Broken Promises

Projects Rejected

The $150 million Fulton County bond was supposed to change that. Housing Authority records identified at least 31 potential properties it could buy and use for low-income housing, and took steps toward acquiring 12 of them. Anchor National, CDR and JPMorgan Chase lawyers for the transaction took fees totaling more than $5 million, according to an analysis of authority records. No money from the housing funds was spent because none of the proposed property purchases was approved.

``I can tell you it wasn't because of lack of effort by Fulton County,'' says Andrew Patterson, the housing authority's general counsel. ``Several projects were proposed, and they were rejected by CDR.''

In 2004, the housing authority used the money to buy back the bonds from investors and end the project.

CDR worked on the Fulton County bonds with Anchor National Life Insurance, the same unit of AIG that had a secret deal in the Gulf Breeze bond transactions in Florida, according to Fulton County Housing Authority records obtained in Georgia open records law requests.

Anchor National was paid $150,000 when the debt was sold by JPMorgan and was given the authority to approve acquisitions made with the funds. The insurance company also made about $1.3 million a year for insuring the bond, the records show.

Getting the Fees

Atlanta bond attorney Golden, who had worked on a deal with CDR in the past, says CDR's managing director Stewart Wolmark approached him about serving as the attorney on the Fulton County transaction.

Golden says he was dubious of the deal. The transaction was similar, he says, to a financing deal done by the Fulton County Housing Authority when he served on the authority's board of directors in the 1980s. In the previous suggested transaction, credit insurance costs and closing fees made the funds from the tax-exempt bonds more expensive than a bank loan, he says.

``At the end of the day, it was a black box deal so the people involved could get fees,'' Golden says of the $150 million Fulton county housing transaction. ``It was obvious that's what this deal was.''

While the bond provided no money for housing, it earned JP Morgan Securities Inc., a subsidiary of JPMorgan Chase, $997,500 for underwriting the debt and an estimated $305,000 more during the life of the 2 1/2-year program. Five law firms made $359,375 for their role.

AIG's Dual Role

As in Florida, AIG had two roles in the deal: It was insurer of the bonds, and one of its units, SunAmerica Life Insurance, had beaten five other bidders, including Zurich-based UBS AG and JPMorgan Chase, for the right to reinvest bond proceeds until they were needed to pay for apartment purchases.

SunAmerica agreed to pay the authority 0.74 percentage point more than the bonds' rate, which changed weekly along with benchmarks. In return, Sun-America could invest the money as it chose. Housing Authority attorney Patterson says AIG's dual role appears to him to be a potential conflict of interest.

``It should have been a concern,'' he says. Grey didn't respond to telephone calls seeking comment about the potential conflict.

Deal Falls Through

Bob Boyd, a former executive for Maitland, Florida-based real estate firm NAI Realvest, sought to find properties for the Fulton County authority to buy. Boyd negotiated an agreement for the authority to pay $31.6 million for four complexes with a total of 816 apartments, Fulton County authority records show. CDR wrote a memorandum on July 8, 2002, saying it would allow a loan of $18.4 million from the bond proceeds for that purchase.

Since that amount wasn't enough to buy the properties, the deal fell through, and Boyd's group didn't buy any housing.

``We thought we had found properties that fit all the criteria, but we could never get them approved,'' Boyd, 60, says. ``In a perfect world, they were perfect deals, almost. We were puzzled.'' Boyd says he made 17 trips to Atlanta from Orlando in about 18 months to scout properties before finally giving up.

By late 2003, authority officials were frustrated by the failures. ``I have been involved in quite a number of acquisitions, and I have not seen one like this where it is as if the issue went into a black hole,'' wrote Lin Velarde, the asset manager for the housing authority, in an Oct. 23, 2003, e- mail to an official at an AIG affiliate.

No Disclosure

In 2004, after an IRS probe into whether the authority owed federal taxes, the authority reached an unspecified settlement, according to files obtained from Fulton County. The only details in the records show that the authority had an agreement with AIG barring the authority from disclosing anything about the insurance company's role in the bond program.

As taxpayers in Florida and Georgia scorn the misuse of bonds meant to improve housing and health care, citizens in Illinois wonder what happened to $150 million in bonds the Illinois Finance Authority, a state agency that funds public projects, sold in 1999 to pay for computers in schools and libraries.

Illinois, the fifth-largest state in population, ranked 33rd in providing public school students with computers and connecting them to the Internet, according to a survey conducted by Education Week magazine.

Computers for Kids

``We've struggled,'' says Barbara Clark, the principal of Skinner Elementary School in Chicago. Skinner has fewer computers than the state average -- about one for every five students compared with the Illinois rate of one for every 3.8 pupils, according to state and school figures. Many of the machines are aging and slow, Clark says.

The 1999 variable-rate bonds, which initially sold at an annual interest rate of 3.3 percent, were supposed to make more computers available to kids. The Illinois Finance Authority, which is based in the state capital of Springfield, paid $1.4 million in fees to the underwriter, Kansas City, Missouri-based investment bank George K. Baum & Co., and an additional $1.8 million to advisers and promoters.

The schools got almost nothing. Of the $150 million from bond proceeds, a total of $833,000, or less than 1 percent, was used for technology. The Illinois authority ended the program in 2002 and bought back the bonds to avoid having the IRS declare them as taxable.

Randy Steinmeyer, whose 10-year-old son, Conrad, attends fifth grade at the Skinner school, says he feels cheated because the program promised much and didn't deliver.

``It's sad this equipment never made it to the classroom,'' says Steinmeyer, 46, an actor and freelance marketing executive. ``They had these grandiose schemes, and then you see that the money never reaches where it's supposed to.''

Financial Advisor's Role

Daniel Denys, president of Austin Meade Financial, the Illinois authority's financial adviser, says his firm developed the program with honest intentions. Denys was also a principal stockholder in Skokie, Illinois-based National Technology Network Inc., which helped promote the bonds and was in charge of handing out loans, according to bond documents.

He says Chicago public schools expressed interest in borrowing all of the money and then backed out. Rising interest rates also stifled borrowing, he says.

``It was a failure to realize a noble cause,'' he says. ``We stand by the work we did.''

The IRS began investigating the program in 2002 and says in records provided by the authority that the program exploited schools, while allowing financial firms to profit.

``In this case, the farce has been shown because there were only two loan originations totaling $833,000 out of a bond issue of $150 million,'' the IRS wrote.

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