Marion TIF Funds Provided To Mayor's Business Partner, Later Let Off The Hook Financially

The Marion Chronicle-Tribune exposes more transactions involving the use of tax increment finance district funds by the city that benefitted businesses owned by the business partner of Mayor Wayne Seybold, who is seeking nomination at next month's state GOP convention for the office of state treasurer. In the latest disclosure, the Chronicle Tribune reveals two transactions where loans backed by TIF district revenues were made to two businesses, Western Place and Active Properties, both owned by Jim Swan. According to the newspaper report, Swan co-owns with Seybold a portable ice rink company, Ice Rinks 2 Go. Swan is also a member of the city's Board of Public Works and Safety, whose board members are appointed by the mayor.

In December, 2008, city officials approved the use of $1 million in TIF loan proceeds for Western Place to make improvements to retail property that was later used for Moe's Southwest Grill and Culver's frozen custard franchise. The restaurant franchise is a partnership involving Swan and several other partners, while the Culver's is owned by Swan and another immediate family member. The portable ice rink company co-owned by Swan and Seybold is located in a building adjacent to the building where the TIF funds were invested by Swan. Swan's Active Properties also received $1.6 million to redevelop what is described as a brownfields site. The loan proceeds helped with environmental clean-up to make the property which formerly housed a factory operated by Active Products suitable for reuse. Swan leased the property to JSG Processing, a company which processes spent limestone for reuse. It is owned by Christoper Gandolfo of Fort Wayne. JSG Processing also received $500,000 in TIF funds.

The Chronicle-Tribune reports that although the original bond documents listed Swan's companies as the borrower responsible for repayment of the loan proceeds, the documents approved by the city's Redevelopment Commission, most of whose members are appointed by the mayor, pledged TIF revenues to repay the borrowed amounts. Swan's companies were only expected to repay loan proceeds to the extent TIF funds were inadequate to repay the bond debt. Swan defended the investment of the city's TIF funds in his businesses, noting their use for out-of-town interests. "If we're giving increment to people coming from out of town," he said, "I need that competitive (edge)."

The newspaper previously reported that Marion officials had provided $2.5 million in funding to a Korean businessman, Michael An, to redevelop a former YMCA building for a mixed use. Mayor Seybold's brother worked for a company that An established to redevelop the building. The City's building commissioner, Larry Oradat, also owned a construction company that performed work on the building. An's project later failed to come to fruition, and his property was ordered sold at a sheriff's sale after he failed to pay taxes on it. Oradat's construction company has filed a lawsuit against An's company for money it claims it is owed for construction work it performed on the building. The Chronicle-Tribune previously reported that city officials refinanced the debt owed on the YMCA project as part of a larger bond issue and relieved him of all liability for the $2.5 million in loan proceeds provided to him for his project. Marion city officials were unable to account for how over $2 million in bond proceeds issued to An were spent.

It turns out that the bond refinancing deal in 2009 for An's debt also included a refinancing of the prior bond proceeds that benefitted Swan's projects. Like An, Swan's businesses were released from any liability for repayment of the debt as part of the bonds issued to refinance the old debt. Swan told the newspaper that he was unaware that the debt had ben paid off until he got a letter saying that it was done to obtain a better interest rate for the city. The Chronicle-Tribune cites city council meeting minutes where the city's attorney, Barnes & Thornburg's Bruce Donaldson, had assured council members otherwise. "The city would not have any liability on it," Donaldson told council members at the time the TIF funds were approved in 2008 for Swan's Western Place. "If that (TIF) doesn't generate enough to pay them, then the company would be on the hook for the difference."

Seybold is favored to win his state GOP nominating race for state treasurer next month where he will be opposed by businessman Don Bates and treasurer's office employee, Kelly Mitchell. Seybold is backed by many party leaders around the state. Democrats are expected to nominate Mike Boland, a former Democratic lawmaker from Illinois who moved to Fishers, Indiana from the Quad Cities in Northwestern Illinois in 2012. Boland represented a district in the Illinois House of Representatives for 16 years before losing the Democratic primary race for lieutenant governor in 2010. He also lost a 2012 state senate primary race in Illinois before moving to Indiana later that year.

Korean Businessman Re-Emerges As WISH-TV Is Set To Air Investigative Story On Marion's Missing Millions

No sooner had WISH-TV's I-Team 8 began airing promos for an expose' on the missing millions Marion taxpayers plopped down on a Korean businessman's failed attempt to redevelop the old YMCA building set to air tonight than the man at the center of the controversy, Michael An, suddenly emerged from seclusion after dodging reporters' questions for months about the failed project. An sat down with the News Herald, not the Marion Chronicle-Tribune, which has done story after story asking questions about why there is no documentation of where the $2.5 million given to An to redevelop the building for a mixed commercial use was spent, to reassure the public that he intends to finish the project despite the fact that it has been the subject of a sheriff's sale order for nonpayment of property taxes, and that another former Marion businessman, Bill Reece, claims he's under contract to purchase the property from An after being assured that An had been let off the hook for the $2.5 million Marion taxpayers invested in his building.

As part of an interview with the News Herald's Doug Roorbach, An gave the newspaper's staff unrestricted access to the old YMCA building. "I want to finish it no matter what people say," An said. An told Roorbach that he has been stung by suggestions that he didn't use the money for its intended purpose, and claims that he spent nearly $2.8 million on wiring, plumbing, a fire suppression system and other repair items needed to renovate the building. "I am right here," An said. "I am not running away. I will have a grand opening." Lee Dunn, a former facilities manager for the building, told Roorbach that "a bunch" of work had been done on the building. "You can't tell from the outside of the building," Dunn said, but from the inside he estimates that at least $2 million has been spent on improvements. Dunn believed that roof replacement work had occurred as well. Dunn estimated that at least a half million dollars had been spent on a fire suppression system for the building.

An tells Roorbach that about 70% of the work is done on the building. "What will it take to complete the project?" Roorbach asked. More money, of course. An tells Roorbach that he is courting investors to raise the money necessary to complete work on the project. There is no mention of the Chronicle-Tribune's release of e-mails exchanged between Barnes & Thornburg's Bruce Donaldson, Marion's attorney on the project, and a potential buyer of the building, Bill Reece, assuring Reece that An had been released of all liabilities for the $2.5 million the City invested in the project when it refinanced the debt in 2011. "[I]f you move forward with the purchase of the YMCA building, you will not inherit any obligations with respect to the YMCA bonds," Donaldson assured Reece.

Curiously, the same edition of the News Herald which ran Roorbach's story on An's development plans for the YMCA includes a regular opinion column "Where's Mike" by Michael Roorbach (any relation Doug?). Mike Roorbach describes himself as the director of the Grant County Family YMCA that had as its board of directors names like "Seybold," as in Mayor Wayne Seybold. Roorbach said he left the old YMCA building "amazed" after he toured it last week. "I think last week I was able to 'go home again' to that building on Third Street and revisit the dream that those who went before me at the YMCA had for the building," Roorbach gushed. Neither Roorbach seemed much concern about reports that An had hired Mayor Seybold's brother, Chad, to run the project for him, or that the City's building commissioner, Larry Oradat, had filed suit against An's company seeking unspecified damages for work he says he did on the building for which he never received payment.
UPDATE: Contrast I-Team 8's report last night to the whitewash contained in the News Herald:

After I-Team 8 filed an open records request asking for all the financial records, the city provided the 200-page original bond agreement along with 16 pages of documents that supposedly account for the $2.5 million. But all of those records come back to An’s companies: Global Investment Consulting or World Enterprises Group. 

Before An could get money for the project, he was supposed to submit “distribution requests” in writing to First Farmers Bank and Trust, the trustee the city hired to manage the bonds. Five distribution requests were included in the reply to I-Team 8′s open records requests. One is for $481,000 for a “construction fee.” The others include expenses like $250,000 for an HVAC system, $95,000 for an elevator and $305,000 on plumbing. 

But none of the documents explains what vendor did that work, when it was done, or if it was completed. Noticeably absent are bank statements, receipts, invoices or any details of how the money was taken out of the bank, how often and for what purpose. 

I-Team 8 took those concerns to Mayor Seybold, who during a lengthy interview this spring defended the project, An and his administration’s use of TIF. When asked about the $2.5 million loan and the public concern that it isn’t unclear how the money was spent, Seybold said: “That’s not true. The information that the trustee has given the city is that there was $2.5 million and $2.5 million dollars worth of bills paid out.” Later, when pressed about whether the city was satisfied with the amount of documentation provided, Seybold said: “No we’re not. We’ve talked to the trustee to find out if there is more to this pile of paper than what they presented to us.” 

Seybold also could not provide answers as to why he didn’t know more about the project or why more receipts were not available given that at one time his brother, Chad Seybold, was working for An’s company World Enterprise Group, according to his LinkedIn profile. “You’d have to talk to him, and to Michael An, and you’d have to talk to the trustee,” Seybold said. An has been difficult to reach. 

Over the course of two and half months, I-Team 8 has made several attempts to reach him through phone calls, voice mails and texts. We even asked those who know him to have him get back with us. He has not. When An did speak with I-Team 8 briefly in March, he hurried the reporter off the phone saying he was in the hospital and couldn’t talk. Additional attempts to reach him were unsuccessful. Stephen Wilson, the general counsel for First Farmers Bank in Converse refused to provide additional financial documents, stating in an email that they “couldn’t respond to our inquiry” because An didn’t agree to it.

I-Team 8 found that Marion has 16 TIF districts owing $36 million in debt to be repaid with property tax revenues diverted from other units of local government. Grant County's auditor complains that Marion's excessive use of TIFs is causing the county to lose out on $2 million in property tax revenues because the heavy use forces the county up against the property tax caps imposed by state law. The I-Team 8 story has a database so you can look up how much revenue in your county is being diverted to TIF districts. Marion County, by far, is at the top of the list. Over $3.5 billion in net assessed value is diverted to TIF districts, which is costing taxing districts that rely on property tax revenues about a $110 million a year. I think that data is old because the actual number is now closer to $120 million. Neighboring Hamilton County, the state's wealthiest county, has over $2.3 billion in TIF districts that are capturing about $52 million in property tax revenues. Ironically, TIFs were created originally to aid blighted areas, but the City of Carmel uses TIFs to fuel redevelopment in the state's wealthiest city. TIF districts in Lake County capture over $1.7 billion of assessed value, which represent revenues of nearly $53 million. Allen County TIF districts represent over $477 million in next assessed value, capturing $13.1 million in revenues.

Marion City Officials Let Korean Businessman Off The Hook For $2.5 Million, Letting Him Keep Ownership Of YMCA Building

The Marion Chronicle-Tribune recently obtained documents indicating that the City of Marion forgave $2.5 million owed by Korean businessman Michael An's Global Investment Consulting when it refinanced the debt less than two years after it offered TIF subsidies to An to redevelop the former YMCA building when the project failed to come to fruition. Global Investment Consulting is now in negotiations to sell the unfinished building to a prospective buyer.

Barnes & Thornburg's Bruce Donaldson, the City's attorney on the failed project, provided written assurance to the potential buyer that all debt owed by An was fully paid when the City of Marion refinanced it in 2011, and that he was released from any further liability for the $2.5 million debt. Donaldson assured the buyer that "if you move forward with the purchase of the YMCA building, you will not inherit any obligations with respect to the YMCA bonds."

Donaldson refused to provide any comment to the Chronicle-Tribune as to why An was left entirely off the hook for the debt as did Marion Mayor Wayne Seybold, who is seeking to become the Republican Party's candidate for State Treasurer this year. City officials have still been unable to provide the newspaper invoices documenting where more than $2 million from the bond issue went for construction work on the building.

Another company owned by An, World Enterprise Group, performed most of the renovation work on the building. The company employed Mayor Seybold's brother, Chad Seybold, as its director of operations and construction. Another company owned by the city's building commissioner, Larry Oradat, performed work on the building as well. Oradat's Erma's Home Improvement filed suit against World Enterprise Group for an unspecified sum of money for failing to pay for improvement work it performed on the building. Oradat refused to respond to questions from the newspaper about his lawsuit.

The Chronicle-Tribune has a spot-on editorial in reaction to this latest news:

As time goes on we learn more about how our mayor and the community economic development apparatus do their jobs. We learn more about whose interests are at the heart of the finagling development deals crammed through in recent years and continue to strap local taxpayers with few jobs to show for the investment of the community.

And now we discover that Michael An was removed from responsibility to repay the $2.5 million in public money his company was given through a 2009 bond issue by way of a refinanced bond issue taxpayers are paying back now.

If you don’t think things seem quite right here, maybe you should let Republican Party officials know the man they are poised to nominate for state treasurer, Mayor Wayne Seybold, perhaps needs a bit more vetting.

So, exactly what does matter most in these deals? The creation of a viable, long-term employer in Marion? Apparently, not so much. We can say that our tax money, sparse as it might be, is important. Wealthy and connected professionals, the sort who fund statewide political campaigns, are also important to enable bond issues and public finance to keep flowing. Public funds for their duties keep moving their way even when the generating projects we were once excited about vanish into the thin air they were conjured from.

Family is also still important; the dealmakers’ families.

Common sense and the rest of us, we think, are secondary or tertiary considerations.

Maybe your votes and taxes matter but your interests are not at the heart of the matter in regard to these projects, such as Earthbound luxury trailer manufacturing, which left town with taxpayers holding a $2 million bag. Earthbound, which left with apologies, got the major piece of its collateral back from mayor Wayne Seybold before leaving and simply settling into another Indiana community down the road.

Now, in a fascinating turn suitable for a television miniseries, the jabberwocky dream of turning the old YMCA on Third Street into a boutique hotel and Korean retail shops has fully imploded. But the wreckage is proving as elusive to inspect as debris from Malaysian Flight 370.

The doors are locked and for some reason owner Michael An is keeping delinquent taxes paid on the structure, which he agreed to sell essentially for the cost of back taxes just a few months ago.

Of course now he doesn’t owe the $2.5 million bond issue that was made in 2009 to provide for the redevelopment of the old YMCA. That money was spent, we don’t know where because receipts were not kept by the city or made available by the trustee of the funds. There were some general claims that the money was being spent on construction matters, such as installation of the heating and air conditioning system and an elevator. But no one who is talking has actually seen if an elevator or HVAC system has been installed. No receipts are available for such purchases and since An paid the taxes he still controls the locks on the doors.

The construction contractor for An’s work was Mayor Wayne Seybold’s brother, Chad Seybold. The mayor’s city building commissioner, Larry Oradat, is suing An for payment concerning construction work he performed for An.

State auditors have started going through the city’s financial records. They certainly have a lot to look at but we hope some time is spent untangling the story of Michael An, the old YMCA and the Seybold administration.

The Man Who Could Be Your State Treasurer

A Marion Chronicle-Tribune editorial has this to say about its city's mayor, who is asking Republicans to this year's state convention to nominate him as its 2014 State Treasurer candidate:

Of all the matters we find outrageous regarding the unaccounted millions of dollars of tax money in the effort to rehabilitate the old YMCA on Third Street, what is most disappointing is that we, the people, should have known it would go as it has gone.

That is because the financial story of local city government is often not told completely and correctly, according to state auditors.

Marion has a history of poor record-keeping, according to its annual audits by the state. The Indiana State Board of Accounts cited inconsistent bank account reconciliations in the city’s 2004, 2008, 2009, 2010 and 2012 audits. The latest audit, for 2012, was released in September. The one for 2013 is about to start.

As reporter Karla Bowsher previously reported, state auditors noted entire departments were missing from the city’s 2011 and 2012 annual statements — both of which also underestimated the city’s outstanding leases and debts by at least $9 million. Financial records for another bond anticipation note, taken out in 2010 for up to $3.5 million, also showed omissions. The 2010 BAN was refinanced in December like the $2.5 million YMCA bond.

“Some deposits and checks that were posted to the demand deposit account were omitted from the city financial records,” the 2010 audit states. “Drawdowns from a $3.5 million line of credit and disbursements for land purchases, professional fees and site development expenses were not recorded.”

So how many times does it have to happen before something is done to make the administration accountable for the money we trust it with?

It is a question to be answered, perhaps this year.

State Auditors Office Says Marion Officials Should Have Documentation For More Than $2 Million In Missing Bond Funds Spent On Failed Project

Last month, I discussed the discovery of a Chronicle-Tribune investigative report that uncovered the fact that documentation for more than $2 million Marion city officials spent from a $2.5 million bond issuance for redevelopment of the old YMCA building cannot be furnished. In 2009, Marion Mayor Wayne Seybold's administration obtained city council approval to issue $2.5 million in bonds to aid a Korean businessman from California, Michael An, in redeveloping the closed YMCA building for a mixed use purpose. Two years later, Marion officials refinanced that debt after the project failed with little work to show for the investment and the building still vacant and the property subject to sheriff's sale for failure to pay property taxes. When the Chronicle-Tribune attempted to obtain documentation for how more than $2 million of the bond proceeds was spent, city officials claimed no documentation for the spent funds existed.

The State Board of Accounts tells the Chronicle-Tribune's Karla Bowsher that the $2.5 million in bond proceeds, by law, should have been deposited into a dedicated construction account. "You should have been able to track all those (construction fund expenditures) beginning to end," the State Board of Accounts Charlie Pride told Bowsher. City officials provided the Chronicle-Tribune no bank statements detailing the construction fund account, including receipt for vendor invoices detailing any expenditures spent on renovation work at the YMCA building in response to its public records request. What little documentation was provided showed that renovation work on behalf of An's Global Investment Consulting had been paid out to another company owned by An, World Enterprise Group.

Raising alarming conflict of interest concerns is the fact that Mayor Wayne Seybold's brother, Chad, was employed by and earning money from World Enterprise Group. According to the Chronicle-Tribune, Seybold served as a director of operations and construction for the company at the time. A company owned by Marion Building Commissioner Larry Oradat, Erma's Home Improvement, is suing World Enterprise Group for construction work it claims it is owed by An's company for work on the building. City council members tell the Chronicle-Tribune that they are becoming increasingly concerned, particularly since Mayor Seybold's administration won't comment on the missing documentation for the more than $2 million debt the city is on the hook for repaying with TIF funds.

Meanwhile, a Whitley County businessman, Bill Reece, tells the Chronicle-Tribune that his company, RCM Real Estate, has entered into a contract with An's Global Investment Consulting to purchase the YMCA building. Reece declined to discuss his plans for the building or any work that was supposed to have been completed with the more than $2 million in missing construction funds.

Former Indiana GOP Chairman James Kittle Fingered In Bribe Offered To House Speaker To Block HJR-3

Wealthy businessman and former Indiana State Republican Chairman James Kittle has been identified as the businessman who offered House Speaker Brian Bosma unlimited campaign cash earlier this session if he would kill HJR-3, the proposed marriage discrimination amendment according to the AP's Tom Lobianco. Citing multiple sources familiar with the offer, Lobianco said Kittle withdrew the offer of "unlimited" campaign help after Bosma questioned the legality of his offer.

Jim Kittle offered "unlimited" campaign help to House Speaker Brian Bosma as part of a push to defeat the proposed amendment, according to multiple people with direct knowledge of the discussion. They spoke on condition of anonymity because they weren't authorized to disclose the private discussions.

Kittle withdrew his offer after Bosma questioned its legality, and it turns out the money wasn't needed after all. Only four House Republicans targeted by ban supporters face primary challenges, and changes to the proposed amendment's language will keep the issue off the ballot until at least 2016. But the back-room intrigue illustrates how election-year politics and campaign dollars shape some of the state's most important decisions . . .

Bosma also has said a potential candidate notified him that he had been offered $500,000 from an out-of-state source to challenge the speaker in the May primary.

But Kittle's offer is the one that raised some eyebrows. Bosma first announced an offer of campaign dollars in a January news conference but did not identify the potential contributor.

"I received a pledge of unlimited campaign funding if I were to make this issue go away," Bosma announced.

Bosma said he rejected the offer and expressed concern that it might have violated state or federal law. He has worn his decision as a badge of pride throughout the session, telling reporters he does not bow to threats or intimidation.

Bosma told The Associated Press last week that he didn't think the offer constituted a crime. But the speaker, who has never said Kittle made the offer, acknowledged voicing some concerns.

"I did bring to that individual's attention what it sounded like he was saying and I think he was pretty concerned about it after he said it," Bosma said.

Kittle did not return calls seeking comment . . .

This isn't the first time Kittle's name has surfaced in connection with nefarious activities. Kittle, who stepped down as the GOP's state party chairman and Gov. Daniels' finance chairman after before his arrest for drunk driving in Hamilton County in December, 2010, was identified as one of several investors a controversial Chinese immigrant had supposedly lined up to start up a new company that would assist Chinese investors with investment opportunities in the United States. Monica Liang, then a newly-hired consultant to Mitch Roob, the former head of the Indiana Economic Development Corporation (IEDC), became the subject of a complaint lodged by Chinese businessmen after Liang lured a Chinese billionaire, Ao Yuqi, to wire $50,000 into her bank account. According to a written complaint several Chinese businessmen had delivered to Gov. Mitch Daniels accusing Liang of criminal wrongdoing, Liang had identified Kittle as someone with whom she was very close who had tremendous political clout in Indiana.

She advised us that the State of Indiana would set up an office in China and she would be appointed as the manager of that office. She also repeatedly hinted to us that she was connected politically because she was in an intimate relationship with Chairman of Republican Party of Indiana. She advised us that the Chairman was "super rich," owned two large biotechnology companies and was the largest campaign contributor of Governor Daniels' election. As she put it that meant it was no problem for us to meet Governor Daniels when we next visit Indiana.

Sources familiar with an FBI investigation of Liang's business dealings tell Advance Indiana that she had formed a new company, China North American Investment Group, LLC, whose members according to Liang were to include herself, Ao, Kittle, Mitch Roob and Bingham McHale managing partner, Toby McClamroch, a former Indianapolis City-County Council member. Liang used a letter dated February 18, 2011 signed by Roob appointing her as his special assistant for Chinese relations to impress potential investors in China. Liang had also supposedly represented to the Chinese investors an opportunity to invest in a $12 million nursing home project she was trying to develop in a building she had purchased in Marion, Indiana, which she claimed included Gov. Daniels, Marion Mayor Wayne Seybold and Roob as investors according to an expose' on the entire sordid affair by the Indianapolis Star, titled, "The China Letter." Among the supporting documents Liang provided to the Chinese investors was a letter on the City of Marion's letterhead signed by the city's economic development director, Darren Reese, pledging support for TIF incentives for the project.

The FBI dropped its investigation of Liang's business dealings after she died unexpectedly from an aneurysm during a visit to her apartment in Carmel in late October, 2011 from a Chicago attorney, Thomas Gehl, who was advising her on EB-5 immigrant visas, a visa program that allows large foreign investors to obtain permanent resident status in the U.S. in consideration for investing in qualified American investments.  As a result of an internal investigation of the complaint sent to Gov. Daniels, Liang was immediately terminated and Roob stepped down as IEDC's CEO a short time later, although he insisted that the sordid affair was not the cause for his resignation. IEDC also ended its long-term relationship with Pacific World Trade, which had an exclusive contract to assist the IEDC in developing business relationships in China, in retaliation for its perceived role in helping bring the serious allegations of wrongdoing on Liang's part to light. The company's owner, Dennis Kelley, delivered the complaint on behalf of the Chinese businessmen, a fact that irked state officials, even though essentially all of the allegations contained in their complaint had been determined to be accurate based on the state agency's internal investigation of the complaint. Roob had demanded that Kelley retract the allegations set forth in the complaint prior to his abrupt departure from the state agency.

Last December, the Indianapolis Star featured a $2.5 million log cabin home in Carmel owned by Kittle that was being offered for sale. "Detailed craftsmanship is the hallmark of this spacious Carmel home being offered for $2.5 million," the article read. "Jim Kittle's custom log home is filled with signature lines from the family furniture business." "Set in a private, wooded area, the home resembles a mountain retreat, complete with natural interior features such as slate flooring and exposed board and batten ceilings." Watch the Indianapolis Star and other media outlets to bury this AP story since it doesn't fit their meme on HJR-3, not to mention the advertising Kittle's furniture store purchases from them.

Company Owned By Marion Building Commissioner Suing Korean Businessman Who Failed To Redevelop YMCA Building After Receiving $2.5 Million In TIF Funds

Advance Indiana recently told you about how a Korean businessman from California managed to land a $2.5 million TIF grant from the city of Marion to redevelop the former YMCA building but failed to carry though with the redevelopment plan as promised. The Chronicle-Tribune reports today that a company owned by the city of Marion's building commissioner, Larry Oradat, is suing Michael An's company for construction work it says it performed on the building for which it was never paid. Mayor Wayne Seybold's brother, Chad Seybold, worked for An's company at one time.

 . . . Erma’s Home Improvement — whose agent and president is Larry Oradat, Marion’s building commissioner — is involved in a dispute with World Enterprise Group. The registered agent and president of World Enterprise Group is Michael An. In 2009 and 2010, World Enterprise Group was listed on invoices totaling about $2 million for renovations to the former YMCA building. An also employed Chad Seybold, the brother of Marion Mayor Wayne Seybold, for a time.

The lawsuit claims World Enterprise Group “breached (a) contract by not paying the amounts due and for not allowing the defendant to complete the work that was contracted,” according to a lawsuit filed Nov. 14 in Grant County Superior Court I.

Court documents do not state where Oradat’s company performed work for An’s company. Nor does it state the amount owed. According to the defendant’s written response to the lawsuit filed Dec. 10, the two parties did enter into a contract for construction work to be completed by Erma’s Home Improvement for World Enterprise Group. Citing the quality of the work, World Enterprise Group contends Erma’s Home Improvement is not owed any payment.

“The work that the plaintiff did do was of a shoddy, unsatisfactory and unworkmanlike quality,” the document reads. “Plaintiff is in breach of the said contract and, due to such breach, defendant has no duty to pay any amount to plaintiff.” No further documents have been filed on the case then, and records show the case remains pending . . .

An's original plan for redeveloping the YMCA building included a hotel, restaurant, spa and men's and women's clothing stores. No visible work has been performed on the exterior of the building since An purchased it, and the property has subsequently been placed on the auction block for failure to pay the property taxes owed on it. The city of Marion has since refinanced the original $2.5 million bond issue.

A public records request by the Chronicle-Tribune recently failed to produce documentation of where more than $2 million raised from the bond issue was spent. Oradat's lawsuit against An's company doesn't indicate how much Oradat claims he is owed by An. It's unclear why the state's conflict of interest law wouldn't have prohibited Oradat's company from participating in a construction project financed with public tax dollars while he served as the city's building commissioner. Per standard operating procedure, no criminal investigation is opened by federal or state prosecutors in this state when public funds are pilfered through TIF financing schemes.

Marion City Officials Unable To Account For $2 Million In TIF Bond Proceeds For Failed Redevelopment Deal With Korean Businessman

The Marion Chronicle-Tribune continues to perform investigative journalism virtually every other major newspaper in Indiana has ceased doing. "Where did the money go?" seems to be a common theme of their reporting of late and for good reason. In 2009, the administration of Mayor Wayne Seybold obtained approval from the town's council to issue up to $2.5 million in tax increment financing ("TIF") bonds to a little-known Korean businessman from Ontario, California, to purchase and redevelop the city's recently-closed YMCA building on Third Street. Five years later, the building sits undeveloped and has been put on the selling block for unpaid taxes. No visible work has been done on the building, and the property generated no bids when it was offered at a tax sale last year. When the Chronicle-Tribune set out to learn what happened with the money through a public records request, it learned that city officials couldn't account for how at least $2 million of the bond proceeds had been spent.

This saga began when Korean businessman Michael An's Global Investment Consulting, a Nevada corporation, approached city officials in 2009 about redeveloping the vacant YMCA building. An's local business representative was Chad Seybold, brother of Mayor Seybold. An's $6 million redevelopment plan included adding a dry-cleaning business, men's clothing store, women's clothing store, spa, hotel and restaurant to the vacant building after renovations. An told city officials that the project would add between 80 to 90 new jobs with an annual payroll of between $1 to $2 million. Anyone who drove by this location, knew a little about Marion's economic situation and turned on his or her brain for a few minutes would quickly conclude it was a half-baked deal that had no realistic chance of success. Unfortunately, no due diligence was performed before proceeding with the investment of public tax dollars in the project.

An was described to local officials as "a Korean-born investor and retired businessman in California." According to Nevada Secretary of State corporation records, An appears to be the sole shareholder of Global Investment Consulting. An individual by the name of Claude Brock, who serves as a registered agent for multiple businesses, is identified as the company's registered agent. A Google Earth view of the business address for Brock shows a high-rise residential building a few blocks off the Las Vegas strip. A business address in Santa Ana, California is also listed, which appears as a small residential house on Google Earth. The Indiana registered address for Global Investment Consulting according to the Secretary of State records is the vacant YMCA building with An listed as the registered agent at that address. That foreign registration occurred the same month that Marion's common council approved the issuance of $2.5 million in TIF bonds for the project. Global Investment Consulting's business address is listed in its Indiana filing as a post office box in Cucamonga, California.

Further research reveals that Global Investment Consulting is listed as one of the few regional centers in Indiana certified for the controversial foreign immigrant immigrant visa program known as EB-5, although it doesn't appear to have operated as a regional center. Under this immigrant visa program, foreign investors can get a green card for investing at least $1 million in a qualified American investment, or $500,000 if the business investment is made in an area that qualifies as a depressed economic area.

The EB-5 program's controversy was raised in a December 15, 2012 investigative series by the Indianapolis Star titled, "The China Letter." The investigative series focused on Monica Liang and her controversial role as a former consultant to Mayor Seybold and the Indiana Economic Development Corporation's former executive director, Mitch Roob. Liang, a Chinese immigrant, had defrauded a Chinese billionaire out of $50,000, which she represented to the billionaire was part of a plan to invest in a building that she owned in downtown Marion that was to be redeveloped as a nursing home for veterans.

According to the Star, Liang had misrepresented to Ao Yuqi, the Chinese billionaire, that Gov. Mitch Daniels, Mayor Seybold and Mitch Roob were shareholders in the company that planned to redevelop her building. Ao had expected to obtain a green card as part of his investment in the project as an EB-5 investor. Liang, who was in her early 40s, later died under bizarre circumstances after going into cardiac arrest while a Chicago attorney, Thomas Gehl, who was advising her on the EB-5 program, was visiting her at her apartment in Carmel a short time after Roob had fired her as a consultant to the IEDC after learning of her misrepresentations and fraud and had stepped down as head of the state agency. Roob denied to the Star that he had a sexual relationship with Liang, who had traveled on trips to China with Gov. Daniels and Mayor Seybold as part of larger trade delegation to Asia. It is unclear what, if any, role Liang may have had in introducing Michael An's investment to Marion city officials, although it would have been consistent with her economic development activities with the city during that time period.

An's Global Investment Consulting entered into a loan agreement with Marion for $2.5 million as part of the redevelopment plan for the YMCA building he acquired in February, 2009 in which the city agreed to take out the $2.5 million bond "for financing the construction of the project to create additional employment opportunities in Marion, Indiana, and to benefit the health, safety, morals and general welfare of the citizens of Marion and the state of Indiana." The bond indenture and related loan agreements were prepared by Barnes & Thornburg's Bruce Donaldson, while London Whitte's Bob Swintz acted as the city's financial adviser on the transaction. First Farmers Bank & Trust, which held a $5 million mortgage on the YMCA building, acted as trustee. Repayment of the bonds were to be paid out of TIF revenues generated by Global Investment Consulting's redevelopment project. Obviously, no revenues have been generated by the now-defunct project to pay debt service on the bond issue. According to the Chronicle-Tribune, the city refinanced the outstanding bond obligation less than two years later  in February, 2011 as part of a new $5.8 million bond issue. Swintz told the Chronicle-Tribune that the refinancing was undertaken to get a lower interest rate. The bonds are not scheduled to be paid off until 2021.

Shockingly, Marion city officials were unable to produce bank statements, receipts, vendor invoices, or check or wire transfer records to account for how more than $2 million in bond proceeds were spent for An's project. Mayor Seybold, who is a Republican candidate for State Treasurer this year, refused to comment on the missing documentation according to the Chronicle-Tribune. Naturally, An was nowhere to be found. The city's development director, Lisa Dominisse, produced just 16 pages of records in response to the newspaper's request. The documents were primarily invoices from business entities tied to the redevelopment project. Half of the 16 pages, according to the newspaper, pertained to expenses related to renovation and construction of the former YMCA building. "Three Global Investment Consulting invoices from 2009 and 2010 list purchases or services like 'roofing' and 'brick work,' but none was accompanied by supporting documents like receipts for the purchases or vendor invoices for the services," the Chronicle-Tribune reported.

Together, the invoices contain 27 line items. Five line items, totaling $98,033, are listed under “Michael An,” the CEO of Global Investment Consulting: “building purchase” ($54,754), “architectural drawings” ($15,000), “attorney fee” ($20,120), “accountant fee” ($6,000) and “water removal cost — basement — new sump pump” ($2,159).

The other 22 line items, totaling more than $1.9 million, are listed under “World Enterprise Group Inc.” with a federal tax identification number next to the company name. These line items include the “roofing” and “brick work” as well as “elevator,” “HVAC” and “plumbing,” for example.

World Enterprise Group was created by An, who is also listed as the company’s president, on May 6, 2010, according to state corporation records.

The city’s record-keeping has repeatedly been cited in annual state audits. Concerns noted in multiple years’ audits include omission of entire city hall departments from annual financial reports, transfer of funds without city council approval and inconsistent bank balance reconciliations.

After Gallaway deferred questions about bond financial records to the bond trustee at the bank, First Farmers Bank & Trust Vice President Tade Powell referred questions to the bank’s general counsel, Stephen Wilson.

Wilson confirmed the bank’s role as trustee, essentially meaning the bank was hired by Marion to hold and disburse the bond proceeds.

“The bond proceeds were deposited into an account held and maintained by the Trust Department of First Farmers Bank & Trust, and these bond proceeds subsequently were disbursed by the Trust Department in payment of (i) the costs of the issuance of these bonds, and (ii) costs of the of renovating the former YMCA building in the City of Marion, including site development,” Wilson said by email.

Wilson did not respond to follow-up questions about the lack of records like bank statements for the account that held the loan proceeds.

The Chronicle-Tribune also detailed bond proceeds paid out to the bond lawyers and financial advisers for the transaction:

• $35,000 went to national law and lobbying firm Barnes & Thornburg, which served as bond counsel;

• $25,000 went to Indianapolis-based financial firm London Witte Group, which served as financial adviser;

• $10,000 Marion-based law firm Kiley Harker Certain, whose partner Thomas R. Hunt served as counsel for Marion’s Economic Development Commission;

• $10,000 went to Marion-based law firm Spitzer Herriman Stephenson Holderead Musser and Conner, whose lawyer Herb Spitzer served as counsel for Marion;

• $2,500 went to First Farmers Bank & Trust Wealth Management, which served as trustee; and

• $25,000 was kept by First Farmers Bank & Trust, which bought the bond.

Advance Indiana uncovered another 200 pages of documents online related to the original bond issue, which can be accessed by clicking here.

The Chronicle-Tribune has blasted Seybold's management of the city's finances at length in recent editorials. A recent editorial accused Seybold of "aggressively spreading untruths about public matters that will affect the city for decades," including a claimed $2 million surplus in the city's budget. According to the editors, the surplus was only made possible because Seybold chose not to pay back the amount due on a $1.7 million loan to the water utility, which was originally scheduled to be repaid  in 2012, and delayed payment of other bills "until next year and beyond." The editors insist that Marion's financial situation has been propped up by piling up more debt to be paid off by future generations. The newspaper attacked Seybold for spending $7,000 in public funds to tout a surplus it claims truly doesn't exist.

One of the running feuds Seybold has with the editors of the Chronicle-Tribune is over the categorization of TIF-related debt. Seybold insists that it's not really city debt because repayment of the debt relies on property tax revenues generated by TIF economic development projects. The developers are the one's repaying the debt he argues; however, when the projects fail as has happened frequently in Marion and elsewhere around the state, the taxpayers are left holding the bag. As the Chronicle-Tribune's editors say, "That is a distinction without a difference." The editors point out that the city has been forced to redirect money generated by other projects within TIF districts to repay all of the projects like An's that failed to pan out.

The Chronicle-Tribune's Karla Bowsher has taken Seybold to task for doling out city contracts to the same people who are backing his campaign for State Treasurer, including Barnes & Thornburg's Bob Grand, who co-chairs his committee with Lake County attorney Dan Dumezich, and Jim Higgins, a partner at London Witte.

London Witte Group has served as financial adviser to the Seybold administration on general matters and particularly on bond transactions since at least 2005, making in the neighborhood of at least $25,000 to $30,000 per transaction, records shows. Barnes & Thornburg has served as bond counsel since at least 2005, making in the neighborhood of $35,000 to $50,000 per transaction.

Seybold pointed out that he has also worked with other firms on such matters during his three terms as mayor, although he has for years regularly used London Witte Group and Barnes & Thornburg for bond transactions.

"You're barking up the wrong tree. I don't make decisions of that kind," Seybold said. I try to hire really good people.

Grand agreed with Seybold ’s hiring of Barnes & Thornburg. "He did the best thing for the city because be got the best firm for the city, he said. "Our qualifications we could put up against anybody."

Barnes & Thornburg partner Brian Burdick, named on Seybold's campaign letterhead, is general counsel for the Indiana Bond Bank, according to the firm's website.

The Indiana Bond Bank is one of the boards that the state treasurer chairs in addition to his duties as the state's chief investment officer. Of the 13 boards the treasurer sits on, the Indiana Bond Bank may be the busiest, said Ball State University political science professor Ray Scheele, because so many local governments are authorized to raise money via bonds.

The Indiana Bond Bank helps local governments secure various types low-cost financing. According to the 2013 annual report of the current state treasurer, Richard Mourdock, the bond bank issued about $517 million in debt on half of local governments during the 2013 fiscal year . . .

It's unfortunate that you won't see this kind of reporting in the Indianapolis Star. Previously, this blog built on original reporting by the Chronicle-Tribune on how state and Marion city officials invested tens of millions of our tax dollars in a company founded and controlled by a California businessman who defrauded more than 500 investors out of $160 million through a Ponzi scheme remarkably similar to the one perpetrated by Indianapolis businessman Tim Durham. The public in Indianapolis doesn't have a clue about what's happening with the hundreds of millions of dollars that have been borrowed and invested in TIF projects, virtually all of which benefit developers that have contributed heavily to Mayor Greg Ballard's and other local politicians' campaign committees. The City of Indianapolis is paying huge fees to the same bond lawyers and financial advisers upon which the City of Marion is relying. We've demonstrated time and time again that city finances are being dictated by those same players. The Indiana State Treasurer's Office is similarly controlled by these same people and apparently will continue to be if these self-serving people get their way. Meanwhile, the taxpayers always wind up getting stuck with the bill for the bad deals this corrupt bunch of actors concoct on behalf of public officials whose decision-making is obviously blinded by the campaign support they receive from them.

Did Marion's Mayor Wayne Seybold Gamble The City's And His Future On A Ponzi Schemer?

Larry Polhill (Left) with Gov. Mitch Daniels and Mayor Wayne Seybold

Marion Mayor Wayne Seybold, along with Gov. Mitch Daniels and other state and local economic development leaders, stood shoulder to shoulder with a San Bernardino, California businessman, Larry Polhill, in December, 2012 to announce economic development incentives to lure Cafe' Valley, a Phoenix-based baked goods supplier, to build a $48 million facility at the site of the former Thomson plant in Marion to anchor its eastern U.S. operations. The terms of local economic development incentives were not made known at that time, but Gov. Daniels pledged $5.8 million in conditional tax credits on behalf of the Indiana Economic Development Corporation based on the company's investment plans and more than 100 new jobs the company promised to create when the facility opened in the spring of 2014 and at least 400 jobs by 2018. The new jobs will pay only about $12 an hour. Seybold told the Chronicle Tribune that he was very excited about what he described as a "sweet deal" for the city and a project that Café Valley's Polhill described as being "well underway.":

 “We’re excited that they’re taking one of the most blighted areas in the city and really enhancing it,” he said.

City officials hope the project could be the catalyst for further development at the former television and electronics factory. With one notable exception, it has been largely empty since it was closed in 2004.

Café Valley plans to demolish part of the building’s southwest portion, near the corner of South Adams and 38th streets, ultimately utilizing one-third of the 60-acre property. The exact configuration is still being determined, as is the final cost.

Larry Polhill, Café Valley principal partner and board of directors member, said the company was “well underway” with designs for the new facility and securing food processing equipment.

He said the company hoped to have its financials finalized by early next year in order to break ground by March 2013.

“We’re on a very tight timeline,” he said.

Polhill said the company hoped to receive New Markets Tax Credits from the federal government in order to secure financing for the project. If they do not receive them, it could derail the project.

These credits incentivize investors who build in low-income communities and are allocated once per year.

“Hopefully there will be some new allocation after the first of the year,” Polhill said.

What neither Mayor Seybold nor Gov. Daniels mentioned to the public was that Café Valley's Polhill, an officer and one of the company's three directors, was embroiled in a bankruptcy of his San Bernardino-based private equity real estate firm, American Pacific Financial Corp., in a Las Vegas federal bankruptcy court and an investigation by the Securities & Exchange Commission looking into allegations that he had defrauded nearly 500 investors out of $160 million through a Ponzi-like scheme that closely resembled the one run by Indianapolis' Tim Durham through his Ohio-based Fair Finance Company. Concerns raised by a member of Marion's common council were brushed aside months later when a complex local TIF financing deal that puts Marion taxpayers on the hook for tens of million of dollars raised questions about Polhill's bankrupt private equity firm and an ongoing SEC investigation. As Councilwoman Joselyn Whitticker expressed her concerns according to the council's minutes from a special meeting of the council on February 25, 2013:

There is not a person in this room, nor on this Council, who does not believe in the growth of the City of Marion and they want it to prosper, but, based on some things that have happened in the immediate past and some things that have been put with the Café Valley deal, it puts us in limbo. And based on some information she has regarding one of the principals, she has deep concerns and those deep concerns regard the whole issue of a primary principal who has been repeatedly and is, at this point, in the SEC and it is on the grounds of fraudulent misrepresentation and omitting of facts and that’s Mr. Larry Polhill. This is public knowledge and this came from the SEC. She also has concerns because with somebody and that case is ongoing.

Whitticker was expressing doubts about a plan by the financially-pressed city to provide $4.2 million to Café Valley to acquire the Thomson property and perform demolition work, and to issue two separate bond issues totaling up to $26.5 million for distinct purposes. An initial Series A bond issue in the amount of $14.5 million was described to council members as the "meat" of the deal. The first bond issue included the $4.2 million to allow Marion's Growth Council to purchase the property, $5 million for Café Valley for site preparation, $2 million to refinance old debt and the balance for a built-in reserve fund and fees associated with the bond issue.

In 2012, the city backed a $2 million loan for Earthbound Recreational Vehicles with county economic development income tax (EDIT) revenues. Earthbound Recreational Vehicles closed down a short time later, leaving taxpayers holding the bag to repay the $2 million loan. The city's financial advisers insisted that the old debt needed to be refinanced with the new debt. Council members were told that taxes generated from the new facility would be recycled to pay off the newly-issued bond debt.

City officials agreed to move forward with the issuance of the Series A bonds payable over 25 years without knowing whether Café Valley would succeed in obtaining the additional funding it needed for the project, which it intended to obtain from New Markets Tax Credits made available through the federal government as part of President Obama's economic stimulus plan. A second Series B bond issue of up to $12 million was described as the "carrot" to entice Café Valley to remain and expand in Marion after the City acquired the needed land and expended millions for the new improvements. Polhill attempted to explain to council members how his company would obtain financing using federal tax credits at its February 19, 2013 meeting in a way only a snake oil salesman could do it:

Larry Polhill told the Council he heard a lot of definitions of things today that have been a lot different than reality, he believes. Federal tax credits are, in fact, tax credits, not tax dollars. They are federal dollars which are credits against somebody’s income taxes. Not Café Valley. Somebody in the country will buy those tax credits and that generates cash for them to bring to this community. President Obama signed $7,000,000,000 of additional federal tax credits just in January which is why this project is going forward. They can bring $40,000,000, maybe $50,000,000 of those tax credits to Marion or they could end up somewhere else. Those credits, that $7,000,000,000, there are people standing in line for it. We’re at the head of the line at this point and they want to bring those credits to Marion. And this is not a handout by any stretch. People have asked, well (inaudible), and he’s really getting frustrated answering answering those questions so he apologizes for his tone but, you know, this is a $50,000,000 project. It’s a $25,000,000 bank loan. It’s personally guaranteed by him and the other principals of the company so he thinks they’ve got a lot of skin in this game. They backstopped the city’s tax bonds to the extent that the city is signing on that. He doesn’t know what more they expect them to do, Polhill said. Now they got a $25,000,000 bank loan to start with, they have state tax credits for $5,000,000, they got the TIF contribution for (inaudible) $5,000,000, which is, by the way, limited at $10,000,000. So if the city’s counsel is good and sells those credits for more, that’s a benefit to the city. They don’t get another penny over that amount.

In other words, it's just free money waiting to be claimed by someone, even business owners under investigation by the SEC for defrauding innocent investors. Council members were equally confused about the lease on the property the city was acquiring on Café Valley's behalf as it was the source of the company's personal financing for the project. Polhill told them that city taxpayers aren't paying for the lease; rather, this was just a mechanism "in order to get the bonds." Nobody seemed to understand or be able to explain the lease of the property to Café Valley, let alone who was actually going to wind up owning the property after all was done and said so the council turned to its TIF lawyer on the project, Barnes & Thornburg's Bruce Donaldson, to explain:

Bruce Donaldson with Barnes & Thornburg told the Council essentially the company is going to own the site. It’s going to lease it to the Growth Council and then the Growth Council is going to lease it right back to them. Each side is $1.00 and then the Redevelopment Commission joins the lease for purposes of making the payments on the bonds. And so the lease is a mechanism to get the Redevelopment Commission’s TIF, which is the primary source, the project TIF, the primary source of repaying the bonds into the transaction. So the lease is really just a, like Larry said, a mechanical, it’s an accommodation by the company to allow them to have an asset to lease, to access the Redevelopment Commission TIF money, Donaldson said. Thompson asked, is this a lease to own? Donaldson replied, the company will own the project and it will continue to own it throughout the lease and then when the lease is over, the company will own the project. Thompson stated, okay, not that he really understands but he appreciates what he’s said because it’s helped him a little bit.

So did you get that since the council member who asked the question obviously didn't understand after Donaldson got through explaining it? The use of the term "lease" is all smoke and mirrors to put the taxpayers on the hook for the debt incurred to build Polhill's $50 million facility as a TIF-funded project. Polhill's Café Valley will own the property from the get-go, throughout the term of the 25-year lease and after the bonds are retired, assuming the company is still around at that point.

Seybold still insisted the complicated financing arrangement did not represent any long-term debt for the city. “That doesn’t become debt of the city,” Seybold told the Chronicle-Tribune. “It’s not like we go out and take a bond to build something. This is all based on the property tax and the ability of the company to pay their property taxes. …“If the project were not to happen, then the company would cover those bond payments until someone else came along. As long as the taxes are paid, then the bond gets paid. If they don’t get paid — if there’s a shortfall — then the company covers that.”

Needless to say, the city went forward with the Café Valley project and broke ground on the project on March 31, 2013, even after the Chronicle-Tribune brought to Seybold's attention the fact that the company had previously purchased land in Spartanburg, South Carolina where it had planned to base its eastern U.S. operations until the company scrapped the project in 2011. Polhill told the newspaper that the company had purchased a former pie plant in Spartanburg and discussed economic development incentives with officials there but that it was a lower priority than a new facility it built in Phoenix that year. Marion's development director, Darren Reese, dismissed the concern: "People buy and sell facilities all the time." The company is still projecting an opening date this spring and has hired its first employees to assist in the hiring of full-time workers for the facility. See a timeline of events for the project as detailed quite nicely by Frank Stahl at Indiana Policy Review here.

Meanwhile, the SEC concludes its investigation of Polhill's American Pacific Financial Corp. last September and concludes that "he falsely presented investment opportunities that were safe and reliable based on collateral that didn’t always exist, and his fraudulent misrepresentations left investors with nothing to show for their investments when APFC declared bankruptcy.” The SEC found that Polhill had issued promissory notes to nearly 500 investors under the false premise that they were secured by specific properties or other collateral. The notes offered investors interest payments of between five and seventeen percent per year. According to the SEC, Polhill had used money raised from investors to buy and sell real estate, and to acquire distressed assets, including Café Valley with the company he started back in the last 1970s. Polhill's company consistently paid interest on the investors' notes until it ceased making payments in 2008. By 2010, investors suspicions grew when APFC filed for Chapter 11 bankruptcy protection in the U.S. bankruptcy court in Las Vegas, listing debts of $152 million owed to nearly 500 creditors.

According to the San Bernardino Sun, the court-appointed bankruptcy trustee, Christopher Barclay, described what he found as a "number of failed investments and poor management decisions" made by APFC's president, Larry Polhill. Barclay described Polhill's management of the company as "Byzantine." Based on his recommendation, the bankruptcy was converted to a Chapter 7 liquidation proceeding "in an effort to find the most beneficial resolution for the company's many creditors." Polhill told the newspaper that he had made a settlement offer to the investors, but the investors complained that it was only for a fraction of what they had invested with APFC. "My parents lost their life savings," said Derick, who did not want his last name used for fear of retaliation against his parents. "They're in their 80s now and they can't really recover that money. They lost $100,000." At the urging of defrauded investors, State Rep. Joe Baca (D-San Bernardino) asked the district attorney, Michael Ramos, to investigate the investors' allegations of fraud. The DA's office told them their best recourse was to pursue a remedy in civil court. Ramos' office later told investors it was "looking into the matter and to be patient," but nothing ever became of that investigation.

The SEC's investigation found that, although some of Polhill's businesses were successful, most had failed, a fact never disclosed to APFC's investors. In the complaint announcing a settlement reached with Polhill under which he agreed to be barred from acting as the officer or director of any public company, the SEC laid out the fraud claims against Polhill and the securities law violations that he committed:

The SEC alleges that Polhill made several material misrepresentations to investors. Specifically, he told investors that the notes were secured by collateral when no such security interest existed. He failed to disclose that the collateral securing some investors' notes already had been pledged to other lenders. Polhill represented that he would notify investors if their collateral went into default when that was often not the case. For instance, one investor's note specifically stated it was secured by property located in Hesperia, Calif., that was owned by APFC and pledged as collateral. However, APFC sold the collateral in 2004, and neither Polhill nor APFC informed the investor that his collateral had been sold and there was no longer any asset securing the note.

The SEC's complaint charges Polhill with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act. Polhill has consented to the entry of an order that permanently enjoins him from violating these laws and permanently bars him from acting as an officer or director of any public company.

Yeah, Polhill's scheme to defraud investors was remarkably similar to the Ponzi scheme Tim Durham ran with his Fair Finance Company that defrauded small Ohio investors out of more  than $200 million. The SEC's complaint against Polhill specifically references his use of Café Valley notes that he personally signed to defraud investors in the scheme:

As another example, over 80 investors held notes from APFC note offerings from 2004 to 2008. These notes specifically stated that the notes were secured by accounts receivable owed by Cafe Valley, a privately-held bakery, and the notes claimed this account receivable had been pledged as collateral for the notes. However, Polhill and APFC never disclosed that this collateral was already subject to a senior bank loan.

Even worse, the complaint says that Polhill continued issuing promissory notes listing as collateral for businesses that had already failed without notice to the investors. When one of Polhill's cousins who had invested in APFC learned of the fraud, Polhill substituted his collateral for him without notifying the other investors. The complaint alleged that Polhill soliticited investors across the country but never registered any of the securities he offered to investors in violation of federal securities law. Polhill also offered investors the opportunity to invest in limited partnership, which were also not registered, and comingled funds raised from those investments with APFC's funds in the form of loans to APFC that were used to pay interest on the uncollateralized promissory notes. The SEC's complaint stated, in part:

Polhill and APFC did not maintain the collateral pledged as security for the notes throughout their terms, and often sold or lost the original pledged collateral without notifying investors.  APFC and Polhill also did not notify investors when collateral went into default and did not offer investors the options of (i) reducing their loans; (ii) accepting substitute security; or (iii) placing their funds in trust pending their approval of a replacement security as required under the terms of the promissory note. Finally, APFC and Polhill did not hold the pledged collateral in safekeeping and available for inspection by the investors upon request.

In fact, APFC and Polhill had no procedures or safeguards in place to track the status of investor collateral and ensure that appropriate notice was being provided in the event of default.

Furthermore, even when Polhill was fully aware that collateral securing investor notes was impaired, he did not tell investors. For example, in one instance, Polhill's cousin held one of the APFC notes. When his cousin learned that the collateral was no longer available, the cousin asked Polhill for substitute collateral. Polhill agreed, and substituted new collateral to secure the note. However, Polhill did not inform any of the other investors holding that note that the collateral was impaired . . .

A website titled, APFC Ponzi Scheme, was created to expose Polhill as a "criminal" and a pathological liar." It should be noted that no criminal charges have been filed to date against Polhill. Information gleaned from the Internet indicates that Polhill grew up in Illinois where he first went into business in the late 1960s with his former high school business teacher, Bill Guymon, who still works for him, as a partner in buying a gas station in South Beloit, Illinois. Polhill, who describes himself as a "professional opportunist," later moved to California and began raising money for a number of business ventures, including a space launch provider, a health club, several Illinois food manufacturers, an Internet service provider, a trucking company and various real estate investments. Kelly Space & Technology in San Bernardino is one of Polhill's proudest investments. A news article from The Press-Enterprise in San Bernardino from several years ago describes a civil lawsuit that a 39-year old man, Gregory A. Letterly, filed against Polhill, a former family friend that he alleged had sexually molested him repeatedly when he was a pre-teen boy in the early 1970s during trips to the Salton Sea, Big Bear Lake and Lake Havasu. Polhill told The Press-Enterprise that he denied all of the allegations in Letterly's "unfounded" lawsuit at the time.

Earlier this year, Advance Indiana noted that Marion's financial woes were becoming a financial albatross for Seybold's statewide campaign this year for the Republican nomination for State Treasurer, which will be decided by delegates to the Republican State Convention in Fort Wayne in June. Seybold recently asked the city council for authorization to borrow $12.8 million in tax anticipation notes after the city began the calendar year with only $320,000 in its general fund. A recent State Board of Accounts audit criticized the city for having a "lack of financial controls" that led to recurring problems with  "overdrawn cash balances, bank account reconciliation concerns and questions about funds use" according to the Chronicle-Tribune. Seybold was also recently sued in Grant County Superior Court for an unpaid personal credit card bill in the amount of $5,357 owed on an American Express credit card issued by Centurion Bank. When Seybold announced his campaign last June, he said he had the support of more than 50 state lawmakers, municipal officeholders, and national and state and community leaders.

McGoff Hits McIntosh On Residency Issue

First, Sen. Richard Lugar faced tough questions and legal challenges over whether he was a resident of Indianapolis or the Virginia home at which he and his wife have resided for the past thirty-five years. Now former U.S. Rep. David McIntosh is facing tough questions about where he truly resides. Although McIntosh has registered to vote at addresses in Pendleton and Anderson within Indiana's 5th congressional district where he is running as a candidate and has voted in the past, Virginia records show that he owns a home there and has been issued a driver's license by that state. One of his primary opponents, Dr. John McGoff, fired off a press release asking questions about his residency in light of a report earlier today on the IndyPolitics blog.

“Voting records show McIntosh participating in several Indiana primaries and general elections while at the same time holding a Virginia driver’s license which, under Virginia law, you can only have if you are a resident,” the press release reads, quoting from IndyPolitics.

Virginia statute states that you must show two proofs of identity, one proof of legal presence and one proof of Virginia residency, in order to obtain a driver’s license in that state.

Today, Dr. John McGoff, a front running candidate for the 5th District seat, responded, “You have to ask the important questions. Where does David McIntosh live? Where does the McIntosh family go to church? What school do his children attend? The answer to all of these questions is Arlington, Virginia, not Indiana….”

When IndyPolitics.org asked for a comment on the allegations, a McIntosh campaign staff member stated that McIntosh “was forced to get a Virginia driver’s license, but he never gave up his Indiana residency.”

Dr. McGoff questions McIntosh’s bid for election in the 5th District, “You can only be forced to obtain a Virginia driver’s license if you actually live in Virginia. If David McIntosh wanted to re-enter Congress, perhaps he should have sought office in Virginia. I’m not sure if it’s pride or arrogance, but the voters of the 5th District will not tolerate another insincere career politician after 30 years of Dan Burton.”

Residency has been an issue in at least two recent Indiana elections. Both incumbent Senator Richard Lugar and Charlie White have faced challenges based on residency.

Sen. Lugar last week agreed to re-register at his family's farm after a successful citizen complaint established to the satisfaction of the Marion County Election Board that Lugar had been voting illegally from a home in Indianapolis he sold 35 years ago. Lugar initially filed suit against the Board to overturn their decision, claiming the Indiana Constitution allowed him to vote using the residence he had established at the time of his first election to the Senate in 1976 regardless of whether he subsequently abandoned the residence. After cooler heads prevailed, Lugar agreed to come into compliance with the law and register to vote at his family's farm in Marion County.

McIntosh, by contrast, apparently relies on a rented residence owned by a defense contractor executive as his voting residence in Indiana since he gave up his seat in the House following his unsuccessful run for governor in 2000. McIntosh and his family moved to Washington where they have been living for more than a decade before McIntosh decided to return to Indiana to run in the newly-drawn 5th congressional district being vacated by retiring U.S. Rep. Dan Burton (R). In order to run for Congress, McIntosh need only be able to prove that he is an inhabitant of the state at the time of this year's November general election under the U.S. Constitution. He is not required to reside within the 5th district or be a registered voter of the state so long as he can prove he is an inhabitant of the state "when elected."

The legal question for McIntosh, as with Lugar, is whether he is legally registered to vote in the precinct in Indiana at which he is currently registered to vote. The fact that he resides with his family in Virginia and has a Virginia driver's license makes the case pretty weak for proving his residence in that Indiana precinct for voting purposes. A spokesman for the McIntosh campaign told IndyPolitics that the Madison County Prosecutor advised him that there was nothing improper with his current voter registration. "When asked about whether they are concerned about possible voter fraud, the spokesman said they have a legal opinion from the Madison County County Prosecutor’s office which assured them they were not breaking any laws because 'McIntosh had always been a resident in the 5th District' and there was no issue there." Sen. Lugar also had an advisory opinion from the Attorney General claiming it was perfectly legal for him to continue voting at a home in Indianapolis he sold 35 years ago that wasn't worth the paper on which it was written. A political foe can certainly make a lot of mischief with McIntosh's residency, whether legal or not, as Sen. Lugar has already learned the hard way.

McGoff has cited recent polls as showing him running neck-and-neck with McIntosh in a crowded primary race. Marion Mayor Wayne Seybold recently won the endorsement of a number of Republican state lawmakers in the 5th district, as well as the endorsement of Rep. Burton. McIntosh and former U.S. Attorney Susan Brooks have raised by far the most amount of money for their respective campaigns. McGoff enjoys high name recognition from his two previous unsuccessful bids to unseat Burton in the past two elections.

UPDATE: Susan Brooks has weighed into the debate over McIntosh's residency. WISH-TV has this quote from her:

"I call on David McIntosh to tell us where has he sworn under the penalty of perjury that he is a resident - of which state?" Brooks said.

McIntosh's campaign produced to WISH-TV's Jim Shella a letter from Madison Co. Prosecutor Rodney Cummings saying there was nothing improper with his voter registration status. Dr. McGoff is not impressed. "When I heard that he's not living here and not working here," McGoff said, "I think that is an important issue for voters in the Fifth District to know." I'm not sure where this whole thing got started of Attorney Generals and prosecutors producing advisory opinions concerning the voter registration status of political candidates, but it is an entirely inappropriate and unseemly practice. As I told someone the other day, poor Charlie White didn't have the malice of forethought to use his political muscle to get an Attorney General or prosecutor to write an opinion for him to exonerate him from any potential wrongdoing. Brooks' husband, David, represented Charlie White in the appeal of the challenge to his eligibility to serve as Secretary of State based on his voter registration status before the Indiana Supreme Court.

UPDATE (4/5/12): The Star's Chris Sikich has more on McIntosh's residency problem today. He lays out the relevant facts of McIntosh's residency as follows:

Virginia authorities told McIntosh to obtain a Virginia driver's license because of his home there, Streeter said. His family lives in Virginia, and his two children go to school there.

McIntosh, though, has voted in Indiana. He voted from a home he owned in Muncie from 1993 until he sold it in 2008. Although McIntosh rented out the main floor after moving out of state, his campaign maintains he kept a portion of the home for his own residence.

He voted from a Pendleton home he rented from 2008 to 2011, and he switched his residence last year to a home he rents in Anderson. Streeter said McIntosh no longer has the Virginia license, having switched back to an Indiana license.

No law requires congressional candidates to live in their district, though they have to be an inhabitant of the state. McIntosh's campaign says he has been.

As I understand it, McIntosh used a residence owned by Randall Wilson, a CPA who serves on the board of Anderson-based Xtreme Alternative Defense Systems (Xads), a company that has contracts with the Defense Department, for his Pendleton voting address from 2008 to 2011. Just like Lugar, McIntosh had the malice of forethought to suspect the residency problem might become a political, if not a legal issue, one day and used his insider political status to obtain a favorable advisory opinion from the county prosecutor:

Knowing the residency issue had cost other politicians, his lawyer, Jackie M. Bennett Jr., wrote a letter to Madison County Prosecutor Rodney Cummings in July, citing several legal precedents to confirm McIntosh's residency.

Cummings agreed, writing back that McIntosh has taken reasonable steps to maintain his residency.

"It is my considered judgment that David McIntosh has been, and continues to be, a resident of Madison County, Indiana, and as such, he may vote and seek office as a resident of Madison County," Cummings wrote.

The Star doesn't include the full contents of the Cummings advisory opinion, which as I said before, isn't worth the paper on which it's written. If a complaint was filed against McIntosh and the election board agreed that McIntosh had violated election laws by illegally registering to vote at someone's home where he clearly wasn't residing, Cummings would be required to recuse himself from the case and appoint a special prosecutor because of the improper advisory opinion he issued to McIntosh. The Attorney General and county prosecutors have no business issuing advisory opinions for the benefit of private citizens concerning the legality of their actions, which essentially amounts to allowing them to issue free get out of jail cards to their political cronies.