News & Articles

“fraud and missmanagement at HUD” “affordable housing”

Hearing 1989 CAFitts-HUD_Appointment-08011989.pdf

“I left the Bush Administration in 1990, persuaded that digital technology and the Internet could be used by entrepreneurs to create new wealth in an investment model that created alignment between global investors and the land, environment and people. If we financed places with equity instead of debt, we could create a way for global investors to profit from reducing consumption of scarce resources, integrating new technology into our infrastructure, healing the environment and improving my rule of thumb for the health of a community — the Popsicle Index.[52] The Popsicle Index is the percentage of people in a place who believe a child can leave their home and go to the nearest place to buy a popsicle or snack and come home alone safely.[53]

Alexander Hamilton, first Secretary of the Treasury of the United States.
(Photo courtesy Scottish Parliament)

When I was a little girl growing up in West Philadelphia, the Popsicle Index was close to 100%. The Dow Jones was 150. Today, in my old neighborhood the Popsicle Index has fallen about 90% to 10% while the Dow Jones has risen more than sixty times to over 10,000. In short, we have a win-lose relationship between investors and communities. In addition, we also have a win-lose relationship between government and communities. For more than fifty years we have had steadily rising government budgets for programs and enforcement (often justified on the theory that they will make the Popsicle Index go up) and a steadily falling Popsicle Index.

In 1991, at the same time that Dillon was bankrolling the Cornell Corrections start-up, I started an investment bank and financial software firm in Washington called The Hamilton Securities Group. Hamilton was named after Alexander Hamilton, one of the key drafters of the U.S. Constitution. While I served as Assistant Secretary of Housing-FHA Commissioner at HUD, I tried on numerous occasions to persuade Secretary of HUD Jack Kemp and his staff not to propose new policies that would result in the abrogation of government contracts or contractual obligations with respect to financial assets. I had a deputy who always reminded me that Alexander Hamilton had gone through a similar process of ensuring that the government did not illegally abrogate its obligations and debts when he was the first Secretary of the Treasury of the United States — and that Hamilton had always prevailed. Numerous Alexander Hamilton quotes became part of our way of cheering ourselves up in the midst of cleaning up nauseating levels of corruption. Sayings like “A promise must never be broken.”

The Hamilton Securities Group offices won an award from the American Institute of Architects for Advanced Technology Facility Design. (Photo courtesy The Hamilton Securities Group)

One of The Hamilton Securities Group’s goals was to map out how the flows of money worked in the U.S. and create software tools that would make this information accessible to communities. We believed that the way to re-engineer government was for citizens to have access to the information about the sources and uses of taxes and government spending and financing in their communities, and to participate in the process of making sure that these investments were managed to restore our neighborhoods to a “Popsicle Index” of 100%. Transparency is essential for private markets to work and for government investment to be economically productive, accountable to those who fund it and managed according to the laws that are supposed to govern such investment. Otherwise, we will veer toward subsidizing private interests that are powerful politically or forceful, including through dirty tricks and economic warfare, as opposed to those that are productive.

After I started The Hamilton Securities Group, I was approached by Nick Brady, still Secretary of Treasury, to serve as a Governor of the Federal Reserve. When I declined, John Sununu, then White House Chief of Staff, had me appointed to the board of Sallie Mae, the corporation that helps to provide financing for student loans. While on the board of Sallie Mae, I was taken aside by the Chairman who explained that it was essential for me to ask Nick to sponsor me for membership in the Council on Foreign Relations (CFR). When I said that this was not something I felt comfortable doing, he said, quite alarmed in a generous and caring manner, “You don’t understand, if you don’t join the Council, you will be out for good.”

 

In 1995, Hamilton Securities integrated telephone and computer systems in an open office design. Whether at a desk, in a conference room or in the kitchen, Hamiltonians and network members — many educated and experienced in information technology — could access state of the art technology, software tools and T1 Internet line. (Photos courtesy The Hamilton Securities Group)

I did not join the CFR and in retrospect — after years of watching how the CFR and its members operate — believe I made a sound decision.

My dream was to find solutions.

That required getting in the trenches to prototype money maps, tools and transactions.

Prototyping of this type requires high degrees of trust with diverse networks — in communities and financial markets alike.

Some of these networks would not welcome a central banker or members of organizations like the CFR that provide the intellectual smokescreen for the centralization of financial data and flows and economic and political power.

Over time I was increasingly shocked by the speed and ease with which many intelligent and seemingly competent members of the CFR appeared to eagerly justify policies and actions that supported growing corruption.

The regularity with which many CFR members would protect insiders from accountability regarding another appalling fraud surprised even me.

Many of them seemed delighted with the advantages of being an insider while being entirely indifferent to the extraordinary cost to all citizens of having our lives, health and resources drained to increase insider wealth in a manner that violated the most basic principles of fiduciary obligation and respect for the law. In short, the CFR was operating in a win-lose economic paradigm that centralized economic and political power. I was trying to find a way for us to shift to a win-win economic paradigm that was — by its nature — decentralizing.

The Hamilton Securities Group was financed with the money I made as a partner of Dillon Read and the sale of my home in Washington and then financed internally with reinvested profits from operations. Several years after starting, we won a contract by competitive bid to serve as the lead financial advisor to the Federal Housing Administration FHA at HUD. As a result, I had the opportunity to serve the Clinton Administration in the capacity of President of The Hamilton Securities Group in addition to having served as Assistant Secretary of Housing-FHA Commissioner in the first Bush Administration.[54]

Catherine’s home in Woodley Place, Washington, D.C. was sold to help finance Hamilton Securities. (Photos courtesy Catherine Austin Fitts)

One of our assignments for HUD was serving as lead financial advisor for $10 billion of mortgage loan sale auctions. Using online design books[55] and our own analytic software tools as well as bidding technology from Bell Laboratories we adapted for financial applications, we were able to significantly increase HUD’s recovery performance on defaulted mortgages, generating $2.2 billion of savings for the FHA Mutual Mortgage Insurance and General Insurance Funds.

While we plowed all of our profits back into the expenses of building databases and software tools and into banking a community-based data servicing company, we were still profitable, generating $16 million of fee revenues and $2.3 million of net income in 1995.[56]

While the loan sales were a great success for taxpayers, homeowners and communities, it turned out that they were a significant threat to the traditional interests that fed at the trough of HUD programs, contracts and related FHA mortgage and Ginnie Mae, Fannie Mae and Freddie Mac mortgage securities operations.

For example, if you illuminated the sources and uses of government resources on a neighborhood by neighborhood basis, you would see that government monies were spent in ways that created fat stock market and personal profits for insiders at the expense of more productive outsiders who are providing most of the tax and other resources used. Insiders could include big developers and property management companies that specialized in HUD-subsidized properties like then Harvard Endowment-owned National Housing Partners (NHP) and their affiliated mortgage banking operations like NHP’s Washington Mortgage (WMF), or for investment bankers like Dillon Read or Stephens, Inc. who issued municipal housing bonds for agencies like the Arkansas Development and Finance Agency (See “Narco Dollars in the 1980s—Mena Arkansas” above). When I suggested to the head of HUD’s Hope VI public housing construction program during the Clinton Administration that she could spend $50,000 per home to rehab single family homes owned by FHA rather than spending $250,000 to create one new public housing apartment in the same community, she got frustrated and said “How would we generate fees for our friends?”

Our efforts at The Hamilton Securities Group to help HUD achieve maximum return on the sale of its defaulted mortgage assets coincided with a widespread process of “privatization” in which assets were, in fact, being transferred out of governments worldwide at significantly below market value in a manner providing extraordinary windfall profits, capital gains and financial equity to private corporations and investors. In addition, government functions were being outsourced at prices way above what should have been market price or government costs — again stripping governmental and community resources in a manner that subsidized private interests. The financial equity gained by private interests was often the result of financial, human, environmental and living equity stripped and stolen from communities — often without communities being able to understand what had happened or to clearly identify their loss. This is why I now refer to privatization as

“piratization.”

One of the consequences was to steadily increase the political power of companies and investors who were increasingly dependent on lucrative back door subsidies — thus lowering overall social and economic productivity. Hence, the doubling of FHA’s mortgage recovery rates from 35% to 70-90% ran counter to global trends and ruffled feathers. FHA, with Hamilton’s help, was requiring investors like Harvard Endowment to pay full price for assets while it appeared that they and investors like them were engineering progressively deeper and deeper windfall discount prices as part of government privatization programs elsewhere in the U.S. and globally. A Federal False Claims Act lawsuit against Harvard and journalist coverage regarding their role as a USAID government contractor in Russia illuminated the extent of the windfall profits that they and members of their networks were able to engineer at the expense of the Russian people, investors and the American people.[57]A criticism that I now have that I did not understand at the time was that even efficiently and honestly executed privatization transactions such as the HUD loan sales policies which insist on open competition at the highest price run the risk of advantaging players who were the most successful at laundering money for the “black budget.” All solutions to this problem bring us back to the importance of place-based transparency of government resources and the importance of investing in the equity of small businesses and small farms.

Things took an even darker turn when we started Edgewood Technology Services, a data servicing company in a largely African-American residential community in Washington, D.C.[58] Our investment in Edgewood gave us the ability to develop a skilled dedicated workforce that could help us build much more powerful databases and software tools. It also helped us understand the investment opportunity to train people working at minimum wage jobs or living on subsidies to develop more marketable skills and earning power by doing financial data servicing and software development.

From the financial information that emerged from our portfolio strategy work for HUD and from our investment in Edgewood, we discovered that it was less expensive to train people to do these jobs than to fund their living on government subsidies indefinitely, let alone going to prison. For example, a woman with two children living in subsidized housing in Washington, D.C. on welfare and food stamps cost the government $35-55,000 or more. In 1996, the General Accounting Office (GAO) published a study showing that on average total annual expenditures for federal, state and local prisoners was over $150,000 per prisoner. Presumably this included all overhead and capital costs but did not include the costs of supporting minor children of such prisoners. If government funded the care of her two children while she was in prison, those costs would be in addition.

What we found at Edgewood was that there was a portion of the work force that, due to obligations to children and elderly parents, was not able to commute. Some of these people could be a productive work force working near their home and developing computer and software skills at their own pace. If training was combined with the creation of jobs, the economics of training people to do these jobs were sustainable and with proper screening and management could be profitable for the private sector. The potential savings to the public sector was astonishing — not to mention the potential improvement in quality of life for cities, suburbs and rural communities. With government leadership and large corporations actively working to move jobs abroad, people in all areas of the U.S. would need these kinds of new skills and jobs. Moreover, small businesses would need access to the kinds of venture capital and financial equity we were proposing to invest in community venture capital. That meant that communities needed to circulate more deposits and savings internally rather than depositing and investing their funds in large banks and corporations that used those funds to win local market share away from small businesses and farms.

During this period, The Hamilton Securities Group helped HUD develop a program to permit owners of HUD-subsidized projects to treat some of the costs of community learning centers as “allowable costs” that could be funded from property cash flows. This allowed apartment building operations in communities experiencing welfare reform, cutbacks in domestic programs and unemployment from jobs moving abroad to provide facilities and programs that could help residents improve their ability to generate income. It encouraged linkages between private real estate managers and community colleges and other organizations committed to helping people learn new skills.

As I traveled and researched around the country, it became apparent that data servicing jobs like those we were prototyping at Edgewood were highly competitive with jobs in the illegal economy. In other words, data servicing jobs paying $8-10 per hour and offering health care benefits and the opportunity to improve skills had the potential to attract a surprising number of people away from dealing drugs, prostitution and other street crime. The Hamilton Securities Group’s primary competition for the younger multi-racial portion of this work force appeared to be organized crime and the industries dependent on the continuation of organized crime activities — including enforcement and private prisons.

Meanwhile, The Hamilton Securities Group’s growing software and database infrastructure about public and private resource flows in communities indicated that the vast majority of government subsidies were either not necessary or not economic — whether welfare and HUD subsidies or prisons and the huge and growing infrastructure of community and social development and private real estate and government contractors that they supported. There was a much more economic way for government to reduce domestic subsidies and crime. Billions of dollars of government investment had a negative return on investment. We were paying millions of people — whether on welfare or government contracts or HUD property subsidies — to do things that were not productive. Change those expenditures to a positive return on investment, and extraordinary improvements in productivity were possible. There was much work needed to be done that warranted investment — from repairing our infrastructure to rebuilding communities. As part of the potential opportunities, with both the private sector and federal government predicting very significant increases in the need for data servicing support and other jobs that could be outsourced through telecommunications, there appeared to be a significant opportunity. We shared our data and results with HUD, The Department of Health and Human Services (HHS), Congress and the Office of Management and Budget at the White House, and with leaders within the real estate and community development industries.

The initial response was very positive from a number of quarters, particularly those people most concerned with the growing federal debt and issues of productivity. I will never forget one of our meetings with a senior White House official. We showed him our initial estimates of the savings that were possible from potential reduced subsidy expenditures as well as lower default rates on federal mortgage and loan programs as a result of increased employment and income in low and moderate communities. He was ecstatic about the potential to save billions while reducing poverty — all recently made possible by new technology. He and many other government officials — when they saw the initial estimates emerging from the loan sales and our aggregates of the extraordinary amounts of federal monies being wasted by place — realized the potential when a negative financial return on investment is reengineered to a positive return on investment in a place.

Private investment leaders were also enthusiastic. During one presentation, the head of portfolio strategy for one large corporate fund said with astonishment, “This is terrific. We can save the country and make a fortune doing it.” Making a fortune was a good thing. One of our biggest concerns was achieving a sufficient investment performance on pension fund capital to ensure that retirement benefits were adequately funded. Hamilton was proposing a financial model that would also help fund retirement obligations as a result of pension funds profiting from the wealth created by reducing poverty.

Others were not so positive, including special interests whose business had become managing “the poor” and who would be out of a business if new tools and opportunities were to significantly decrease the number of people who were poor. Many of these were traditionally powerful Democratic constituencies, including private for-profits, foundations, universities and not-for-profit agencies that had built up a significant infrastructure servicing and supporting programs to house, feed and supervise poor people. If people were no longer poor, what was their purpose? When we made a presentation to a group of leading foundations, in partnership with a Los Angeles entertainment company interested in using entertainment skills to make training fun, the head of low-income programs at Fannie Mae told me that it was the most depressing presentation he had ever seen. It implied that the poor did not need his help — that his life and work had no meaning. It appeared he did not want to end poverty. His personal meaning was derived from poverty continuing, if not growing. Real estate interests that were hoping to gentrify neighborhoods as a result of welfare reform were also not pleased. They would make more money turning over populations rather than helping the current population improve without moving. Their allies were enforcement teams like the HUD OIG that won funding and generated revenues from helping to get one group out, so another group could be moved in.

One HUD official told Catherine that when she saw this June 1996 Washington Post article about Edgewood Technology Services, the HUD Inspector General said, “That’s it, I am going to get her [referring to Catherine.]”

We were warned that the HUD Inspector General’s office had a very negative response to the “neighborhood networks” model of community learning centers, with one of the enforcement team members referring to such efforts as “computers for niggers.” Essentially, the vision we were proposing was in competition with their enforcement business, which consisted of dropping 200 person “swat” teams into a neighborhood to round up and arrest lots of young people who were in the wrong place at the wrong time and could not afford an attorney. This required a fundamentally different approach and philosophy. One model proposed helping the people in a place improve. The other proposed rounding them up and pushing them out so that new people could be moved in.

 

The highly successful HUD loan sales had also run into a problem with the staff of the HUD Inspector General’s Office. According to HUD staff, the HUD OIG staff wanted the HUD loan sale staff to withdraw loans from sale portfolios so they could pursue civil money penalties against the building owners. If the loans were sold, it would be better for the FHA fund and for building residents and the surrounding communities. However, it would make less money for the “Sheriff of Nottingham” business in HUD OIG. The IG and General Counsel staff were apparently indifferent to overall best interests of the government on a government wide basis let alone taxpayers and communities.

Years later, when HUD Inspector General Susan Gaffney was asked during a deposition what the recovery rates were on HUD’s defaulted mortgage portfolio before, during and after the loan sale program that The Hamilton Securities Group pioneered, she said she had no idea. Her attitude suggested that this was not an important piece of information. Which suggests that she found something that had billions of dollars of impact on the FHA Funds each year to be of no interest. The focus in federal enforcement was on activities that made money and garnered funding support and headlines directly for the enforcement teams. This “for-profit ” philosophy was surprisingly blatant. I was reminded of the Congressman who jumped up from dinner to cast his vote in appropriations committee and as he rushed off said to me, “Let’s face it, honey, I’m only here to protect my shit.”

In late 1995, The Hamilton Securities Group began work on Community Wizard, a software tool designed to facilitate community Internet access to all public data and some private data on local resource use, including federal tax, expenditures and credit data. The initial response to the tool from Congress, HUD and our technology networks was astonishing. People were ecstatic to realize that they did not have to continue to live and work in the dark financially. It was a relatively easy thing for new software tools to help people learn about the flow of money and resources in their community. Additional software tool development also resulted in numerous tools to analyze subsidized housing in a place-based context, including detailed pricing tools that combined significant databases on government rules and regulations with all of our pricing data from the various loan sales, with databases about mortgage, municipal and stock market financing of homebuilding and home ownership. Such tools would allow people to take a positive and proactive role in insuring that government resources were well used. Such tools would allow investors to improve the performance of local investment — particularly venture and equity investment in small businesses and farms.

Community Wizard Brochure

(Photo courtesy The Hamilton Securities Group)

There was only one problem. If communities had easy access to this data, the pro-centralization team of Washington and Wall Street would be in trouble. Everything from HUD real estate companies to private prisons would be shown to make no economic sense — other than to generate private profits and capital gains for insiders. And billions of government contracts, subsidies and financing would be shown to make no economic sense — other than to generate private profits and capital gains for insiders. Indeed, communities were better off without many of these activities and funding. Through our software, private citizens would see the cost of decades of accumulated “fees for our friends.”

A case in point was a meeting I had with a former partner of Dillon Read who I had hoped to recruit to Hamilton in 1996. He came to our offices and during my presentation of our plans for community venture, told me that the situation was hopeless and that our tools would make no difference. I powered up Community Wizard and our software tools on the monitors and asked him where he lived. He said “Bronxville, New York.” I had one of my team print out from our databases a list of federal expenditures in his neighborhood. When he saw the first item, he exploded with rage, “$4 million last year for flood insurance? That is ridiculous. That is corrupt!” $4 million of flood insurance sounded pretty innocent to me and I said, “why is that corrupt?” He said, “Bronxville is on a hill. I have lived in Bronxville for many years and I have never seen or heard of a flood.” It is typical that someone with years of experience in a place can spot potential waste and reengineering opportunities much faster when presented with detailed government financial information than someone who does not know the place.

As the former Dillon Read partner started to read through the details of the annual expenditures, he became more and more upset. The next day we were scheduled to speak by conference call after he returned to New York. I called and called at the appointed time but the line was busy. When I finally got through, he said he had been on the line with the Deputy Mayor of Bronxville for hours going through the data we had provided him. He said, “All this corruption is going to stop.” I said, “I thought you said it was hopeless.” And then he said something to the effect of “that was until I got the numbers for my neighborhood.” He understood that the corruption is funded one neighborhood at a time. If each neighborhood cuts off or reengineers the flow of wasteful or corrupt government funds, the situation can transform in a significant way nationally and globally. You have to cut off the money to the bad guys at the root. And he had realized how much money per person was being wasted when he saw the waste on a human scale where he could both see how the resources could be properly used and could do something about it.

This was, however, before we even addressed the question: “Who was bringing in narcotics and where was all the money from the trafficking and other illegal activities going?” If enough people stopped dealing drugs and taking drugs, then who needed more prisons and all these enforcement agencies and War on Drugs contractors? And how did all of this connect with the stock market and the mortgage markets and the fraud in those markets?

Ask and answer those questions — as communities would now be able to start to do with tools like Community Wizard and our tools — and much Iran-Contra style narcotics trafficking, the private prison industry and the “Sheriff of Nottingham-style” enforcement programs so in vogue at the White House, DOJ and HUD OIG might just be dead in the water. Unfortunately, that might have profound implications for the existing financial market as many corporate and government securities depended on the continued flow of wasted government expenditures.

As part of our efforts, we started to publish maps on the Internet of defaulted HUD mortgages in places with significant defaulted mortgage portfolios and to encourage HUD to offer place-based sales that would allow bidders to bid on different types of HUD-related mortgages and properties in one place. If successful, it would permit us to also create bids that optimized total government performance in a particular place — including assets from other agencies as well as contracts, subsidies and services.

The Map of South Central Los Angeles, California

(Map courtesy The Hamilton Securities Group)

One of the maps we put up in the spring of 1996 showed the properties which were financed with defaulted HUD single-family mortgages in South Central Los Angeles, California. The map showed significant HUD defaults and losses in the same area as the crack cocaine epidemic described by Gary Webb in Dark Alliance. Such heavy mortgage default patterns are symptoms of a systemic and very expensive problem — including systemic fraud. This could occur, for example, in situations such as those in which mortgages were being used to finance homes above market prices with inflated appraisals (one of the patterns of HUD fraud documented by the The Sopranos TV show) or where defaulted mortgages or foreclosed properties were being passed back to private parties at below market values, or where these types of mortgage fraud were supporting mortgage securities (such as those issued by Ginnie Mae, Freddie Mac and Fannie Mae) that did not have real collateral behind them. This is the type of mortgage fraud that launders profits in a way that can multiply them by many times. Los Angeles was also the area with the largest flow of activities in the Department of Justice’s Asset Forfeiture Fund. Whether drug arrests and incarcerations, legal support for HUD foreclosures and enforcement or asset seizures and forfeitures — these maps were illuminating areas that were big business for “Sheriff of Nottingham-style” operations.

The Map of Washington D.C.

(Map courtesy The Hamilton Securities Group)

 

The Map of New Orleans

(Map courtesy The Hamilton Securities Group)

backup of article: http://www.dunwalke.com/11_Hamilton_Securities.htm

The European Union Sues RJR Tobacco for Two Decades of Global Money Laundering for Colombian Drug Lords, Russian Mafia, Italian Mafia, Saddam Hussein’s Family & New York Real Estate Investors.
By Catherine Austin Fitts

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The European Union’s Lawsuit

If you are on a limited entertainment budget, have no fear. The legal complaint for the European Union’s lawsuit, filed on October 31, 2002 in the Eastern District of New York, US, against the R.J. Reynolds Tobacco Company is available on line and is better than the latest James Bond movie or Tom Clancy novel. You don’t want to miss this primer on the corporate money laundering worldwide brought to you on behalf of ten sovereign nations of Europe (Finland, Germany, Sweden, France, Luxembourg, the Netherlands, Belgium, Holland, Portugal, Spain, no doubt, with the help of their law enforcement and intelligence agencies).

Here it is:

HTML – http://www.scoop.co.nz/mason/stories/WO0211/S00142.htm

mirror of html version: https://altcoopsys.org/2017/01/15/eu-v-rjr-nabisco-cigarette-smuggling-laundering/

ADOBE PDF – http://www.nyed.uscourts.gov/coi/02cv5771cmp.pdf -> was taken down:

mirror1: https://web.archive.org/web/20080512150954/http://www.nyed.uscourts.gov/coi/02cv5771cmp.pdf

mirror2: UNITED STATES DISTRICT COURT NEW YORK EUROPEAN COMMUNITY – Money-Laundering Narcotics Trafficking Links Between Europe The United States Russia and Colombia – 02cv5771cmp.pdf

“UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
_________________________________________________
THE EUROPEAN COMMUNITY,
acting on its own behalf and on behalf of the
MEMBER STATES it has power to represent, and the
Kingdom of Belgium, Republic of Finland,
French Republic, Hellenic Republic,
Federal Republic of Germany, Italian Republic,
Grand Duchy of Luxembourg,
Kingdom of the Netherlands,
Portuguese Republic, and
Kingdom of Spain, individually,
Plaintiffs,
– against –
COMPLAINT
RJR NABISCO, INC.,
R.J. REYNOLDS TOBACCO COMPANY,
R.J. REYNOLDS TOBACCO INTERNATIONAL, INC.,
RJR ACQUISITION CORP., f/k/a
NABISCO GROUP HOLDINGS CORP.,
RJR NABISCO HOLDINGS CORP.,
R.J. REYNOLDS TOBACCO HOLDINGS, INC.,”

For those who want the real short version, here is the EU’s press release of October 31, 2002 announcing the filing of their suit:

http://www.scoop.co.nz/mason/stories/WO0211/S00141.htm

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Who is RJ Reynolds Tobacco Holdings (RJR)?

R.J. Reynolds Tobacco Holdings (RJR) is the holding company for the second largest tobacco company in the US, manufacturing and distributing Camel, Winston, Salem, Doral and other cigarettes. RJR, headquartered in North Carolina, claims to manufacture one out of every four cigarettes in the US.

The Complaint also names Nabisco Group Holdings, makers of Oreo cookies and numerous other consumer food products, which spun RJR out several years ago (that is Nabisco and RJR were one company until they split into two companies) and is now part of Kraft Foods, which also owns Philip Morris.

If what the EU says is true, every time you buy a pack of Winston cigarettes or a bag of Oreo cookies, you are voting with your money in the market for organized crime.

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The First RJR Takeover War

This story has personal meaning to me. I was a partner and member of the board of directors at Dillon, Read & Co. Inc on Wall Street during the 1980’s. Dillon Read represented the RJR board during the famous takeover war in which Henry Kravis emerged as the lead investor for the takeover of RJR. The fight was so ugly that it resulted in a book and movie about the RJR “takeover war”. The Dillon partner involved in leading our role in the transaction left the firm and started a tree farm in rural Virginia — we all had the distinct feeling that the RJR transaction had helped inspire him to want to get himself, his family and his assets as far away from Wall Street as possible.

At the time, I could not figure out how Kravis and his leveraged buyout firm, KKR, could afford to pay the winning bid for RJR. I remember we would watch the price go up and up and say, “What’s that about?” Later, as I read news reports that KKR was successful paying down the incredible debt load assumed by RJR to pay for the KKR bid, we would wonder, “How? How are they coming up with the cash?”

Well, many years later, if their allegations are true, the European Union has solved the mystery. KKR was paying for one of the premier global corporate money laundering networks — and that money-laundering network was paying down the KKR debt. The RJR Takeover War was an Organized Crime Fight.

 

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Is This Part of the Currency Wars?

In my various articles about the addiction of our economy and the stock market to organized crime profits and money laundering (See “Narco Dollars for Beginners” & “The Myth of the Rule of Law”), I have written that the real mission of the Department of Justice and the US enforcement and intelligence agencies is the “control and concentration of cash.” That is, they are not trying to stop money laundering, rather ensuring that the US leadership and control of money laundering grows. The goal is to ensure that global money laundering and its reinvestment goes through our bank accounts and corporate stocks. J

John Laughland and other observers of the European Union have noted the EU’s role as also the “control and concentration of cash.” With the competition between the dollar and Euro underway, is RJR’s use of cigarettes for money laundering part of the larger competition between the two trading blocs? Is the competition between dollars and Euros squeezing out cigarettes as currency?

 

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RJR’s Stock Trades on the NYSE

RJR’s stock is traded on the NYSE. Here is the disclosure from their website:

Common shares of R.J. Reynolds Tobacco Holdings, Inc. are traded on the New York Stock Exchange under the RJR ticker symbol. Information in this section includes recent and historical stock data, earnings and dividend news as well as direct access to SEC filings.

The stock traded up a bit after the lawsuit was filled on October 31, 2002. This is commensurate with the trading patterns on the Bank of New York’s stock when it was announced that they were laundering money for the Russian mob. Is this a sign that investors respond positively to a corporation that engages in money laundering and gets away with it?

When it comes to your own 401(k) or oversight of your company or organization pension fund, this is a stock you might want to ensure gets sold. Do you want your personal savings and your retirement invested in increasing the power and compensation of people who are helping to hook your kids on cigarettes and drugs? Lest you think they are profitable, think about what this is costing you in tax dollars and personal expenses from living in a sea of crime.

If what the EU says is true, this is a stock to dump.

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Richard Grasso & the New York Stock Exchange (NYSE) — Money Laundering ‘R Us

Lest you think the ten sovereign nations are being farfetched in their accusations, let’s look at one incident that is symptomatic of what has been going on at the NYSE. In 1999, I wrote a story called “The Ultimate New Business Cold Call” about Richard Grasso, Chairman of the NYSE Exchange, traveling to Colombia to meet with FARC Commanders to encourage them to reinvest their money in the US stock market and banks. That same week, the General Accounting Office of the US Congress issued a report saying that the FARC now controlled 40% of the Colombian cocaine market. I presume that Grasso’s trip was not successful which is why US taxpayers are now paying for Plan Colombia to ensure that the likes of Citibank and Merrill Lynch can grow their market share for the “control and concentration of cash” in Latin America.

Lest you think I am making this up up, here is a picture of Richard Grasso, Chairman of the NYSE, hugging
a FARC Commander and his rifle in 1999:

http://www.scoop.co.nz/mason/stories/HL0202/S00069.htm

Richard Grasso is recently in the news involved in another corporate fraud. Here is an excerpt from this week’s
International Forecaster weekly market report by Bob Chapman:

“As we predicted the criminal investigation of Computer Associates has intensified with many subpoenas being issued. Charles B. Wang, the founder, has recently resigned. We expect criminal charges. Richard Grasso, Chairman of the NYSE, was a director of CA while all the crimes were taking place. We went short at $36.00 and covered at $18.43, went short gain at $18.00 with no cover. The stock traded at $14.88 on 2/21/02.”

What this means is that the people who are supposed to be overseeing the stock market and making sure that NYSE listed companies like RJR are not engaged in criminal money laundering are busy pursuing money laundering opportunities for NYSE listed companies and profiting from stock market fraud.

As I said recently to a Congressman at a town hall meeting who was talking about the War on Drugs, “How are our children supposed to say no when the Chairman of the NYSE is saying yes with a full body hug?”

 

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Ask the RJR Board of Directors and Senior Management if They Feel That Children
Should “Just Say No”

The same could be said for the board of directors and senior management of RJR. To review a list of the board and management as well as full disclosure on their rich compensation — money laundering must pay well—here is a link to their latest proxy filing at the SEC:

http://www.sec.gov/Archives/edgar/data/83612/000095014402002322/g73537ddef14a.htm

The corporate address is there as well. If you feel that narcotics trafficking and the War on Drugs is a drain on your family, your community and your business, please feel free to send the members of the board and senior management a letter telling them how much you appreciate their help in bringing these expenses into your life. Better yet, why not make sure you and your neighbors express yourself by boycotting their products and selling their stock?

If you happen to live next door to any of them, feel free to tell them how you feel.

 

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Lawyers – Making Money Laundering Sing

One of my favorite parts of this complaint is the description of a meeting in 1978 of the Committee of Counsel of The Tobacco Institute, including RJR’s general counsel and several law firms representing other tobacco companies, including the very prestigious Washington law firm, Arnold & Porter, and the New York law firm, Paul Weiss. Not included is my nominee for the mother law firm of all money laundering, Sullivan & Cromwell, but I will bet they show up in this story before it is over.

One of my favorite money laundering stories is told by Christopher Simpson, in his marvelous book Blowback, of the Dulles brothers starting the first Exchange Stabilization Fund (ESF) slush fund operation. The ESF is a fund run by the NY Fed for the US Treasury. This first operation, run from the Sullivan & Cromwell law offices, used monies seized by the Nazis from Jewish victims and then seized by us (and not returned to the victims), to rig the Italian elections for the conservatives at the request of the Vatican.

I have found that the attorney client privilege is part of the essential train tracks over which money laundering operates. Hence it is not surprising to read the EU’s allegation that a group of law firms organized a global money-laundering scheme through the auspices of an industry association committee of lawyers. This tracks my intuition regarding the counsel committees for real estate, tax and bar associations that I observed as the Assistant Secretary of Housing-Federal Housing Commissioner in the first Bush Administration.

Arnold & Porter is of particular interest. Their former managing partner, Jerry Hawke, as Undersecretary of Domestic Finance and Comptroller of the Currency, has presided over the most fiscally irresponsible bubble in federal credit in the history of the US, been responsible for federal accounts missing $3.3 trillion and counting and numerous banking scams such as Enron, the derivatives bubble and the rigging of the gold markets.

I started to learn about Jerry, when I spent several years watching his son fabricate allegations against me and my company, all part of a successful effort to run the honest officials and financial advisors out of HUD, so that Jerry and his network could feed at the trough. The year after we were fired, HUD announced that they were missing $59 billion and refused to produce audited financial statements.

If Richard Grasso is hugging FARC Commanders and leading corporations are laundering money with the Russian mob and Hussein’s son, I can only guess what Jerry Hawke’s real responsibilities have been in running the US domestic credit and accounts and them banking regulation. I dare say it has something to do with the “control and concentration of cash.”

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The Accountants — In on the Deal?

RJR’s auditors are KPMG. If the EU’s allegations are correct, it is highly likely that KPMG is part of this deal. The RJR proxy filed with the SEC shows that RJR paid KPMG $2.3MM for the last year of audit fees and consulting services.

If you want to know how badly the books are cooked at HUD, KMPG is the firm that would not give HUD a clean audit opinion in fiscal 1999 when the $59 billion was missing.

HUD and RJR is a lot of a liability for one accounting firm to handle. After Arthur Anderson, KPMG is an accounting firm to wonder about.

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The Investors — Making Stock Market Profits

According to the 2002 RJR Proxy, the following investors are the largest holders of RJR stock with more than a 5% ownership position.

Investor # of Shares % of Total

Capital Research and Management Company 14,328,330 15.4%
333 South Hope Street
Los Angeles, CA 90071

Fidelity–
FMR Corp. 12,554,713 13.5%
82 Devonshire Street
Boston, MA 02109

Ross Financial Corporation 9,261,803 10.0%
P. O. Box 31363-SMB
Grand Cayman, Cayman Islands, B.W.I.

Wellington Management Company, LLP 5,600,129 6.0%
75 State Street
Boston, MA 02109

Another thing you can do to express your feelings about the cost to you and your family of narcotics trafficking and the War on Drugs in your neighborhood is to pull your investments out of mutual funds or other investment pools run by these companies — and send them a letter saying you would rather earn stock market profits from companies that do not lose you more in tax dollars and other hidden costs — let alone your children’s health and lives.

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Real Estate — NY Real Estate Industry & Narcotics Trafficking

Another part of the complaint that I find fascinating is a brief reference to the reinvestment of narcotics trafficking profits — laundered with cigarettes – being invested in millions of real estate within the Eastern District of New York. I am reminded of the story of Ricky Ross, the dealer who led the crack cocaine explosion in South Central LA. He complained to his Iran-Contra wholesaler that he did not know what to do with so much cash — he had a stash in the millions under his bed and it was growing. His wholesaler said something to the effect of “don’t you know, you buy real estate.”

It would be interesting to see exactly who financed the exit of a generation of HUD developers out of their Section 8 tax shelters during the 1990’s, while Bob Rubin and his friends oversaw the “enforcement” at the US Treasury and the issuance by the US Treasury of generous new corporate tax credits for “low income” real estate.

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Recommended Reads

If the EU complaint is something that inspires you to learn more about the impact of money laundering on our economy and our lives, here are some suggestions for more to read.

My favorite money laundering pulp fiction novel is Black Money by Michael Thomas.  For a more in depth non-fiction overview, try Hot Money and the Politics of Debt by RT Naylor.  To access a list of my articles, “Narco Dollars for Beginners” and “The Myth of the Rule of Law” on the impact of money laundering on our economy, go to the articles section of my Solari website. If you still want more, Narco Dollars has a longer bibliography at the end.

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Yes, Virginia, There is a Conspiracy

The Department of Justice says that US money laundering is $500 billion to $1 trillion annually. That is a large high margin business. Financial flows this large must – by definition – be managed by the large banks and corporations. By definition, the profits will end up leveraged in the stock market.

For decades we have enjoyed the popular notion that black teenagers and Colombia drug lords have controlled these high margin businesses while the rich grew richer on the low margin businesses that were both legal and respectable. Obviously, such notions of reality defy financial “gravity” not to mention the laws of multiplication and compound interest. The European Union has laid out allegations of a criminal corporate conspiracy more amazing and exotic than any pulp fiction novel or Hollywood film has ever posited. And yet, as I read it, it resonates with the spirit of truth and everything I have observed about money laundering and the extent to which organized crime and warfare profits control what happens in government, in enforcement and even in the judiciary.

Rich corporate salaries and bonuses are happening for a reasons. Corporations are not just engaging in organized crime. They are leading it — and crime pays big. That can change the day that consumers and investors realize who is really behind the drugs and War on Drugs destroying our neighborhoods. Forget voting in the polls every two or four years. We chose in the market place every day with our money, our time and our attention. Want to withdraw your support from organized crime and government corruption? Sell your RJR stock and delete Oreo Cookies from your shopping list. Persuade your family and friends to do the same.

The moral of the story is that we should “just say no” to RJR-Nabisco and their investors.