By Jena Ardell
By Jon Campbell
By Alan Scherstuhl
By Tessa Stuart
By Roy Edroso
By Jon Campbell
By Albert Samaha
By Zachary D. Roberts
In a brief Voice interview, Farkas acknowledged that he "was consulted" by Shelter officials before they cut the deal with Rozet and that he was told about the payback arrangement, because he was already finalizing his acquisition of the company. He said he "approved" of the Rozet arrangement before it was executed, insisting that he still does not believe it was illegal or that the payment of it "had anything to do with the physical conditions of the properties." Farkas contends that other federal subsidies, not the management fee, were supposed to be used for project maintenance. "Andrew was wrong," he claimed, referring to the HUD and Justice Department contention in the lawsuit that the "kickbacks" shortchanged tenant services. Farkas refused to take any responsibility for the conditions in the projects, saying, "We inherited them and did everything we could about them" within the constraints of federal funding. He said Cuomo was right that he never visited them.
Cuomo, too, appeared uninformed about what the lawsuit and his own public statements said about the direct linkage between the alleged kickbackswhich drained millions from the actual maintenance of the projects where thousands livedand the conditions. All he would say was Farkas "thought it was OK legally" to participate in the fee-splitting arrangement, believing that "HUD had approved it" previously, which Farkas certainly reiterated. Despite authorizing the suit that challenged the practice as secretary, Cuomo now refers repeatedly to a court decision that he says occurred after he left HUD in 2001 and that apparently found similar payments made by another management firm legal. Ironically, he seemed to prefer that precedent to the Rozet case, which affirmed Cuomo's onetime opinion that the fee-splitting was illegal, and was also resolved after he left office, ending in a settlement that vindicated the government's position on the payments. Farkas pointed to the same case, though neither he nor Cuomo knew any specifics about it.
As remarkable as Cuomo's subsequent relationship with Farkas is in view of the prior accusations, what's also disturbing is that he approved an out-of-court settlement with Insignia that allowed the company to complete a billion-dollar sale of its residential portfolio only five days later.
Shortly before the government filed the kickback lawsuit that May, it sent a "pre- filing letter" to Farkas and the Rozet and Ross companies, which were based in California. Farkas and government attorneys immediately began negotiating a cooperation agreement and settlement. So when the U.S. Attorney in San Francisco announced the case, which also mostly involved California projects, Insignia was not named as a defendant. Its role as what the government called "a joint tortfeasor" was, however, spelled out, with prosecutors contending that it jointly committed the alleged misconduct with Ross and Rozet.
Farkas personally signed a preliminary settlement that August, agreeing to repay HUD $5 million of the management fees it had diverted. In March 1998, the final settlement required the company to pay another $2.4 million, still $200,000 less than the amount the government said Insignia had diverted. The company admitted no wrongdoing, paid no penalties, and was explicitly not required to surrender any of its HUD contracts. HUD even said in the 21-page agreement, also signed by Cuomo's top counsel Howard Glaser, that it would not in any way seek "to limit Insignia's participation" in agency programs. By contrast, the Ross and Rozet firms eventually paid $10.2 million in restitution and fines, gave up all their properties, and were barred from doing any further HUD business.
The alleged bribe payer, Insignia, was thus able to go ahead immediately with a sale of its rental residential portfolio, which Farkas's attorney Adam Gilbert told the Voice attracted a "fantastic price"of $910 million, while the Rozet entities that received the paymentsled by AFCwere driven out of business. Gilbert conceded that had no settlement been reached and Insignia been named as a defendant by the government, "it would have had an effect" on the sale, though he insisted the case only involved "a handful of projects," constituting a small percent of Insignia's business. The lawyer, who has contributed $1,000 to Cuomo's campaign in addition to the $7,100 donated by his law firm and would not talk to the Voice until he cleared it with Cuomo, said Farkas "thanks his lucky stars he did what he did." Gilbert left his law firm and became Insignia's in-house counsel in 1998, shortly before the signing of the final HUD agreement.
Gilbert said the deal was "a way to take a potentially horrible situation"which Insignia partially ascribed to Cuomo since he approved the proposed lawsuit that would've named the company"and get rid of it." Farkas attributed it to an attempt to avoid "very negative publicity," which he says would have been costly to shareholders after Insignia went public in 1993.
Farkas and Cuomo, who say they did not meet at the time of the case, have told reporters they crossed paths accidentally during a visit with a "big guy in the real estate business" in 2001, that Farkas initially regarded him as a "sworn enemy" because of the 1997 charges, but that they quickly patched things up. After this initial "bonding" session, as Gilbert described it, Farkas told him and other senior staff that he was "bringing Cuomo up to Insignia offices" and that he wanted them to "hear Andrew out." The purpose of the meeting, said Gilbert, was for Cuomo "to talk about fee-splitting," to prove that "he didn't have it in for Insignia per se," to explain that he was dealing with a supposedly "industry-wide" issue, and to convince the key executives that they "shouldn't hate him." Cuomo declined to tell the Voice who introduced him to Farkas, and would not describe the discussion.