BT Criminal and Financial Reviews Near Completion
Amidst the news that Burlington Telecom has broken off its lease agreement with CitiCapital comes word that a state-run, nine-month criminal review is now being reviewed by the feds.
On Wednesday, the Burlington Free Press reported that Capt. Dave Covell, of the Vermont State Police, and Orleans County State's Attorney Keith Flynn have asked federal law enforcement officials to provide some help in the review.
Flynn and Covell have not yet responded to calls from Seven Days to independently confirm the report. Flynn is in Montpelier today.
Vermont's U.S. Attorney Tristam Coffin would neither confirm nor deny whether his office has been asked to help the state's review. Ditto the regional office of the Federal Bureau of Investigation in Albany, NY.
"It's our practice not to comment on, or even the existence of, investigations," Coffin said.
The Department of Public Service first turned over information for a possible criminal review in February. A key document that sparked the interest of DPS Commissioner David O'Brien was a letter written by attorney Joe McNeil on behalf of the city and Burlington Telecom to CitiCapital.
In that letter (which you can download below as part of a packet of materials related to the CitiCapital lease), McNeil didn't explicitly note that the city was required to repay any borrowed funds from the cash pool within 60 days.
Since February, Flynn has been reviewing the BT case. As of today, city officials say they have not been contacted by either Flynn's office or federal officials as part of their probe.
"No officials from Burlington Telecom or the city have been questioned or asked to provide documents," said Joe Reinert, assistant to Mayor Bob Kiss. "If asked we'll cooperate in any way we can."
It's unclear what the feds, or the state's attorney, believe may be violations of law. For sure, the Vermont Public Service Board has already declared the city and BT to be in violation of its certificate of public good and its own city charter for not repaying money borrowed from the city's cash pool and leaving taxpayers on the hook.
The last time the state and feds combined forces on a major public financing scandal it involved the massive Renaissance Project redevelopment at Fletcher Allen Health Care. The ensuing scandal and prosecutions landed one top official in jail, and resulted in millions of dollars in fines and charges levied against a wide range of individuals involved in the crime.
Fletcher Allen management and others involved with the Renaissance Project developed and implemented a scheme to falsify the true costs of the project and conceal them from the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA).
FAHC's CEO Bill Beottcher pleaded guilty, repaid Fletcher Allen $733,000 and was sentenced to two years in a federal prison. Several other top FAHC officials, pled guilty and paid fines and were able to avoid jail time by cooperating with investigators. Thad Krupka, the former chief operating officer, pled guilty in 2005 to three state charges of making false claims, and agreed to cooperate with the probe. He had to give back $170,000.
Fletcher Allen reached a settlement agreement with state and federal prosecutors, too, regarding the Renaissance Project investigations. As part of that settlement, Fletcher Allen paid $1 million, half to the state and half to the federal government. FA's law firm — Downs, Rachlin and Martin — paid about $2 million in restitution for its role in the scheme, as did the hospital's architect.
Tsoi-Kobus and Associates, the architectural firm for the project, agreed to cooperate with prosecutors and paid $1.3 million to resolve its role. Macomber Barton Mallow, the construction management firm, also cooperated and paid $150,000. Vermuelens Cost Consultants, the construction cost estimating firm used by Fletcher Allen, cooperated and forfeited $50,000.
After obtaining BISHCA approval, based upon false information, Fletcher Allen continued to misrepresent the costs of the project by, among other things, claiming in filings with BISHCA that the costs of the project would be $173.4 million. The project, at completion, will cost nearly $367.3 million.
Sound familiar? BT is costing about twice as much to build as originally estimated (which means either the original estimate was off or the buildout was botched — or both). In addition, the Kiss administration was less than forthcoming with city councilors and the state about the extent to which Burlington Telecom was in debt to the so-called "cash pool."
Given the original proposed cost of BT and its curent debt load, It's possible state and federal officials are examining similar misstatements to regulatory authorities and to CitiCapital regarding the buildout, BT's potential value and whether BT was in violation of its CPG at the time it signed the CitiCapital agrement in August 2007.
As of June 30, 2007 BT was in debt to the city's cash pool by more than $5.1 million with only about $300,000 in receivables. It's likely that $5.1 million accumulated well before June 30, which means it had been in violation of its CPG.
The city and Chief Administrative Officer Jonathan Leopold are already being sued by two city residents, who claim the city and Leopold defrauded taxpayers by using the $17 million without their consent. Leopold is seeking qualified immunity from the suit, which has been denied by Superior Court Judge Helen Toor. In early November, Leopold's attorney, Bob Gensburg, appealed her ruling to the Vermont Supreme Court. The state's high court has yet to respond to Gensburg's request.
Also nearly complete is a long-awaited financial review of BT's operations by a consultant hired by the Department of Public Service.
The city is reviewing documents that DPS wants to include as part of its financial review of Burlington Telecom. The review is being conducted as part of the ongoing investigation by the Vermont Public Service Board into violations of BT's certificate of public good.
Some of the documents DPS wants to release publicly were filed to the PSB under protective seal, said Reinert. Other documents were created by the outside consultants hired to review BT's, but are based on information that was filed under seal, added Reinert.
"So what we're trying to determine is what information we are okay with releasing, and what information we still think is protected," said Reinert. The goal is to respond to the DPS by the end of day Friday.
To date, the city has not seen a draft copy of the state's financial review.
Download a copy of the lease agreement with CitiCapital, ancillary documents and the McNeil letter: Download BT Exhibit Response DPS 3-37 12-11-09