Cuomo wants to become the state's highest law enforcement officer, but that hasn't stopped him from attaching himself at the hip to a onetime scandal-scarred kingpin of a housing empire he denounced himself when he was Bill Clinton's secretary of Housing and Urban Development (HUD). Cuomo personally authorized the filing of a civil suit by federal prosecutors in 1997 that accused Farkas's then company, Insignia Financial Services, of paying $7.6 million in kickbacks to the owners of 17 federally subsidized projects that Insignia managed.
The publicity-driven HUD chief so hyperventilated at press conferences about the scam that a federal judge had to put a stop to all the heavy breathing. Before the gag order was issued, however, Cuomo had already called the case "the largest ever brought by HUD" and denounced "the abysmal conditions" that he said tenants were forced to live with in the "poorly maintained" projects then managed by Farkas. Cuomo's press release said HUD's mission was to provide housing for the needy"not to provide lives of luxury for con artists stealing from our programs."
The complaint, which the Justice Department filed "on behalf of the Secretary of Housing and Urban Development," charged that Insignia "submitted false statements" to HUD certifying that apartments in one project, Sierra Nevada Arms in Las Vegas, "had been inspected and were decent, safe, and sanitary, when in fact, the units were not decent, safe, and sanitary." Cuomo had visited that project in 1994 while an assistant secretary at HUD, and been so appalled by conditions that he says now he resolved that he "was not going to leave HUD without doing something" to hold those responsible accountable. In 1995, fueled by inspectors' reports, HUD seized control of the project, replacing Farkas's management firm and offering tenants vouchers to leave. When Cuomo announced the lawsuit two years later, he recalled the visit to Sierra Nevada, claiming he "saw a broken pipe literally spewing human waste on the children's playground." He said he saw children playing in it.
These conditions were directly connected to what the complaint called "the kickback scheme" involving Insignia, because "the money that changed hands was supposed to be used for reasonable operating expenses of HUD projects" but was instead diverted by Insignia to the owners, "who provided no services." Cuomo said the projects, which included Hill Manor in Newark, "were allowed to deteriorate into disrepair because funds were not spent on needed capital improvements and maintenance"a consequence of the kickback diversion of a third of all the management fees HUD paid Insignia for these projects over six years.
The government briefs also contended that "the management certifications" submitted by Farkas's firm "did not disclose the fact that the management fee for each of the projects included a payback" to the owners. In fact, the government charged that the Farkas payments were "disguised" because they were actually made to entities set by the chief financial officer of the ownership entity, Associated Financial Corporation (AFC). Because of the "knowing" omission of these costly kickbacks from budgets Insignia sent to HUD, the complaint charged that the agency approved 15 rent increases that the company sought that were unrelated to the true expenditures at the projects.
Confronted with this history in a two-hour Voice interview, Cuomo said he'd told Farkas "numerous times," as they've grown close in recent years, that he "bought a disgusting portfolio" when he acquired the Sierra Nevada and other management contracts with AFC owners Bruce Rozet and Deane Earl Ross in 1990. "I believe that when he found out what he got into, the first thing he wanted to do was get out of it," Cuomo said, acknowledging that Farkas held onto the management deals until 1998, even entering into a new contract with AFC in 1993. "It was despicable," Cuomo conceded, referring to "the physical conditions" in the Rozet/Farkas projects generally, calling U.S. Shelter, the management company that Farkas acquired to get the Rozet contracts, "a garbage company."
Cuomo repeatedly mentioned that Farkas is "a financial guy" who he believes "never saw one of the properties he managed," suggesting that this distance made him less responsible for the conditions. "He doesn't do any management of anything. He's a roll-up guy who just acquires management deals," Cuomo explained. Pressed about why he would have such a close relationship with the manager of projects that galled him and compelled a signature lawsuit during his tenure as HUD secretary, Cuomo insisted: "If he ever walked into the Sierra Nevada, he would've had the same revulsion I had." Cuomo said his own focus was "all Rozet," a notorious landlord pursued by HUD for years before Cuomo was named secretary in late 1996. HUD had already forced Rozet to turn over the management of 79 properties to an independent firm, initially U.S. Shelter. Farkas's Insignia bought Shelter two months after the company signed its deal with Rozet, assuming the management of the properties.
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.
Whatever the magic-tongued Cuomo said, Insignia entities began immediately donating to Cuomo, launching an avalanche of Farkas-tied contributions that has continued right up to the most recent filing. The first Insignia contributions$5,000 apiece from two entitiesoccurred in August 2001, just months after Cuomo left HUD, and were among the very first donations to his newborn gubernatorial campaign committee. They were hardly the first Farkas contributions to a Cuomo; other members of the Farkas family, which used to own the Alexander's department store chain, had contributed to the campaigns of Cuomo's father, Mario, when he was governor. Mario Cuomo actually appointed Farkas's father to the board of the state's powerful Dormitory Authority in his final year in office in 1994, and Robin Farkas became its chairman in 1995.
Rozet died in 2003, but his partner Ross, informed by the Voice of the extensive new relationship between Farkas and Andrew Cuomo, said it was "interesting that Cuomo is so tied to someone who had these kinds of dealings with HUD," adding that it "might raise some eyebrows." Ross said he had put the litigation behind him once it ended in 2001, but added that "it was selective," observing that "Andy [Farkas] wasn't a pain in the ass" to HUD, but he and Rozet were. AFC, whose 235 projects and 21,000 units topped the HUD ownership list, was derided by Cuomo for using HUD "like a personal ATM." But AFC countered in 1998 court papers that it was Insignia that was "at the very center of this case" and should have been charged, contending that Insignia had "represented" to AFC that "it had properly disclosed all relevant information" to HUD, including, "specifically," the fee-splitting arrangement. This AFC attempt to pin the false-claims charge at the core of the complaint squarely on Farkas was never expressly addressed by the government. In addition to Gilbert, a host of attorneys tied to Farkas have become major donors to Cuomo's campaign. Since most did not return Voice calls, it's unclear if they contacted Cuomo or his key staff on Farkas's behalf. Cuomo says he never talked to any of them, though he adds, "I can't say what lawyers my staff was talking to." Arnold Jacobs, a Proskauer Rose attorney who has long represented the Farkas family and sat in on Insignia board meetings at the time of the settlement, gave $5,000, and his wife another $5,000. Jacobs attended one pre-settlement meeting at HUD with Cuomo staff. Cuomo says he didn't meet Jacobs, whom he identifies as Farkas's "main adviser," until he went to work for Island Capital. Gilbert and Jacobs were partners at the now defunct Shea Gould until 1994, where a Cuomo daughter also worked.
Insignia was also represented by a powerhouse Washington lobbying firm in the '90s, Akin Gump, which Cuomo says he did not know at the time. Robert Koen, a director of Insignia at the time and an attorney at Akin, donated $25,000. The head of Akin Gump's Washington lobbying unit, Joel Jankowsky, gave another $7,500. Jankowsky and Dan Glickman, the agriculture secretary in the Clinton administration, have been close personal friends for decades, and Glickman eventually joined the firm. Glickman's wife, Rhoda, was Cuomo's deputy chief of staff, and Cuomo wound up working for Glickman at a Harvard think tank he ran. The Glickmans, who appeared with Farkas at an intimate birthday party for Cuomo at the Alex Hotel last year, have given $36,900 to Cuomo. Another Akin partner, Kirk O'Donnell, who died in late 1998, was an unofficial adviser to Cuomo. Of course, Akin Gump was wired into the Clinton White House, since its senior partner, Vernon Jordan, was the president's top confidant.
Gilbert returned to his firm, Nixon Peabody, in 2003, when Farkas sold the remaining divisions of Insignia and formed Island Capital. The firm still represents Farkas and now includes two partners with Cuomo ties from the '90s. Monica Sussman, a deputy general counsel at HUD who helped author an internal 1995 memo at the agency opposing the fee-splitting case, left the agency in 1996 to join a precursor to the Nixon Peabody firm, Peabody Brown, which represented Rozet. That firm merged with Gilbert's in 1999. Sussman is one of the partners who contributed a share of the firm's $5,000 Cuomo contribution. Gary Eisenman, who was described by a federal prosecutor as one of the key Cuomo aides involved in the Rozet/Farkas case, is also now a partner there. Eisenman ran the nonprofit housing project Cuomo founded in New York, H.E.L.P., after leaving HUD. He has given $2,500 to Cuomo and was described in news stories as a key volunteer in Cuomo's unsuccessful 2002 campaign. Even Holland Knight, another Farkas law firm involved in the fee-splitting probe, kicked in $1,000 to Cuomo.
As multi-layered as this intertwine was, it's impossible to determine, this many years later, if any of these connections had an effect at HUD. Cuomo accurately and insistently points out that the Justice Department and the independent HUD inspector general's office approved the Farkas settlement as well, suggesting that all HUD did was sign off on it at the end. But several sources knowledgeable about the five-month talks say HUD was deeply involved. Ross, who eventually signed his own settlement with Justice officials, said, "When we negotiated, we did it primarily with HUD," expressing the firm belief that "HUD was involved" with the Farkas deal as well.
Susan Gaffney, the HUD inspector general whose office initially uncovered the Farkas/Rozet payback arrangement in 1995, filed an affidavit detailing "a series of discussions" involving her office, Cuomo's Office of Housing, and Justice that "focused around the facts of the AFC/Insignia trans- action." She said "these discussions culminated in the pursuit of enforcement action against the parties, including the filing of the instant lawsuit and a negotiated settlement with Insignia." Gaffney's affidavit said that internal HUD and IG memos contained "recommendations regarding policy and enforcement options" that were "both complex and controversial" because fee-splitting was "a matter of first impression." Cuomo's general counsel Gail Laster also filed an affidavit, which echoed Gaffney's.
One federal prosecutor, who asked not to be identified, said that three close aides to CuomoEisenman, Glaser, and Cuomo political attaché Chris Lehanewere "very encouraging of a settlement" and certainly never took the position, which agency officials sometimes do in similar circumstances, to "take this guy off to jail." Cuomo acknowledged that the three aides were involved and said, "I don't know if they encouraged a settlement." The prosecutor acknowledged that Justice and the IG agreed. "We were generally on the same page," he said. Even Farkas's Gilbert said the Justice lawyers he talked to were "consulting with people from HUD" continuously.
Cuomo derides any notion that he should be criticized for a settlement that Gaffney and Justice supported. Invoking the same language he used to describe Farkas's contracts with Rozet, he called it a "garbage charge."
"I believed the settlement was helping to get Rozet, which is what everybody was telling me," he recalls. In fact, when the government amended the complaint against Rozet seven months after Insignia began cooperating, it didn't change a comma in the charges involving the Farkas/Rozet payments. All it added was that Insignia had also made one-third payments to another developer, Vincent Lane, the longtime head of the Chicago Housing Authority who wound up sentenced to two and a half years in federal prison on charges unrelated to this kickback scheme.
Of course, neither Gaffney nor anyone on the Justice side of the case wound up showered in Farkas largesse years after the settlement, making their decision uncontaminated by the questions that surround Cuomo's judgment. And none of them are now trying to use their HUD record as the rationale for becoming the state's top cop. The question is not whether the government should have cut this deal with Farkas, but whether a key player who approved it should subsequently make Farkas a personal ATM, as Cuomo himself might put it.
There are even indications that after the settlement, Cuomo may have taken actions that could have indirectly benefited Farkas and even the despised Rozet. What's beyond dispute is that in 1998, Cuomo recommended that the Justice Department grant amnesty to managers and owners of subsidized projects who voluntarily admitted to having participated in similar fee-splitting arrangements. The department wound up rejecting Cuomo's amnesty proposal, which, strangely enough, originated with Monica Sussman, the former Rozet and HUD attorney who's now with Gilbert's firm.
Sussman has conceded in a published letter that Cuomo called her in Juneshortly after the final settlement with Farkasand that, during a chitchat about ideas that might improve the department, she raised the "amnesty concept" with him. Sussman, who'd left the agency two years earlier, was still at Peabody Brown, which would merge with Gilbert's firm a few months later. Cuomo asked for more details and her firm sent a detailed draft a week later. Sussman says that the proposal would've required any owners who came forward to repay HUD half of the split fee while managers paid back the other half.
Gaffney was so upset about this amnesty effort that she cited it as the prime example of Cuomo's efforts to "undermine" her investigations in testimony before the U.S. Senate Committee on Governmental Affairs in September 1998, a charge that generated supportive comments from Republican and Democratic members of the committee. She said "an aide to the secretary"later identified as Glaser, the signatory on the Farkas agreementwrote Justice "proposing an amnesty program for the persons who were engaging in this behavior that had been the subject of our six-year investigation," referring to fee-splitting probes that preceded the Sierra Nevada discovery.
"No one, neither the aide nor the secretary, ever discussed this amnesty program with me," she testified. "I just got a copy of another memo that was written by an attorney for a law firm that has in the past represented some of these players, and the letter saidwell, it is to Secretary Cuomo'As a follow-up to our conversation last week, here is the amnesty program I am proposing,' and it was point by point, the amnesty program, then, that the aide had transmitted to the Department of Justice. I should also tell you that the secretary previously had made public statements about how this case demonstrated his get-tough policy." Gaffney convinced Clinton Justice officials to kill the Cuomo amnesty plan.
Cuomo sees no irony in the fact that he was pushing an amnesty plan suggested by a onetime lawyer for what he says were "a lot of the owners" possibly implicated in the payback schemes, including Rozet. He insists that the amnesty scheme "excluded people who were already caught," meaning it could not have applied to either Rozet or Farkas. Copies of the quickly rejected plan are unavailable, but sources then in the IG's office say it excluded schemes already charged, not individuals who may have been involved in fee-splitting that had yet to be specified in any court action.
The settlement with Farkas has several loopholes, including one that says that Insignia's failure to disclose "a particular transaction" during its cooperation with the government "will not be grounds for breach of the agreement." It also "expressly reserves the right" of the government "to take appropriate civil or other action" regarding anything Insignia didn't disclose. Gilbert concedes that Insignia was involved in fee-splitting not specified in the Rozet complaint, insisting, however, that they disclosed all of it to the government as part of its cooperation. But these loopholes, as well as the fact that Insignia repaid almost 100 percent of the diverted funds, not half, leave open the possibility that it could have been affected by the proposal. Similarly, though the proposal could not protect Rozet from the already pending lawsuit, it could prove helpful if Rozet, or owners he transferred properties to, stepped forward and revealed other prior kickbacks.
Cuomo says he "got the industry's proposal" and just sent it over to Justice asking "what do you think," not proposing it himself. He says he wanted a "much broader" amnesty plan, like one for tax cheats, and that he doesn't remember "the dialogue with Justice." Even though Peabody's letter proposal was addressed to him in response to a conversation he had with Sussman, he says he didn't know Glaser, one of his closest associates who's also a donor to his campaigns, sent any such proposal to Justice.
Glaser takes a different tack altogether, saying he thinks that his staff sent a brief amnesty concept note to Justice before the Peabody proposal arrived and that it was a by-product of discussions he had with Justice.
The federal prosecutor involved with the Farkas/Rozet case remembered the proposal far better than Cuomo and thought it clearly would have damaged their position. "The backdrop to the entire prosecution from the beginning was the contention that HUD approved this arrangement," he said. "Insignia and Rozet told us that. HUD made life difficult for the Justice Department in terms of how it dealt with issues like this. If it made amnesty its official position, how would that have played with the trial judge? It would never be good for either a criminal or civil case."
Research assistance: Brian Colgan, Matt Foglino, Mordy Shinefield, and Gina Vasselli