the qui tam lawsuit put us out of business, the private prison industry might not have gotten off the ground. If one were to document the true criminality or the true economic waste within the system, it was pretty apparent that the real criminals and the real financial drain were not the kids being rounded up by HUD’s Operation Safe Home and not the owners and employees of The Hamilton Securities Group.

Mike Ruppert and John Deutch in South Central LA, November 1996 Photo: C-Span

Always ready with the best of spin, Hillary Clinton published It Takes a Village in September while Bob Rubin, as Secretary of Treasury (at this writing a senior executive in the Office of the Chairman at Citigroup), talked about the importance of economic development in the inner city. Rubin’s former firm, Goldman Sachs, one of the largest bidders on the HUD loan sales, had been one of the largest investment bankers in Arkansas during the Mena period. Linda Ives was the courageous mother of an Arkansas teenager killed by police in August 1987 when he and a friend apparently accidentally encountered a cocaine drop at the Mena operation. Ives, working with journalist Mara Levitt, persisted in illuminating many of the events surrounding her son’s death — initially ruled a suicide — and the corruption in Arkansas.^[6] Ives could tell us why it takes an entire village to raise a child when leaders like Hillary Clinton and Bob Rubin and their partners and colleagues are making money in the vicinity.

I have found that, just when things look their darkest, something magical happens that can change your life. On November 15, 1996, something happened that may have saved my life and changed the course of history. On that day, former LAPD narcotics investigator Mike Ruppert stood up at a town hall meeting in South Central Los Angeles and confronted CIA Director John Deutch with evidence of CIA narcotics trafficking before a large audience of citizens and media cameras.^[8] Deutch was there to address Garry Webb’s “Dark Alliance” allegations — which described CIA complicity. Ruppert was an eyewitness to more than complicity. Ruppert said he had proof of actual trafficking by CIA agents, including his former fiancé, who had tried to recruit him to help protect agency narcotics operations in Los Angeles well before the Iran Contra period. The Ruppert/Deutch confrontation was later memorialized in the award winning online video by the Guerrilla News Network, “Crack the CIA.”

It would take me two years of standing in the face of an onslaught of enforcement terrorism and terrifying physical harassment and surveillance before I was to see the famous videotape of that event. That was when I began the education through which I would come to understand why transparency of neighborhood financial flows was sufficiently threatening to the stability of the global financial system such that powerful interests might insist on the destruction of The Hamilton Securities Group and our software tools.

Enforcement Terrorism — 1997

By the time Bill Clinton and Al Gore were sworn in for their second term in January 1997, the first wave of investigation and smear campaign had failed to do anything other than affirm that The Hamilton Securities Group was doing a great job for the government and the government team at FHA was doing a great job for citizens. Consequently, 1997 settled into the first of eight grinding years of enforcement terrorism — the inexhaustible resources and often invisible weaponry that the “Sheriff of Nottingham” uses to exhaust the target’s resources and to turn over investigation personnel, judges and false witnesses who failed to frame the target while throwing more “mud” up on the judicial, whisper campaign and media “wall” looking for anything that might stick.

Judge Stanley Sporkin Photo courtesy Gavel Consulting

To get a sense of the level of professionalism involved, the HUD OIG started to interview all of Hamilton’s employees and HUD staff, with many interviews starting off with questions regarding my personal sexual habits. This is a technique used to start false rumors and destroy businesses when the absence of evidence gives enforcement teams nothing to go on. As described by one member of the HUD OIG staff, when there is no evidence of any wrongdoing, the intimation of perverted sex practices can still get an indictment from a Washington, DC grand jury. My feedback indicated that the Hamilton employees overwhelmed them with facts and did not fall prey to the smear tactics.

The turnover started at the top. Secretary of HUD Henry Cisneros left HUD to face charges tried before Judge Stanley Sporkin that he had lied to the FBI regarding how much money he had given his mistress. I had worked at HUD when the allegations regarding pedophilia at the White House and the so-called “Franklin Cover Up” had exploded onto the front page of the Washington Times. One of my deputies had taken me aside when I was being pressured by Kemp to do illegal funding awards to warn me that Kemp was involved in sexual activities this scandalous.^[7]

The notion of Cisneros facing criminal charges for legal financial transactions between consenting adults while Kemp had been chosen by the Republicans to run for Vice President seemed a bit upside down. When you considered that Hamilton was being run out for ensuring that the government got fair market value for its assets, poor people had an opportunity to earn money legally without government subsidies or engaging in narcotics trafficking and street crime and communities had access to government financial information, things made more sense.

If anything, the wave of investigatory assaults on Hamilton and the team at FHA seemed to be a pretext for Cuomo to take over the agency and convert it to the service of enforcement, gentrification and housing bubbles. Cuomo had many ties to the enforcement community. His father had been Governor of New York, his ex-wife Kerry (they were separated in 2003 and subsequently divorced) was a Kennedy, whose father Bobby Kennedy had been Attorney General and whose uncle, Senator Ted Kennedy from Massachusetts, home of Harvard University, was a senior member of the Senate Judiciary Committee.

If Cuomo was going to rise to higher political office and help his close ally Al Gore become President, he needed to get credit for being a leader in re-engineering government. He needed to do it in a way that attracted the support of $500 billion–$1 trillion of annual money laundering flowing through the U.S. financial system. If the Bush sons as Governors could be expected to have Texas and Florida sewn up, that meant Al Gore, Hillary Clinton and the Democrats would need to win the money and votes in California and New York during the 2002 campaign. It turns out, this meant getting rid of the people who were leading authentic re-engineering. In April 1997, Hamilton received notice that our ongoing contract would be rebid — a process expected to take some time. In the meantime, Cuomo was competing with the HUD OIG to see who could integrate more enforcement, War on Drug activities and DOJ partnerships into HUD programs faster.

Jamie Gorelick left the Department of Justice in January and then moved to Fannie Mae as a Vice Chair — a title held by Franklin Raines who had joined the Administration as head of the Office of Management & Budget (OMB) in the fall of 1996. Gorelick at Fannie Mae and Raines at OMB (later to return to Fannie Mae as Chairman) were to play leading roles with former Goldman Sachs partner Robert Rubin, Larry Summers and former Arnold & Porter partner Jerry Hawke (whose son, Dan Hawke, was Ervin’s attorney) at the U.S. Treasury, Alan Greenspan at the Federal Reserve, and Andrew Cuomo at HUD in engineering the largest housing and mortgage bubble in history. They shared a mutual silence as $4 trillion went missing from accounts for which the U.S. Treasury and New York Federal Reserve Bank and its member banks — as depository for the U.S. Treasury — were responsible. ^[84]

Given the efforts underway with numerous legislation and treaties designed to intentionally shift American jobs abroad, the simultaneous effort by the same governmental and financial system leadership to encourage Americans to take on increasing amounts of debt without warning them that their income was likely to fall brought new meaning to the old expressions “fraudulent inducement” and “predatory lending.” As a result, Americans lived beyond their means. With many using their home equity to maintain their standards of living, equity slowly and invisibly drained out of moderate and middle income communities into private hands through Fannie Mae and other large financial institutions that led the explosion in the mortgage and mortgage securities markets.

Director of the CIA John Deutch resigned in December 1996 after his embarrassing confrontation with Mike Ruppert regarding CIA drug dealing in the now infamous town hall meeting in Los Angeles.^[8] At the meeting, Deutch committed publicly to an investigation by the CIA’s Inspector General, Frederick Hitz, of the “Dark Alliance” allegations regarding CIA complicity in narcotics trafficking. The publication of this report in two volumes was to have an impact on the course of events in 1998.^[9] For her service to the U.S. intelligence community, Jamie Gorelick received a Director of Central Intelligence Award from the CIA in 1997.^[10]

The most significant turnover impacting The Hamilton Securities Group was behind closed doors. It was the transfer of the qui tam lawsuit (still filed in secret and unknown to us) from Judge Charles Richey who had warned that he was reluctant to give DOJ extensions of the seal (which kept the lawsuit secret) without evidence of wrongdoing. According to press reports, Judge Richey contracted a fast-acting cancer and died. Ervin’s qui tam was turned over in early 1997 to Judge Stanley Sporkin, the former General Counsel of the CIA when the Memorandum of Understanding between DOJ and CIA had been crafted.^[11]

The dirty tricks employed by Judge Sporkin, DOJ, HUD OIG and Ervin’s attorneys throughout the qui tam have been described in more details in other articles.

Highlights include:

• Sporkin insisted that he had never received filings by The Hamilton Securities Group, even though my attorneys reported to me that they had a receipt of delivery signed by his office.
• The allegations in the qui tam lawsuit tracked allegations made in a separate filing by Ervin against HUD that was filed before another judge in Federal District Court. In sealed hearings in the qui tam, DOJ attorneys for years argued that there was real merit to the allegations, which justified more time for them to investigate. In open court in the other action, DOJ attorneys took the position that the allegations were baseless. Hence, DOJ attorneys took opposite positions in the two courts — one open and one in secret — and Sporkin supported these actions. The transcripts show the DOJ attorneys reminded him that they couldn’t consolidate the case under one judge because that would prevent them from taking opposite positions in the two cases.
• The public document was used by HUD OIG and private parties to lobby Congress and the media to smear Hamilton. One reporter from the Washington Post told me that the HUD Inspector General had personally assured them that Hamilton was guilty of criminal violations and that John Ervin had mailed documents to them that could fill up half an office, floor to ceiling. She said that she believed that the Washington Post was only one of many publications and she only one of many, many reporters who had been the target of such a mailing campaign. She reported that in late 1997, Ervin had a staff of 17 people at Ervin & Associates working full time on the litigation.
• Despite no evidence of any wrongdoing brought forward by Ervin as well as after multiple investigations and full access to all the parties and documents needed for years by the government, Sporkin nonetheless extended the seal (by law a qui tam authorizes only a 60 day investigation) into a four-year fishing expedition. This ended only when my colleagues and I launched a website in 2000 with the story of what was happening and made hundreds of supporting documents accessible through the Internet. When, after five years, transcripts of Sporkin’s hearings were unsealed, critical transcripts were mysteriously missing.
• Under the qui tam statute, if the party accused of wrongdoing is subpoenaed, they are required to be informed that they are a target of a qui tam, even though the complaint is still under seal. In our case, DOJ and Sporkin took the position that DOJ could circumvent this disclosure provision by delegating the subpoena issuance to HUD OIG.

My favorite Sporkin quote was his retort from the bench when one of our attorneys pointed out that the law and a recent Supreme Court case clearly indicated that a filing we had made in Superior Court could not be moved over to Sporkin’s court and control in Federal District Court — that Sporkin had no legal right or basis to do what he was doing. Sporkin said something to the effect of “I disagree with the law and if you have a problem with that, take it up with Congress.”

When it comes to describing the treatment of The Hamilton Securities Group and myself by Judge Sporkin and DOJ and HUD attorneys, it is essential to underscore how lucky I have been. I had the knowledge and control to ensure that Hamilton was run according to very high standards. Hamilton had been blessed with a very strong team — starting with an outstanding Chief Financial Officer and excellent contract leadership for our work at HUD. I had an excellent reputation in the marketplace. I had personal wealth and family support to ensure that I had attorneys, food, clothing and shelter. With the presence of a strong legal team and resources over a long period, many private and public witnesses and honest officials in government and the judicial system were able to help — often at great risk to themselves. I had a wonderful church and tremendous spiritual support. And over time I connected with thousands of people around the world trying to illuminate corruption and build community. So I am alive, I am fully intact and I am not alone. That is more than I can say about the millions of children and innocent adults worldwide who have been destroyed, killed and incarcerated by the drug running, weapons trading and cover ups made possible with the help of the same type of extraordinary legal and harassment skills I faced. Among them was Gary Webb, who died in December 2004 from gunshot wounds to the head — ruled a suicide.

With Jamie Gorelick gone from DOJ, much of the work at DOJ continued under the jurisdiction of Frank Hunger, Al Gore’s brother-in-law, who was head of the civil division, and the new Deputy Attorney General, Eric Holder. Holder had come over from the Washington, D.C. U.S. Attorney’s office which was the lead office with the day-to-day lead responsibility for DOJ on Ervin’s qui tam. Holder continued the policies of support for Operation Safe Home, the War on Drugs and prison privatization.

Al Gore’s former chief of staff Jack Quinn resigned as White House Counsel at the end of 1996 and returned to his old law firm, Arnold & Porter. He was replaced by former (and later) Covington & Burling partner Charles Ruff in early 1997. (Quinn was later to return to visibility when he assisted the Gore campaign in 2000 and helped to engineer Arnold & Porter client Marc Rich’s White House pardon.)^[12] Ruff, a former Watergate prosecutor and top Justice Department official was the Washington D.C. Corporation Counsel who had critical background to help the Clinton Administration engineer the federal takeover of many aspects of the Washington, D.C. government, including the local courts and prison system. The former Assistant U.S. Attorney, Judith Heatherton, who was leading the Hamilton investigation as HUD OIG General Counsel had worked for Ruff. Ruff, like Gorelick, had served as President of the D.C. Bar Association. After her efforts to frame The Hamilton Securities Group failed, Heatherton became staff to the Ethics Committee at the D.C. Bar Association.

The federal takeover of the District of Columbia began in August 1997 with the Balanced Budget Act and was the beginning of a wave of gentrification in the District, with easy mortgage finance encouraging people to move back in from the suburbs or young people and immigrants to buy new homes. The law also provided for private prison capacity that would result in, among other things, a request for proposal by the Federal Bureau of Prisons in February 1998 that Cornell would win in 1999 for 1,000 people for ten years, or a total award of $342 million. The Federal takeover was a pork fest for HUD real estate developers under Andrew Cuomo’s leadership. The flood of developers cashing in on HUD Hope VI projects, with Scott Nordheimer in a leading position was well underway.^[13]

While the HUD Operation Safe Home swat team round ups continued to create the need for private prison capacity at taxpayer expense,^[14] and government officials and Wall Street board members played musical chairs, inventing new ways of handing out contracts and financing the housing bubble, private companies were cashing in on their resulting good fortune:

• Cornell Corrections increased their revenues and capacity thanks to DOJ’s Federal Bureau of Prison and several state governments.^[15]
• Dillon Read exercised their options to purchase additional shares in Cornell Corrections.
• In the summer of 1997, Dillon Read’s partners and investors, led by John Birkelund, sold Dillon Read to the Swiss Bank Corporation, which merged the following year with UBS, the largest Swiss bank.
• With HUD policies reversed by Cuomo to those in favor of traditional constituencies, Harvard Endowment and Pug Winokur’s Capricorn Investment sold NHP, the large HUD property manager to AIMCO, a large Denver HUD property manager.
• Pug Winokur’s firm Capricorn Holdings, an investor with Harvard in NHP, a leading HUD property management company, sold a significant portion of their controlling position in DynCorp, an important HUD and DOJ contractor, with Pug stepping down from Chairman of the Board of DynCorp to remain a member of the board and Chairman of the Compensation Committee, the board committee that recommends compensation for senior management as well as compensation policies for the corporation.^[16]

In the meantime, Gary Webb had problems of his own. After extraordinary efforts by the corporate media to try to discredit his story,^[18] he was demoted by the San Jose Mercury News in the summer of 1997 and then left the paper in December 1997 to work on his book, Dark Alliance, which was published the following year.

The fall of 1997 was an intense time in Washington, D.C. given fundraising and Whitewater investigations that would continue to distract from Mena and South Central LA narcotics trafficking allegations and use sex between consenting adults in the Oval Office to blossom the following year into the Clinton impeachment proceedings. On September 18th, Cornell Corrections announced its next public offering with Dillon Read (renamed SBC Warburg Dillon Read since its purchase by the Swiss Bank Corporation) as the lead senior manager. The offering proceeded on October 10th, raising $57.3 million at a price of $19 5/8 per share, a 64 percent increase from the first offering in October 1996, a year before. This implied a value of $25,962 per person in Cornell’s jails and facilities — a significant portion derived from the Federal Bureau of Prisons and U.S. Marshals, both at DOJ.

On October 14th, then-HUD Secretary Andrew Cuomo fired Hamilton with no notice, seized monies owed to The Hamilton Securities Group for work already performed and launched a concerted smear campaign. At the same time, a variety of dirty tricks, including through Hamilton’s bank, auditor and insurance companies, drained our resources. In November, an amount equivalent to our remaining contract authority — approximately $10 million — was awarded to HUD OIG’s Operation Safe Home by special appropriation by the Senate HUD appropriation subcommittee. Legal action to try to stop HUD’s seizure of Hamilton’s monies and illegal investigatory leaks ended up in Stanley Sporkin’s court — giving the former general counsel of the CIA another chance to use his skills to protect criminal enterprise. As a result, all of Hamilton’s efforts to support responsible management of HUD’s programs or to create tools and jobs for communities came to an end.

I had to smile when we ended up with new attorneys the following year. One assured me that Sporkin would love what we were doing for community transparency and job creation. They had heard him in the meetings of attorneys speaking about the inner city. They insisted he very much cared about young people in the inner city. By then I had learned to just smile and not try to explain about how it was that despite everyone caring so much about the Popsicle Index going up, for some mysterious and inexplicable reason it just kept going down.

DynCorp

A few words are appropriate to describe DynCorp and its former Chairman and lead investor, Herbert S. “Pug” Winokur. Pug and his investment operation Capricorn Holdings were later to come under scrutiny when Pug resigned from the Harvard Corporation board at a time of controversy regarding his role as board member and chairman of the Finance Committee of Enron. Pug was serving on the board when Enron went bankrupt, after a period during which Harvard Endowment (where Pug was also on the board) was aggressively and profitably selling Enron stock. This raised questions as to whether the Endowment had the benefit of “insider information.” The extent of Harvard’s investments in Capricorn and its funds, if any, are unknown. On several occasions, Harvard and Capricorn have invested side by side.

Pug Winokur

Pug’s company Capricorn Holdings was based in Greenwich Connecticut. He and John Birkelund were long time board members of NacRe, a reinsurance company based in the Greenwich area that Dillon had been instrumental in helping to start. Breaking with the pattern of Dillon leaders being from New Jersey, John Birkelund lived in Connecticut and seemed very much part of the group in and around Greenwich. This group included Robert G. Stone, Jr., considered a leading light for many years behind the Harvard Endowment, particularly its oil and gas portfolio that invested in Harken Energy, a company made famous by George W. Bush’s role and stock profits. Like many other people in this story, both Birkelund and Winokur shared membership in the Council on Foreign Relations.

When Capricorn Holdings reduced its investment position in 1997, DynCorp appeared to be doing well. In addition to significant information systems contracts and subcontracts for DOJ and HUD, including lead contractor with a $60 million per year contract on the DOJ Asset Forfeiture Fund (working with the U.S. Marshals who manage forfeited assets for DOJ’s Asset Forfeiture Fund), DynCorp won new systems and litigation support contracts from DOJ in 1995 and 1996. This included the Justice Consolidated Network (J-Con) contract to run the consolidated network systems for parts of Justice. According to Inslaw President Bill Hamilton, DynCorp had been one of the successor contractors on managing the PROMIS system after DOJ had stolen it from Inslaw.

One of the contractors chosen with DynCorp to provide litigation support to DOJ was CACI, the leading provider of Geographic Information Systems to the federal government. Richard Armitage, a high-ranking official at Defense during the Reagan Administration and at the State Department during the Bush II Administration, was a consultant and member of CACI’s board from 1999 to 2001.

After DynCorp personnel were later the subject of several lawsuits related to pedophilia and sex slave trafficking in partnership with local mafia in Eastern Europe,^[17] Armitage as a senior official at the U.S. State Department would write a letter in support of large new sole source contracts to DynCorp based on the theory that a company should not lose contracts as a result of the conduct of a few employees. In short, sex slave trafficking and pedophilia in its ranks did not prevent DynCorp from winning significant new contracts, including a $500 million sole-source contract to run police, enforcement, courts and prisons in Iraq.

Courtesy: Kelly O’Meara, Insight Magazine

Letter from Deputy Secretary Richard Armitage re: Award of Sole Source Contract to DynCorp to Provide Police, Judiciary and Prisons in Iraq:

I came to look into DynCorp when I was contacted years later by a retired member of CIA covert operations who alleged that:

1. DynCorp was helping to manage the PROMIS software system through its J-Con System at DOJ; and
2. the project manager for DynCorp on the J-Con contract had falsified evidence against me using the PROMIS system and that is what got the investigation against The Hamilton Securities Group and me going. I e-mailed the project manager at DynCorp, however he never responded.

It is hard to find reliable information on the PROMIS software system and alleged successor systems. However, I believe that understanding the use of such digital information weaponry and its ability to compromise private and public financial and banking systems (including transactions such as the HUD loan sales) as well as governmental enforcement and military systems is integral to understanding the manipulation of the US federal credit and financial markets and the centralization of political and economic power.

Dillon Read — Cashing Out on Cornell Corrections

When Cornell Corrections listed its shareholders with investments of greater than 5 percent in its proxy statement filed with the SEC in March 1998, Dillon Read was no longer listed. Making the assumption that Dillon Read and its various funds and officers and directors cashed out at or between the second Cornell offering in October 1997 and early 1998 when this proxy was filed, we can pause in the telling of our story to estimate the total profits to Dillon and their investors. We should first note that it appears that Dillon sold their shares at a historical high for Cornell’s stock price.

Cornell Historical Stock Prices:

1996	High	Low
Fourth Quarter (from October 3)	$12 3/4	$8 7/8
1997
First Quarter	$11 5/8	$9
Second Quarter	$18	$9
Third Quarter	$16 3/4	$14 7/16
Fourth Quarter	$20 3/4	$15 3/4
1998
First Quarter	$24 5/8	$19 1/4
Second Quarter	$25 7/16	$18 1/2
Third Quarter	$21 1/16	$8
Fourth Quarter	$19	$11
1999
First Quarter	$19 7/8	$13
Source: Yahoo! Finance

Cornell Corrections historical price graph Courtesy: Cornell Companies Inc.

While Dillon was not required to disclose their total investment banking revenues and investment profits on Cornell Corrections between 1991 and 1998, I estimate Dillon’s total profits for their stock investment in Cornell to have been $6.7 million for Dillon employees who invested and $19.4 million for the investors in Dillon’s funds, which also included Dillon officers and directors. This represented an annual return on investment of approximately 35-45 percent. These are the kind of profits you get when you buy stock for a price of $3.8 million and several years later sell that stock for $29.9 million — or an almost 800 percent increase on your investment. In addition, I estimate that Dillon also generated at least $6 million in fees for investment banking and investment advisor services. This results in an estimated total of $32.1 million in profits for Dillon, its leaders and its investors over a seven-year period.^[19]

I remember reading some of the Carlyle Group’s marketing material about their success in leveraged buyouts of companies that did lots of contracts and business with the federal government. They claimed to have achieved annual investment returns of 35 percent, in the range of the returns that I estimate Dillon to have made on Cornell Corrections. If you understand the story of Cornell Corrections, you will get a good understanding of the type of investment that achieves 35 percent investment returns for private investors on the stocks of companies that enjoy growth in government contracts and the fruits of “privatization.”

It is imperative in understanding investments like these to look not just at the companies involved, but to look through to the individuals who make the critical decisions. In Dillon Read’s case, the key leaders were also personal investors. We do not know if, as sometimes happens in cases like this, the firm financed or arranged financing for their purchases in an arrangement where, in essence, they can buy for “no money down.” An estimate of their personal profits is as follows:

Estimated Personal Profits of Seven Largest Dillon Direct Investors*:
$22 Est. Sales Price **

DILLON INVESTOR	SHARES	OPTIONS	AMOUNT	PROFITS
John P. Birkelund	39,579	3,736	$96,990.16	$773,748
John Haskell, Jr	36,730	3,505	85,382.75	722,677
David W. Niemiec	35,018	3,279	76,989.51	693,406
Fritz Hobbs	30,455	2,803	56,986.04	613,024
George A. Wiegers	28,176	2,571	44,988.85	574,883
Peter Flanigan	28,178	2,687	48,781.40	571,134
Kenneth M. Schmidt	24,778	2,454	35,622.38	509,494
* Does not include potential bonus and compensation resulting from other profits on Cornell Corrections. Treats options as shares for purposes of estimate. Options are included in share numbers. ** Average of high lows used in the sales price estimates of $24 -19 5/8.

To generate these profits for Dillon and the Dillon leadership at a stock market valuation of $25,962 (the value “per bed” at the time of the October 1997 offering) when Dillon had invested when Cornell had no prisons and prisoners, the following table estimates how many people had to go to prison for an extended period:

Estimated Number of People Incarcerated for Extended Period to Generate Dillon Stock Profits:

DILLON PARTNER	PEOPLE IN PRISON
John P. Birkelund	34
John Haskell, Jr.	31
David W. Niemiec	30
Fritz Hobbs	26
George A. Wiegers	24
Peter Flanigan	24
Kenneth M. Schmidt	21
All Dillon Read Investments	1,152

Another useful calculation is to look at the how many taxpayers will have to work their entire lives to pay the taxes for this many people to be imprisoned. Let’s assume that the average taxpayer pays $150,000 of federal taxes in an entire lifetime. Based on the General Accounting Office’s (now the General Accountability Office, the Congressional Auditor) study in 1996 that indicated the total annual federal, state and local system expenditures per prisoner were approximately $154,000. That means that ten taxpayers would have to work their whole lives to pay for one prisoner with a mandatory sentence of ten years. On this basis, the following table estimates how many people would have to work their whole lives to pay the taxes to fund the incarcerations necessary to generate Dillon’s profits on Cornell Corrections.

John H. F. Haskell, Jr.[20] — The largest Dillon buyer of Cornell Corrections stock personally after firm Chairman, John P. Birkelund, joined Birkelund and third largest buyer David Niemic at Saratoga Partners after Dillon was sold. Photo Courtesy of the Virtue Foundation

Estimated Number of People Working Their Entire Lives to Pay Taxes to Fund Prisoners Incarcerated for Extended Period to Generate Dillon Stock Profits:

DILLON PARTNER	TAXPAYER LIVES
John P. Birkelund	340
John Haskell, Jr.	310
David W. Niemiec	300
Fritz Hobbs	260
George A. Wiegers	240
Peter Flanigan	240
Kenneth M. Schmidt	210
All Dillon Read Officers and Directors Investing	11,523

Franklin “Fritz” W. Hobbs IV, a graduate of Harvard and Harvard Business School, was an Olympic medal rower before rising to the top of Dillon Read. Photo courtesy Harvard University

Cornell’s March 1998 proxy filed with the SEC inspires some additional questions regarding the source of funds that bought Dillon Read out at a price that generated tens of millions of profit on their venture investment. There are several new large shareholders listed:

J&W Seligman 100 Park Avenue New York	5.7%
Alliance Capital c/o the Equitable Companies 1290 Avenue of the Americas New York	5.5%
AMVESCAP 11 Devonshire Square London	5.3%

When Cornell Corrections filed its 1999 proxy the following year, AMVESCAP and Alliance were each up to 9% of the outstanding shares.

Based on the foregoing filings, it is fair to assume one way or another these investors were helpful in making it possible for Dillon Read to cash out at or near a market high in Cornell’s stock price.

John Haskell, the second largest personal investor among the Dillon officers and directors was a board member of Equitable. Alliance Capital was soon to become much more visible as a result of its role in using Florida pension funds to buy Enron stock when one of its executives and Lockheed Martin board members, Frank Savage, was also on Enron’s board and member of its finance committee.^[21]

However, in the category of “it’s a small world” was the relationship of Cornell’s largest European shareholder AMVESCAP to RJR. In 1999, AD Frazier, President and CEO of INVESCO joined the board of R.J. Reynolds Tobacco Holdings. The press release describes Frazier as a member of the Board of Directors of INVESCO’s parent AMVESCAP.

RJR’s 2003 Proxy, filed after the European Union lawsuits were filed list INVESCO as the third largest shareholder with 5.6 percent of outstanding shares. RJR’s 2004 Proxy lists INVESCO in London as having 11 percent and INVESCO North American Holdings as owning 11 percent. RJR’s 2005 Proxy lists INVESCO in London with 6.3 percent and AMVESCAP in London with 6.32 percent.

Which means that when one of RJR Nabisco’s former lead investment bankers, Dillon Read, and its investors made in the range of $30 million cashing out of a private prison company, they were cashed out directly or indirectly by one of RJR Nabisco lead investors.

I wonder what the ghost of Barry Seal would say about what that might all have to do with the alleged $5 billion of drugs he pumped through a little airport in Arkansas, and who was responsible to reinvest that money. I wonder what Lou Gerstner, Henry Kravis and George Roberts as CEO and lead investors in RJR would say if given truth serum about who may be responsible for reinvesting the dirty money allegedly laundered with RJR cigarette sales.

Brown University: Cashing Out on Cornell Corrections

In Cornell’s prospectus when Dillon Read led its second stock offering on October 10, 1997, Brown University’s Third Century Fund was listed as a shareholder with 88,818 shares, of which 28,818 shares were to be sold through the offering. John Birkelund, Chairman and CEO of Dillon Read, was a long time trustee of Brown University. The price on the 1997 offering was $19 5/8 per share. If Brown’s average profit was the difference between the 1997 price and the 1996 offering price of $12 per share, it would have generated a profit in a year’s time of $677,237. Brown’s return on investment under these assumptions would have been a smashing 63.5 percent. If it had sold when the stock peaked after the offering at or around the time that Dillon appears to have sold out, it would have been higher.

The number of people who needed to be imprisoned for many years to generate such investment profits based on the foregoing assumptions was 67 people. An estimate of the number of men and women in the U.S. who would have to work their whole life to pay the taxes to imprison those 67 people would be 670 people.

Brown University also benefited from John Birkelund’s success at Dillon Read — including from Cornell Corrections — presumably through his donations and fundraising for the school — a primary function of a trustee. Typically, funding a “chair” at a university requires a donation greater than a million dollars — even several million. According to Brown’s website, there is a John P. Birkelund Professor of History at Brown, Omer Bartov.

Omer Bartov, John P. Birkelund Distinguished Professor of European History and Professor of History, Brown University. Photo courtesy of Brown University

Professor Bartov is an expert in genocide. His publications listed on Brown’s website include:

• In God’s Name: Genocide and Religion in the Twentieth Century, edited volume with P. Mack (Berghahn Books, 2001).


• Mirrors of Destruction: War, Genocide, and Modern Identity (Oxford UP, 2000)


• The Holocaust: Origins, Implementation, Aftermath, edited volume (Routledge, 2000)


• Murder in Our Midst: The Holocaust, Industrial Killing, and Representation (Oxford UP, 1996)

For the Fall 2005 semester Professor Bartov taught a course called “Modern Genocide and Other Crimes against Humanity.” The course description is as follows:

“The emergence, evolution, varieties, and underlying causes of and confrontations with genocide and other crimes against humanity in the 20th century: genocide in colonial empires, Ottoman Turkey, Nazi Germany, Cambodia, and Rwanda; killing of the handicapped, wartime massacres, mass crimes of Communism, and ‘ethnic cleansing’; the role of racism in and moral arguments about crimes against humanity; and policies of retribution and restitution.”

Professor Bartov also serves on the Brown University Slavery and Justice Committee whose mission is described on the University’s website as follows:

“Welcome to the website of Brown University’s Steering Committee on Slavery and Justice. The committee was appointed in 2003 by President Ruth Simmons and charged ‘to organize academic events and activities that might help the nation and the Brown community think deeply, seriously, and rigorously about the questions raised’ by the national debate over slavery and reparations. As an institution whose early benefactors included both slave traders and pioneering abolitionists, Brown has an intimate relationship to the history of American slavery. This history gives us, in the president’s words, ‘a special opportunity and a special obligation’ to contribute to this ongoing debate.”^[22]

A 2003 press release regarding one of Professor Bartov’s articles describes his work as follows:

“Throughout the last century, the scholarly community played a prominent role in providing the rationale and supplying the know-how and personnel for the perpetration of state-directed mass violence, according to new research by a Brown University historian. Omer Bartov, the John P. Birkelund Distinguished Professor of European History, cited incidents of ethnic cleansing, genocide and terrorism which were legitimized and supported by academics in his paper “Extreme Violence and the Scholarly Community,” published in the current issue of the International Social Science Journal. “We must recall that scholars and intellectuals have not infrequently found themselves at the forefront of support for mass crimes and inhumanity and have often distinguished themselves by their extraordinary political blindness and moral callousness,” Bartov wrote. “We ignore its implications at our peril.”

From a survey of Professor Bartov’s research online there is no indication of what his thoughts are regarding Brown’s quick profits on Cornell Corrections or possible sources of funds to support a John P. Birkelund Professorship in European History and the facts and circumstances of John Birkelund’s fortune — including fees and profits from RJR Nabisco and Cornell Corrections.

Professor Bartov was contacted by e-mail at Omer_Bartov@brown.edu for comment in late November 2005 and has not yet replied.

Catherine Austin Fitts is the author of the Narco News series “Narco-Dollars for Beginners: How the Money Works in the Illicit Drug Trade.” She is a former managing director and member of the board of directors of Dillon Read & Co, Inc, a former Assistant Secretary of Housing-Federal Housing Commissioner in the first Bush Administration, and the former president of The Hamilton Securities Group, Inc. She is currenly president of Solari, Inc., an investment advisory firm (in formation) based in Hickory Valley, Tennessee.

Previously in Part IV: Prison privatization is expanded under the Clinton administration and its pro-business “progressives,” HUD and businesses close to the government continue to put profits ahead of communities, and thoughts on what companies will go through to protect their public images.

Next in Part VI: A financial coup d’état, the roll of private banking, and closing thoughts…

Footnotes

[1] For details on some of the specifics of modern day “crucifixions” see, Anatomy Of A SWAT From A Lawyer’s Perspective by Lucille Compton

See The Swat List – Audits, Investigations, Inquiries, Leads, Conflicts of Interest, Harassment and Surveillance by The Hamilton Securities Group, Inc.

See The Professional Paranoid by H. Michael Sweeney

[2] See Litigation section at http://www.solari.com/gideon.

[3] For a detailed comparison of DOJ’s handling of the investigation of Hamilton with the investigation of Enron, see The Real Deal About Enron: An Interview with Catherine Austin Fitts by Daniel Armstrong.

[4] See Common Denominator stories by John DeVault: Convicted swindler in city housing deals, DCHA tenants ask to manage complex,

[5] Kemp Tape — Recollections Working in Bush I by Catherine Austin Fitts

[6] See Boys on the Tracks by Mara Leveritt

[7] See introduction to The Kemp Tapes recorded by Catherine Austin Fitts

[8] See Transcript of the Meeting and links for video excerpts at http://www.solariactionnetwork.com/phpBB2/viewtopic.php?p=9516#9516

[9] See articles on the CIA Inspector General reports and the House investigation in the CIA & Drugs archives at From the Wilderness,

[10] See the list of honors and awards in Jamie Gorelick’s resume at Wilmer Cutler

[11] See the Stanley Sporkin Hotseat,

[12] See materials on Jack Quinn’s role in Marc Rich’s pardon at http://www.solariactionnetwork.com/phpBB2/viewtopic.php?p=9521#9521

[13] Katharine Graham, owner of the Washington Post published her autobiography, Personal History in June 1997. On page 623 she writes,

“Along with a very able, inspiring, and determined younger partner, Terry Golden, I have helped launch an early-childhood education project in the Anacostia section of Washington, D.C. Though the project has grown larger than I had envisioned, it concentrates on two housing projects, Frederick Douglass Community Homes and Stanton Dwellings, and aims at helping mostly single and unemployed partners be involved in the education of their children. We have raised enough money to help create a community service center for parents, with a small daycare unit for up to fifteen infants, a new school for one hundred Head Start children from the ages of two to four. Our hope is that this is a public/private endeavor that can be replicated in other areas of the district as well as elsewhere.”

Terry Golden is a Marriot executive who is the head of the Federal City Council and is chair of the board of the Convention Center. The two projects mentioned are managed by Gene Ford who puts Scott Nordheimer in the lead to redevelop them under the Hope VI program. Several years later, Nordheimer reported to Fitts that he has over 70 people working for him on HUD development projects. Among other projects, he is got the services contract on the Washington Convention Center. The Convention Centers remaining neighborhood residence was overcome with an Operation Safe Home raid of the community with over 200 personnel and press that was Washington Times and aol.com front headlines. Graham also mentions how well the Washington Post stock has done. She does not describe where all the money comes from—and does describe Warren Buffet’s investment.

[14] See HUD Inspector General Semi-Annual Reports to Congress for performance reports and statistics on Operation Safe Home arrests, cash seizures and civil money penalties.

[15] Growth came from a 516-person expansion at the Big Spring facilities acquired in 1996 as well as several state governments. Between May and September 1997, Cornell acquired Abraxas, a provider of juvenile services, which gave Cornell an additional aggregate capacity of 1,400 children detainees in Pennsylvania, Ohio, Delaware and the District of Columbia.

[16] See Pug Winokur Data Dump

[17] See links for DynCorp Disgrace and other stories by Kelly Patricia O’Meara on allegations against DynCorp employees regarding sex slavery and human trafficking, see CSC DynCorp and the Economics of Lawlessness at http://www.scoop.co.nz/stories/HL0304/S00158.htm

[18] For a complete description of the efforts to discredit Webb, see Alexander Cockburn and Jeffrey St. Clair’s, Whiteout: The CIA, Drugs and the Press, Verso, 1999.

[19] Dillon Read Profits on Cornell – An Example of How to Estimate “Prison Pop”

Dillon Read’s Estimated Total Profits on Cornell Corrections:

$32.1 Million

PROFIT #1: Estimate of Dillon Read Profits on Stock Investments:

$26.1 Million—- Return on Investment (ROI) for Dillon Investors of Est. 35-45%—- Representing 8X Increase on Investment

EXPLANATION: Cornell’s October 1996 Prospectus describes Dillon and its funds as having a stock position of 1,359,863 shares. Dillon’s April 1997 Cornell 13-D filling describes shareholdings of 1,191,864 shares and an original cost of $3,359,736. The difference appears to be a distribution of shares to the Concord partners in early 1997. We assume that this distribution was 168,000 shares and for purposes of estimating cost, assume their average purchase price on these shares was $2.75 average cost per share for all existing shareholders (Dillon managed funds and employees were approximately 44% of existing shareholders) in Cornell’s October 4, 1996 Prospectus. (A prospectus is the document provided to investors that describes the company and its securities.)

Dillon did not appear to sell shares in the October 4, 1996 or the October 10, 1997 offering, yet was not shown as a holder of 5% or more in the March 9, 1998 proxy. (A proxy is the annual filing soliciting annual shareholder votes that describes the stock holdings of officers and directors as well as any holder known to the company to have 5% or more of the outstanding shares.)

For purposes of estimation, we are assuming that stock options can be treated as shares and Dillon and partners to whom they distributed shares sold their various positions between October 10, 1997 and March 1997 at or between the first quarter high of $24 — shown in Cornell’s 1998 10K—or the offering price in October 1997 of $19.625. As a result, we assumed an average sales price of $22.

Under these assumptions, total proceeds would have been $29,916,986. Profits would have been these amounts, less the costs of $3,821,736, or $26,095,250 in capital gains (stock profits). Of this amount, the officer and director personal positions of 335,233 shares (including options) would have been proceeds of $7,375,126 less costs of $652,999.99 ($2.15 per share shown in SEC filings breakdown for costs of the different Dillon positions—which differs by slight amounts than the total of the stock costs listed for the 32 Dillon officers and directors listed as shareholders at Exhibit E in the April 1997 13-D filing), generating estimated profits for officers and directors directly of $6,722,126.

Actual profits will differ from these estimates based on such factors as different timing of investments, sales or stock and option costs.

PROFIT #2: Estimate of Dillon Read Fees (Underwriting Spreads) on 2 Stock Offerings:

$3 Million

EXPLANATION: Total underwriting spreads were $7.5 Million assuming the 30-day option to sell additional shares were exercised. Dillon Read as lead manager would have made the largest portion of all the underwriters in the underwriting syndicates. The underwriters spread is the discount on the purchase price given to the underwriters who buy at the discounted price and then attempt to sell the securities at the higher stated offering price.

PROFIT #3: Estimate of Dillon Read Secondary Market Profits on Market Making in Cornell Stock:

$1 Million

EXPLANATION: When I was at Dillon we often made more money on trading the securities after the initial offering then we did on the initial offering. Because we had placed many of the securities when they were first sold, investors would come to us to buy and sell the shares in the future. Dillon was not traditionally strong in the equity area, so I am assuming a conservative number in this category. Actual profits could be higher.

PROFIT #4: Estimate of Dillon Fees (Underwriting Spreads) on $30,106,000 Rhode Island Port Authority Municipal Bonds for Donald C. Wyatt Facility & Secondary Market Profits on Market Making in the Bonds:

$500,000

EXPLANATION: The Harvard design case study indicates the underwriting discount on the municipal bond offering was $451,325 with Dillon Read and Fleet handling the underwriting.[19.1] Dillon would have made a percent of the underwriting discount and profits on the subsequent aftermarket trading in the bonds. We are assuming that Dillon did not lose money when Cornell had trouble making debt service payments. (See the New York Times story of Al Gore’s office arranging prisoners to be shipped to Rhode Island so that the Cornell revenues would be sufficient to cover debt service on the municipal bonds issued to finance the facility.) The bondholders presumably would have included the investors Dillon and Fleet sold the bonds to.[19.2]

PROFIT #5: Dillon Read Private Placement Fees:

$500,000

EXPLANATION: Cornell had a large credit facility from ING, the Dutch insurance company that took over Barings, and in the process became Dillon’s lead outside investor. It is likely that Dillon arranged for this financing for Cornell and, if so, would have been paid a fee. A “private placement” is done privately between a company and an investor rather than offered to the public.

PROFIT #6: Dillon Fees Associated with Venture Fund Asset Management:

$1 Million

EXPLANATION: Dillon would have charged fees in connection with
its raising and management of the Concord, Concord Japan and Lexington Funds. If their fees included a % of the capital gains on the fund and its investments, the Dillon fees related to Cornell investments could have been much greater that this estimate.

TOTAL PROFITS: Total Estimated Profits:

$32.1 Million

[19.1] Harvard Design School Case Study

[19.2] An article by Jeff Gerth and Stephen Labaton in the New
York Times in November 1995, Prisons for Profit: A special report; Jail Business
Shows Its Weaknesses describes the problems that Cornell ran into on its Rhode
Island facility — one which had been financed with municipal bonds issued by Dillon
Read:

“Two years ago, the owners of the red cinder-block prison in this poor mill town threw a lavish party to celebrate the prison’s opening and show off its computer monitoring system, its modern cells holding 300 beds and a newly hired cadre of guards.

But one important element was in short supply: Federal prisoners.

It was more than an embarrassing detail. The new prison, the Donald W. Wyatt Detention Facility, is run by a private company and financed by investors. The Federal Government had agreed to pay the prison $83 a day for each prisoner it housed. Without a full complement of inmates, it could not hope to survive.

So the prison’s financial backers began a sweeping lobbying effort to divert inmates from other institutions. Rhode Island’s political leaders pressed Vice President Al Gore while he was visiting the state as well as top officials at the Justice Department to send more prisoners. Facing angry bondholders and insolvency, the company, Cornell Corrections, also turned to a lawyer who was then brokering prisoners for privately run institutions in search of inmates.

The lawyer, Richard Crane, has done legal work for private corrections companies and Government penal agencies. He put the Wyatt managers in touch with North Carolina officials. Soon afterward, 232 prisoners were moved to Rhode Island from North Carolina, and Mr. Crane was paid an undisclosed sum by Cornell Corrections.”

[20] The Virtue Foundation describes Haskell, an Advisory member as follows: After graduating from the U.S. military academy at West Point in 1953, Mr. Haskell served in a number of armor branch units in the U.S., Austria, and Germany. In 1958, he received an MBA from Harvard University’s Graduate School of Business Administration and later worked as an Associate at Dillon, Read & Co. from 1958 to 1961. He subsequently went to France, where he reopened and managed the Dillon Read European office from 1961 to 1966. From 1964 to 1975 he served as Vice-President of Dillon Read, and from 1975 to 1999 as its Managing Director. In May of 2000, Dillon Read & Co. changed its name to UBS Warburg LLC. He is presently a Senior Advisor at UBS Warburg in the area of Corporate Finance, and is a member of the Board of Directors of AXA Financial, Inc.; The Equitable Life Insurance Society of the United States, Inc.; Pall Corporation; Belgian-American Educational Foundation; French Institute Alliance Française (President/Board of Trustees); the American Society of the French Legion of Honor; and Security Capital Corporation. He has been decorated with several honors throughout his career, including the Legion d’Honneur and L’Ordre National.

[21] See Mel Martinez Hotseat,
http://www.whereisthemoney.org/hotseat/mel/bush2000.htm#Bush2000.

[22] See http://www.brown.edu/Research/Slavery_Justice/index.html

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