Honest Government Matters - 2009 - 3rd Quarter
Further evidence of big bank involvement in Jim
McConville's loan fraud. 09/23/2009
by Pat Flannery
Some weeks ago I received a phone call from a Bay Area
investor, Andy Narraway, who had lent
$1,875,000 in five second trust deeds, all of which
together with $760,000 in accrued interest, are now in
trouble. Narraway had read my blogs about McConville's
scams up and down the state and wondered if I could
expose the bank fraud that occurred in the refinancing
of his loans which would help him recover his money.
Through a mortgage broker, Mr. Narraway had made five
loans on five separate properties to McConville totaling
$1,875,000 over a two-year period, December 2003 to
As I began looking into Mr. Narraway's loans it quickly became
obvious that fraud was committed by the banks not
on the banks. The frauds could not have been done
without bank connivance. The escrow process was used for
the very opposite purpose from what it is intended. The
bank fraudsters struck at the very heart of real estate
- the escrow.
Escrow is the process by which parties to a real estate
transaction (buyer and seller, borrower and lender),
deposit documents and monies with a neutral third party
(a licensed escrow or title insurance company), which
documents and monies are then delivered to the
appropriate parties upon fulfillment of certain
conditions (e.g. a grant deed for the purchase money),
as set out in a written agreement called the escrow
The entire system depends upon the escrow officer
faithfully carrying out these instructions. Can you
imagine handing an escrow officer a signed grant deed
for your house, expecting to get paid when the escrow
closes, only to find that the escrow agent recorded the
grant deed but did not pay you the purchase money? Well
that's what happened to Andy Narraway in three separate
transactions. He provided a "reconveyance" deed but did
not get paid.
To understand what happens in a real estate transaction
where a new loan replaces an old loan (as happens in
nearly every real estate transaction) it is necessary to
understand a "reconveyance" deed.
A "reconveyance" is the instrument commonly used to
record the fact that an "old" loan has been paid off. In
a sale or refinance transaction the "old" lender gives a
signed "reconveyance" to the new lender through escrow
with a "demand" to pay all outstanding monies at close
Standard language in every deed of trust binds the
beneficiary/lender contractually to provide a "reconveyance"
upon payoff. But in the case of private lenders, such as
Narraway, all an escrow has to do is promise to
pay off the loan. See this typical
request/promise from Stewart Title escrow to Mr.
This is because, unlike institutional lenders, private
lenders, as a condition of the new lender obtaining
title insurance, are required to provide the "reconveyance"
before getting paid. Narraway therefore had no
choice but to provide a "reconveyance"
before getting paid and the banks as the new
lenders took unconscionable advantage of that fact. They
knew exactly what they were doing. They exploited the
On each refinance, Narraway was requested by the escrow
officer, to provide a deed of "reconveyance" into escrow
with a promise of getting paid at closing. But in each
case the escrow officer gave the money to Jim McConville
Imagine Mr. Narraway's shock when he realized escrow had
recorded his "reconveyance" but he was not going to get
paid. That strikes at the very heart of the system. The
banks used escrow as an instrument of fraud on behalf of
a favored borrower, Jim McConville.
There are built-in safeguards to prevent this from
happening. Unfortunately they rely mainly on the fact
that a new lender has a duty to ensure that any deed of
trust recorded prior to theirs is paid off and "reconveyed".
(In some rare occasions a "subordination agreement" may
be recorded). Each new lender is therefore expected to
protect its lien position by including in its "escrow
instructions" a requirement that a "reconveyance" be
obtained from any "old" lender in exchange for being
paid off and to ensure that "escrow instructions" are
carried out exactly.
The key to the whole system is the final "settlement
statement" from escrow. It will
confirm that the payoff was made. If the
"settlement statement" does not show a payoff to the
"old" lender, the new lender will know that its escrow
instructions were not complied with.
To that end most lenders require a certified estimate
"settlement statement" prior to funding and a
"settlement statement" within 72 hours of closing. Both
the new lender and the escrow sign off on that final
"settlement statement". It is usually placed at the very
top of each transaction file. Everybody involved in
lending knows its primary importance.
It is impossible therefore for a "reconveyance" to be
recorded without the "old" lender being paid off i.e.
without fraud being committed on the "old" lender,
either negligently or deliberately. It is impossible for
an escrow officer not to notice that it has all that
money left over in its trust account. We licensees are
required to keep a separate trust account for each
transaction and balance each at the close of escrow. I
know from personal experience that it would be
impossible for me to balance my trust account if I
"forgot" to pay off an "old" loan.
Was it fraud or negligence on the part of the banks in
the case of Narraway's three refinancings by McConville?
If it were just one case and somebody other than Jim
McConville involved, it might possibly be negligence or
oversight. But all three! With McConville as the
Mr. McConville appears to have had a lot of bank and
escrow officials in his pocket. Something as fundamental
as three "settlement statements" not complying with
their "escrow instructions" simply cannot happen without
collusion. Lightning doesn't strike the same place
23-29 Abbey St., San Francisco. Here is
deed of trust dated May 12, 2004 securing his loan
of $345,000 to Jim McConville
Sapphire Park House Corp. It was in second
place behind a first
deed of trust to Sequoia Mortgage for $1,085,000
dated February 7, 2005.
April 4, 2008
McConville refinanced the Sequoia loan with a new
deed of trust to Wachovia Mortgage. This is when the
lender-escrow fraud took place.
Here is the "request
for demand" from the escrow holder. As you can see
the request contains a promise that his loan will be
paid off through escrow. That did not happen, despite
Mr. Narraway having executed and returned the "reconveyance"
provided by escrow.
It should be noted that an "old" loan holder is not a
party to the escrow. Nor are they covered by any title
insurance involved. They are entirely relying on the new
lender who, acting through its escrow agent, is entirely
responsible for their agent's actions.
The new "lender's
closing instructions" clearly stated that no
secondary financing was permitted. Furthermore, on page
3 of the Wachovia
deed of trust the borrower, Jim McConville promised
that there would be no other deeds of trust, no
secondary financing, recorded or unrecorded.
Yet here is the "settlement
statement" showing a payoff of the old 1st loan of
$1,085,000 to Sequoia Mortgage but no payoff of the old
2nd loan of $345,000 to Mr. Narraway. Clearly Wachovia's
"lender's instructions" and Wachovia's "settlement
statement" did not agree. It is impossible for
Wachovia's officials not to have noticed that. It is
fraud by Wachovia on Narraway through its agent
the escrow holder.
Wachovia is now foreclosing on McConville who owes
Wachovia $36,267.24 in back payments as of July 21,
2009. Here is the
NOD. Can Wachovia give clear title to a subsequent
purchaser? Can it ignore the lender-escrow fraud? Mr.
Narraway still has not been paid. If so we have lost our
real estate escrow system. This case will ultimately be
decided by a judge.
3050 Fruitvale Ave., Oakland. Here is
deed of trust dated December 30, 2004 securing his
loan of $300,000 to Jim McConville as
Sapphire Park House Corp. It was in second place
behind a first
deed of trust to Marin Capital for $1,425,000 dated
October 16, 2003.
On January 12, 2006 McConville refinanced the Marin
Capital loan with a new
deed of trust for $1,960,000 to LaSalle Bank. Again,
this is when the lender-escrow fraud took place.
As with 23-29 Abbey St. in San Francisco Mr. Narraway
provided escrow with a "reconveyance"
relying on a promise that his loan would be paid off in
The "reconveyance" was recorded but Mr. Narraway never
received his $300,000.
Again, LaSalle's "lender's instructions" and LaSalle's
"settlement statement" did not agree and it would be
impossible for LaSalle's officials not to have noticed
it. Therefore it is fraud by LaSalle on Narraway
through its agent the escrow company.
On March 17, 2006 a strange thing happened. McConville's
daughter, Nicole McConville, recorded an unsolicited "deed
of trust" in favor of Narraway for $300,000. But she
signed on behalf of another McConville company,
Diamond House Development Corporation,
that did not own 3050
Fruitvale Ave. Was she trying to put right the damage
done to Narraway? Did she think he would accept a new
(flawed) deed of trust instead of getting paid off?
It should be noted that anybody can record a deed of
trust against a property they own (or do not own for
that matter) in favor of anybody in the world. The
grantee does not have to be asked and may not even know
about it. Narraway was not asked. Again, that is our
An even stranger thing happened recently.
the person who signed the LaSalle
deed of trust on
January 12, 2006 as CEO and Secretary of McConville's
company Sapphire Park House Corp., handed Mr. Narraway
an affidavit saying that he never was CEO or Secretary
of any of McConville's companies or any other company
for that matter. Mr. Thomas was employed as a general
handyman by Jim McConville and says that McConville
routinely threatened him with dismissal if he did not
sign papers and that he had no idea what the papers he
Despite full knowledge of the LaSalle escrow not having
paid off Narraway at the LaSalle refinance, Wells Fargo
Bank, claiming to be the current owner of the LaSalle
loan, is now foreclosing on McConville who, according to
NOD dated August 21, 2009, owes Wells Fargo
$285,754.10 in delinquent payments, in addition to the
original sum of $1,960,000. Did McConville ever even
make a payment? Was the whole thing just a bank present
of $1,960,000 to McConville?
Can Wells Fargo now blithely wipe out Narraway and give
clear title through a foreclosure sale to a subsequent
purchaser? Can it ignore the lender-escrow fraud which
it has purchased? Mr. Narraway still has not been paid!
If so we have lost our real estate escrow system. As
with Abbey St., this case will ultimately be decided by
126 Belle Ave., Pleasant Hill. Here is
deed of trust dated August 12, 2004 securing his
loan of $130,000 to Jim McConville as
Sapphire Park House Corp. It was in second place
behind a first
deed of trust to Marin Capital for $322,000 also
dated August 12, 2004.
On March 10, 2008 McConville sold the property to a
person he has used extensively up and down the state as
a "straw buyer". The "straw buyer" obtained new finance
from the Bank of America, a 1st
deed of trust for $417,000 together with a new 2nd
deed of trust for $53,800 also from BofA and on the
Again, Mr. Narraway provided a "reconveyance"
upon a promise of being paid off in escrow. The escrow
closed but he was never paid off. Here is the "settlement
I noticed that there were no payoffs shown on the
settlement statement, so I did a search for a "reconveyance"
of the Marin Capital deed of trust for $322,000 dated
August 12, 2004. I was surprised to find that it had
reconveyed, presumably paid off, on January 1, 2007.
I checked to see if there was a related sale or
refinance at that time. There was none. Why did Marin
Capital get paid off but Narraway did not?
Following payoff of the Marin Capital loan on January 1,
2007, Narraway's August 12, 2004 loan for $130,000 was
now in first position. It is clearly shown as Item 9 on
Preliminary Title Report
dated February 20, 2008, a short time before close of
escrow on March 10, 2008. It is impossible for
the Bank of America not to have known about Mr.
Narraway's loan. What did they think happened to it? It
was not shown as a payoff on the "settlement statement".
There is a clear pattern here. Three institutional
banks, one a direct lender, the Bank of America,
cooperated with McConville in turning a blind eye to the
fact that Mr. Narraway's loans were reconveyed but did
not appear on the "settlement statements" as having been
paid off. McConville could not have pulled off these
frauds without the cooperation of the banks.
It is clear to me that McConville did not act alone -
the banks were his accomplices.
The full bill for San Diego's
is finally being presented. 09/18/09
by Pat Flannery
The SDCERS Pension Board made a "tough decision"
Here is the actuary's full presentation showing all
of the Board's grim options.
Below are the two
options the Actuary "could live with", the Board
chose Option 1 - no change.
It is but a
foretaste of the devastating
impact pension over-benefiting, much of it illegal, will
have on San Diego city services for decades to come.
Deeper and deeper cuts will be the price future
generations of San Diegans will pay for the gross
employee-dominated pension boards over many years.
cry of "you promised"
(in reality the city employees promised themselves) from
employee attorney Ann Smith will echo through the city
services budget for a long, long time to come. The
bitter battle she won over Mike Aguirre regarding
illegal retroactive benefits will be remembered every
time future mayors are forced to make deeper and deeper
service cuts to fund the over-benefited pensions of
hundreds of San Diego
Angry citizens protest walling off Broadway Pier for a
private cruise ship company - Carnival Cruise Lines.
by Pat Flannery
The bankers were the bank robbers.
by Pat Flannery
Does the Federal Government have a conflict of interest
with regard to bank fraud?
Fraud is defined as "an act of deliberate
deception with the intent of securing something by
taking unfair advantage of another." The banks practiced
deliberate deception in creating and selling mortgage
loans and took unfair advantage of both borrowers and
investors with these loans.
I have investigated mortgage fraud in several projects
throughout California. In all cases it is clear that the
fraud was top-down not bottom-up. Fraud was committed
by the banks not on the banks.
It is impossible to believe that the bank officials who
approved hundreds of these fraudulent loans were unaware
of the fraud involved.
An honest banker does not fund multiple "owner-occupied"
loans to one person in one day when that person lives in
a different part of the state and is in the military.
They even made loans to people who were not employed and
now blame the borrower. To my knowledge none of these
crooked bank officials have been arrested or charged.
Instead of prosecuting them the U.S. Government gave
them hundreds of billions of taxpayer dollars. But this
"bailout" money did not go to the investors who
purchased the bad loans, it went to the banks who
created them! Those banks had already received full
value for those loans from pension funds and other
investors. That is a government handout, not a bailout.
It is corruption on a scale never before imagined.
Most of these crooked loan officers are now senior loan
officials with the big banks that took them over. The
Bank of America took over Countrywide, Chase took over
WAMU, Wells Fargo took over Wachovia etc. They are still
there because Obama and Geithner want them there.
Do these two Cabinet Secretaries
therefore have a conflict of interest?
Eric Holder -
Can Secretary Holder take away what
Secretary Geithner has given? Holder can hardly send in
the FBI to arrest former Countrywide loan officers, now
top executives with the Bank of America, a bank to which
Geithner has given tens of billions of dollars. You see
this article in the New York Times. The SEC has
former Countrywide officials a license to practice
their former trade in a new
publicly quoted company, buying up for pennies on
the dollar the fraudulent loans they created while
working for Countrywide. It is like staffing a city fire
department with known pyromaniacs.
By rewarding the bank fraudsters Geithner has
emasculated the Federal securities laws to the point
where mortgage-backed securities are now "backed
by nothing but the blue skies of Kansas" i.e. we
are back to the days of "blue sky" laws before the
Securities Act of 1933.
Obama is further diverting attention from the SEC by
having Holder go after the CIA for its interrogation
methods, instead of having Geithner go after the banks
for securities and mortgage fraud. How Obama handles
this financial nuclear bomb will define his presidency,
not health care, not Afghanistan. If he continues to
reward this internal fraud it will cause the world
community to lose confidence in our currency. A collapse
of the dollar would collapse America's power quicker
than any terrorist act.
America's power is based, not upon arms, but upon
confidence in the dollar. The world is therefore far
more interested in how we deal with our internal fraud
problem than how we deal with "enhanced interrogation"
of alleged foreign terrorists. The threat to America is
far greater from within than from without. The greater
danger is not in Afghanistan, it is in Wall Street.
From what I have seen, as just one individual, we need a
full-blown government investigation into mortgage fraud.
It has devastated our public pensions and poisoned our
financial securities. These fraudulent banksters are
worse than mere bank robbers, they have all but
destroyed the American financial system. And they are
Hueso muzzles public comment on the Embarcadero.
by Pat Flannery
I went down to City Council today to give the
Councilmembers a "heads up" on the vote they must take
on September 15, 2009 regarding the proposed
Amendment to the Embarcadero Joint Powers Agreement
(JPA). The JPA Amendment, if passed, would authorize
CCDC to pay for "improvements' that would effectively
turn the Embarcadero into a marine dock subject to the
same Homeland Security requirements as the Tenth Avenue
Port District's web site clearly shows that access
to the B Street Cruise Ship Terminal is currently
subject to the same strict security as Tenth Avenue
Marine Terminal. The City Council needs to know that the
Broadway Pier Cruise Ship Terminal, if approved, will
become a marine terminal under Federal Law: the
Maritime Transportation Security Act.
This is part of that law: the
"Transportation Worker Identification Credential"
known as TWIC. It means that the City is lying to you
when it says that the public will have access to
Broadway Pier after it becomes a cruise ship terminal.
Federal Law says otherwise. To underline this deception
the planners call it a "Public Access Improvement"
Hueso didn't want me speaking about turning the
Embarcadero into a Cruise Ship terminal. He knows what
it means: the public will need TWIC passes to get on
Broadway Pier. A previous public speaker had referred to
the Embarcadero when making a general point about "bad
decisions by City-appointed officials". He talked about
CCDC and some Port Commissioners in terms of conflicts
of interest resulting in giveaways. My subject was quite
different, the upcoming JPA amendment vote. Nevertheless
Hueso seized upon that excuse to suppress my comments.
An hour earlier he had sent George Bianci, the City
Clerk's assistant, down into the audience to question me
on what I intended to speak about. I told him that I was
going to speak about the September 15th vote on the JPA
amendment. Obviously Hueso did not want that to happen.
were dozens of other public speakers. Many of them spoke
on the same subject e.g. homelessness, as people do
every week .
Hueso used his power as Council President to send the
City Clerk down to muzzle me and when that didn't work
he tried to rattle me and put me off my message.
He kept me waiting until the very last. If I sounded a
little nervous at the end it was because when a Council
President abuses his power to that extent it can be a
little challenging at the mike. He did succeed in making
me forget some of what I had intended to say, but I
think I achieved what I went there to do: to put the
Councilmembers on notice that their vote on September
15th is critical to the long-term use of the waterfront.
Hueso did not want me lobbying them. He badly wants an
affirmative vote on that JPA amendment. He has
promised private use of the waterfront to the special
business interests who are supporting him for the State
Assembly. One member of the audience protested Hueso
interrupting me. The Council President is not supposed
to do that during non-agenda public comment. It is the
one time when the public gets to speak. But Hueso would
suppress even that. He does not serve the public
interest, he serves only those who pay for his political
Steve Cushman promised a Convention Hotel to his
by Pat Flannery
makes me an honest man" said Steve Cushman Chair of the
San Diego Port District, when he and Mayor Sanders
broke ground on the Harbor Drive Pedestrian Bridge on
October 23, 2008.
He went on to explain: "Over five years ago I promised
the Hilton Corporation that they would have a bridge the
day they opened". That's what Steve does. He promises
things to corporations. The trouble is, he keeps his
promises and, according to him, that makes him an honest
I have been studying some of Steve's other promises -
Landing LLC for example. His promise to that
corporation is what the Convention Center Expansion is
all about. It may be his biggest yet. It involves his
old friends Arthur Engel and Ray Carpenter, owners of
Landing LLC. Like Steve they have been around for a
long time and have business interests up and down the
port. In many ways these three believe that between them
they own it.
and Carpenter have a lease from the Port on the land
upon which the proposed Convention Center Expansion
would sit. It is marked in red opposite.
They would gladly sell it back to the Port for their
asking price of $14.5 million and the Port would gladly
But that's not the whole story. They also own a lease on
all the land shown in the bottom right of the picture
(minus a narrow right of way to the Embarcadero Marina
Park behind their property). In addition to all that
they own a lease on the water, that's right, the water
you see in the picture. They currently rent berths to
luxury mega yachts, provide marine facilities to the
Oracle America's Cup challenge and Engel operates
his Harbor Excursions
business out of there.
promise to these two enterprising gentlemen is to
facilitate the permits and financing of a 250 room hotel
which Engel and Carpenter hope to build, as shown on the
left side of the picture opposite.
Note the Convention Center Expansion that if built would
essentially be an annex of their hotel. It doesn't get
better than that for a hotel owner.
If Cushman gets his way, his friends at
would get $14.5 million for what is currently
essentially a parking lot lease; it would retain a lease
on the very valuable ground the hotel would sit on and
it would retain the lease on what is billed in
international yachting magazines as one of the finest
mega yacht facilitates in the world. It is good
business to know an honest man like Steve Cushman. He
keeps his promises.
Mayor Sanders was at first cool to the idea of spending
almost $1 billion on a Convention Center Expansion that
many believe the City does not need right now, but once
Steve "explained" matters to him he came around. Here is
his hand picked
Citizen Task Force Report. Of course they looked at
various other options but eventually agreed that Cushman
knew best all along. That is why they were
hand-picked. That's how things are done in San
Bear in mind that the Port does not own any
land. It is merely trustee of tidelands on behalf of the
People of California. The trouble is that Cushman thinks
the Port owns the tidelands and that he and a few of his
friends own the Port.
Kevin Faulconer's "Elephant on the Waterfront".
Come on down! "This is a good project" beams Kevin
Faulconer, the City Council's salesman for Carnival
Cruise Lines on Broadway Pier, on July 28, 2009.
I expected any moment to see Cal Worthington riding
down the center aisle of the Council Chamber on the
elephant he called "My Dog Spot". Kevin almost broke
into a Carnival Cruise version of Worthington's "If you
want a car or truck, go see Cal, if you want to save a
buck, go see Cal." If you want to bait-and-switch, a
Marine Terminal for a Park, go see Kevin.
We still have a chance to move this monster from our
front porch to the 10th Avenue Marine Terminal, where it
The original NEVP design was fine, before Faulconer "porked"
it up. It is this Cushman/Faulconer bait-and-switch
"Park-to-Cruise-Terminal" amendment, that is the
But he is not home and dry yet. To fund
his toxic "pork" project he has to get this
Joint Exercise of Powers Amendment
passed at City Council on September 15, 2009. He is
attempting to amend the Joint Powers Agreement without
amending the Port Master Plan because the latter would
require public hearings. Only a slick PR guy like
Faulconer would attempt to pull off something like that.
All the public hearings he now brags about, took place
before the "Park-to-Cruise-Terminal" switcheroo.
The public was never consulted on the new Cruise
As part of this ugly deal he wants to move $9 million
from the C Street public works project to his Carnival
Cruise private project, which means in effect that his
Broadway Pier monstrosity is being partially funded by
the eminent domain "taking" of private property in
Grantville, from where redevelopment money is being
shifted to C Street.
Here is the
proposed budget Amendment for September 15, 2009.
There is nothing a well-connected business cannot do if
it has friends in high places. Kevin Faulconer is a
businessman, not a public servant. With his background
in PR and lobbying, he uses his seat on the City Council
to advocate for gifts to private businesses, such as
Carnival Cruise Lines.
Below is what the B Street Cruise Ship Terminal has done
to our embarcadero already. The excuse is "security".
This is not construction, this is permanent. Look at
that spiked iron fence and those guards. That is what
Broadway Pier will look like. Carnival will "secure"
Below is what Broadway Pier looks like today. Do
Not Enter signs everywhere. And Faulconer wants his
San Diego City Council colleagues, on September 15th,
to vote the money for a
terminal on our priceless Broadway Pier. For the loss of
our Pier and our tax dollars we will get more
Do Not Enter signs. That's your "Good Project"
Kevin? No! We're not buying! And any Councilmember who
votes for it will face an outraged citizenry.
Make no mistake about it, Carnival Cruise Lines will
post guards on Broadway Pier as they do right now on B
Street, even more, because B Street is only a
"port-of-call" while Broadway Pier will be a
"home-port". They have to keep the terrorists out,
right? They will own Broadway Pier.
I have lived in San Diego for 33 years and I have never
seen anything as outrageous as this. They have turned
our gorgeous embarcadero into a working docks and call
it "visionary". If Faulconer rams this through
City Council on September 15, 2009 he deserves to be
The battle lines are drawn in the fight for Broadway
by Pat Flannery
I have obtained a copy of the
implementation agreement for the
"North Embarcadero Visionary Plan" (NEVP). The Agreement
is known as the "Joint
Exercise of Powers Agreement" (JPA). It is an
important document because its stated purpose is
"funding, designing and constructing" a project defined
as "the use and development of the North Embarcadero
area", as outlined in a boundary map called "Attachment
A", which includes Broadway Pier.
It means that the Port is trying to have it both ways.
On the one hand it claims exclusive jurisdiction over
Broadway Pier and wants to develop it as a cruise ship
terminal for Carnival Cruise Lines, while at the same
time it wants to act as part of the "North Embarcadero
Alliance Visionary Plan" through a "Joint Exercise of
Powers Agreement" with the City and CCDC.
The development of this area is governed by various
planning documents including this
Coastal Development Permit (CDP) which is
currently in the De Novo stage of the California
appeal process. The
Commission recently found
a "Substantial Issue" (SI) regarding (among other
findings) a "public plaza" area switched to truck access
for a proposed home-port cruise-ship terminal on
Broadway Pier, which was
as an oval-shaped park in the "Park/Plaza"
segment of its core planning document - the
Port Master Plan.
That switch is unacceptable to the public and to the
This tactic by the Port has been described as a
"bait-and-switch" by members of the public who have
already filed two lawsuits, one by the
Public Rights to Bay Access and Parks and one by the
Navy Broadway Complex Coalition. Both groups allege
that the Port's departure from its approved
Port Master Plan
makes the cruise ship terminal illegal.
They are right.
competing uses, Cruise Ships vs. Park, are mutually
exclusive. One use must give way to the other. Therefore
the looming battle will take place within this re-drawn
Square, where a
Park was sacrificed for a truck access/security zone
serving the Carnival Cruise Terminal on Broadway Pier.
We may yet see the San Diego equivalent of
Beijing's "Tank Man", confronting a line of cruise
ship refrigeration trucks trying break through to the
A better name for this whole Port (Pork) Project might
have been the "North Embarcadero Carnival Cruise Lines
Visionary Plan". It was certainly visionary from
If the Port wins this battle there could be up to four
cruise ships berthed at North Embarcadero at one time.
Each giant cruise ship requires 12 megawatts of power while
berthed. Therefore approving the berthing of four cruise
ships is equivalent to building four diesel-burning
power stations on the Embarcadero.
Right now there is no shore power (cold-iron) available
for any ship on the Embarcadero. The Port proposes to
spend $6 million for trenching and cables to draw 12
megawatts from the nearest SDG&E substation, enough for
one ship only. After that SDG&E has no more capacity in
the area and has no plans to add any. Cruise ships
however, prefer to generate their own electricity. Can
you imagine the hydro carbon they discharge? It is more
than all the car engines downtown at any one time.
To justify this, the cruise industry quotes an
(unsubstantiated) "economic benefit" of $2 million per
call, which Cushman and Faulconer parrot like the former
car salesman and former PR guy they are. If the figure
were true, each of the ship's 2,600 passengers would
have to spend $770 per call ($2,000,000 ÷
2,600). That's a lot of pedicab rides. Sorry Steve &
Kevin we're not buying it.
Apart from the legal challenges, I can see the public
outrage taking many new forms. It is just beginning to
dawn on San Diegans the fast one Steve Cushman (Port),
Fred Maas (CCDC) and Kevin Faulconer (City Council) have
pulled. The downtown condo owners are the worst hit.
They are being told that there is no money to build a
train "Quiet Zone",
so they can get some sleep at night, yet CCDC is willing
to finance a cruise ship terminal that belongs at the
10th Avenue Marine Terminal and is willing to help
permit a joint project that is the equivalent of four 12
megawatt power stations a couple of blocks from the most
expensive waterfront condos.
The pollution from these cruise ship smoke-stacks is
blowing right into condo owners' bedrooms as they lay
awake listening to the continuous honking of train
horns. Yet it is these condo owners who provide the
lion's share of CCDC's Tax Increment revenue.
Because of the way Prop. 13 works, it is the condo
owners who pay for downtown redevelopment, not the
businesses who get all the grants and public amenities,
while there is a serious park deficit for residents.
Residential condos have a much higher
per square foot assessed value than commercial
buildings. The combined assessed value of any condo
building downtown is many times greater than any
equivalent-sized office or hotel building. I added up
the total assessed value of a few downtown condo
buildings and was amazed when I compared it with the
assessed value of similar office and hotel buildings
nearby and of the same age.
This inequity is compounded by the fact that many owners
of older commercial buildings hide behind LLCs or
corporations to avoid a reassessment when there is a
change of ownership. Many such buildings have not had a
reassessment since 1978 yet equitable ownership (of the
LLC or corporation) has changed many times.
Now, these hard-pressed condo owners will have to listen
to refrigeration trucks rumbling through the night
delivering tons of booze and food to home-ported
Carnival Cruise Lines mini-cities.
They will have to breathe the fumes from
refrigeration trucks lined up all night along Broadway
with their engines running. And CCDC is promoting living
downtown? This may break the camel's back and drive many
potential buyers away.
It seems to me that the City and CCDC are shooting
themselves in the foot. The over-taxed,
under-appreciated, long-suffering downtown condo
dwellers should ponder all this as they lay awake at
listening to this. It is time the condo owners
claimed ownership of their downtown.
"Cushman's Gift" - the Privatization of Broadway Pier.
by Pat Flannery
Carnival Cruise Lines currently loads the
food and booze for its 2,600-passenger cruise ships
together with their personal luggage. The site is part
of the well-equipped Port of Los Angeles, designed to
handle the heavy traffic associated with provisioning
such large ships.
San Diego has
the perfect location for a cruise ship home-port to rival Los
Angeles, Miami or anywhere else in the world: our
10th Avenue Terminal. Here is
a schematic and an aerial view:
Note the vacant transit sheds, the proximity of
freeways, the truck parking and the berthing space equal
to or better than Los Angeles. But Port Commission
Chairman Cushman wants to appropriate Broadway Pier for
the private use of Carnival Cruise Lines as its home
Below is how the Broadway Pier and its civic park is
depicted in the Port District's Master Plan. Yet, as
recently reported by KPBS, Cushman "doesn't
even remember" ever seeing such a Plan. That's what
being Chairman of the Port means to this
Sanders-appointed Commissioner - the ability to give
away a public asset and not even remember you did it.
Having given away the Pier he then had to give the
cruise line a driveway. So he just scratched the civic
park. You would think he would remember something
as big as that. Either he is lying or he has
Alzheimer's. I suspect it is "Political Alzheimer's".
Sanders has had it for a long time.
In any case, Cushman and Sanders must not be allowed to
get away with this giveaway. We are business-friendly -
but not that friendly. There is a big difference
between a "port-of-call" and a "home-port". A home-port
facility needs a port environment. The Embarcadero is
not a port.
Coastal Commission takes charge of the Port's permit.
by Pat Flannery
is a video clip of the California Coastal Commission
taking over jurisdiction of the Coastal Development
Permit the San Diego Port District issued to itself
putting a "home port" cruise ship terminal on Broadway
Pier, in breach of the Port Master Plan previously
approved by the Coastal Commission.
Here is the flow chart of the Commission's
appeal process that found a "Substantial Issue" (SI)
supporting a De Novo Coastal Commission hearing
that will decide whether the North Embarcadero Project
gets its Coastal Development Permit or not,
sometime over the next 6 months.
Congressman Filner weighs in on waterfront issues.
by Pat Flannery
Congressman Bob Filner points to cumulative
issues that the Coastal Commission must consider on
Friday when it will decide whether to uphold or deny an
appeal against a Coastal Development Permit
issued by the Port allowing it to renege on its
promise of a 10 acre park at the bottom of Broadway. In
Press Release today Filner says:
"The California Coastal Commission is
correct that an update to the Port's Master Plan is
required in light of the many development projects
approved over the last two years including the Navy
Broadway Complex and offsite parking, Lane Field North,
Lane Field South, the B Street Pier Cruise Ship
Terminal, the Broadway Cruise Ship Terminal, Rucco park,
the Old Police Headquarters, the deletion of the 10-acre
gateway park and the planned public park and open space
on the Broadway Pier."
It is now looking more and more like a full-blown update
Port Master Plan
is inevitable. There have been too many "accommodations"
to business interests, who never seem to be satisfied.
The cancelling of a 10 acre "gateway park" was the straw
that broke the camel's back.
Up until last week the Port still thought it could "work
things out", that it could square things with the
Coastal Commission. The San Diego Union-Tribune reported
August 5, 2009: "Rather than
fight the appeals, the port plans to work with the
commission staff to sort out differences. “There may be
some changes made to the plan,” Helmer said, adding that
one change that will not be made is restoration of the
large oval park."
That sounds like wishful thinking. The "accommodations"
have gone too far. "Sorting out differences" behind
closed doors will put the Port and Coastal Commission in
breach of the California
Brown Act. If the Commission votes to uphold the
Coastal Development Permit the Port issued to itself,
based upon faulty CEQA findings, it will undoubtedly be
added as a respondent in this
Tideland Activists sue Port Commission over
by Pat Flannery
This is New York's
Washington Square sitting at the foot
of Fifth Avenue, its triumphal arch modeled after
Arc de Triomphe in Paris, pointing up Fifth Avenue
past the Empire State Building all the way to Central
Park. It is a sight that makes every New Yorker proud.
Developers, most notably
Robert Moses, wanted to run Fifth Avenue through
this square to the Hudson waterfront. But thanks to
dedicated activists like
Jacobs the NY park is still there.
Look at the ten acre
Landing Park San Diegans were promised by the
Unified Port of San Diego in its
core planning document, the
Port Master Plan
(PMP). On page 73, Figure
an oval-shaped park.
It later incorporated by
reference the entire
North Embarcadero Visionary Plan
(NEVP), which included a
Broadway Landing Segment,
centered on the Broadway Pier,
illustration of the oval-shaped park.
Without doing a Port Master Plan
Amendment, the Port is attempting to drop this
Broadway Landing Park.
The Port says it is merely moving planned "green
around. In a
Press Release the activist group accuses the Port of
"trying to cancel
three major public parks on downtown San Diego Bay
tidelands -- Broadway Landing Park, Broadway Pier, and
"green spaces". It
alleges that there
is not one blade of grass left in the North Embarcadero
Visionary Plan -
that "landscape" has become
North Embarcadero Visionary Plan (NEVP)
was very specific regarding this Broadway Park:
"Because of its one-sided configuration, with buildings
only to the east, the scale of the bay gives the space
an expansive feeling larger than its actual size, much
as in Baltimore’s Inner Harbor or the harbor in
"It is a landscaped public open
space, accommodating recreational activities on a daily
basis or large public gatherings. The park includes a
central plaza punctuated by a landmark element such as a
fountain or sculpture, orienting visitors and drawing
attention to this important public precinct."
According to the activists, that was all just car-sales
talk. Port Commission Chairman Steve Cushman,
is an ex-car salesman.
His car sales motto was
"We're not satisfied 'till you are". The
activists say: "we're not
satisfied Steve. Far from it. You sold us a lemon".
It seems that Cushman and his Commission never had the
slightest intention of doing what it promised.
The Broadway Landing Park was huckster bait-and-switch
from the start. Here is a
pretty picture of the 1 1/2 mile Embarcadero
Visionary Plan. The centerpiece was to be the
Broadway Park, designated green space in the Port
The Port Commission is dominated by the hotel and
tourism industry. While its PR team was showing the
citizens pretty pictures of oval parks and leafy
esplanades, it was busy planning a "Greyhound
Station" for a gaudy Miami-based cruise ship operator on
the video of
Cushman announcing how they had
"obviously waited for this day for a long, long time".
Yes Steve, obviously you have been planning this
bait-and-switch for a long, long time. That was why the
hotel industry lobby broke the term limit law to get you
a third term. This
traffic circulation plan was finalized in 2006,
indicating it was planned a long time ago.
To fully appreciate the enormity of this
bait-and-switch, compare what Cushman broke ground on
and what was promised. Here is the promise:
Here is the ugly bus-and-truck
circulation system taking up half the pier's length.
There is a big difference between a "port-of-call"
cruise terminal, which we already have, and this "home
port" cruise terminal we don't want.
It takes approximately six hours for embarkation and
three hours for disembarkation at a home port. And now
they want to put one on our front doorstep!
architect for this unbelievably ugly building, Luis
Ajamil, describes on
how difficult it was to
"find places" for home port
I'm not surprised. Look at it. It's an ugly customs shed
- on our civic pier.
Carnival Cruise Lines San Diego's front door
- Broadway Pier itself. He justifies
this outrageous civic give-away on
the video by
"we need to keep up with competing
ports". Other ports are lining up to donate their
front doors for ugly cruise terminals? He and his
architect might at least try to get their stories
If this is allowed to stand there will be buses and
supply trucks clogging Broadway, backed up all the way
to Horton Plaza. As proof of this, the Port had to hire
Okitsu & Associates (KOA), a large traffic
engineering firm, to design for this massive loading and
off-loading nightmare. Read how KOA planned the Ground
Transportation Area (GTA) in the
Addendum to the NEVP Master EIR and CEQA Initial Study.
This thing belongs at 10th Avenue not at Broadway Pier.
According to Kevin Faulconer,
Carnival Cruise Lines
will load and offload one million bodies per year (Faulconer's
together with their luggage,
right on our front doorstep. That represents 384
ship calls per year (1,000,000 ÷ 2,600). Each time a
Carnival Cruise Lines
ship arrives, 2,600
transient cruisers will be processed through this 50,000
square foot, two-story, tin shed.
Carnival's spokesperson was
"pleased to be here almost five
years later to celebrate this major milestone",
confirming the fact that for five years Carnival and
Cushman have been conspiring on how to
use public funds to build this private facility on a
public pier. Cushman wants to put the naming rights out
for bid. Will anybody bid? Carnival will probably get it
for $1. They should then name it "Cushman's
The Port Commission has been feeding pretty pictures to
a gullible media and people, showing oval parks with
water fountains in front of a geranium-covered Broadway
Civic Pier, while all the time they were conspiring
behind closed doors with a Miami-based cruise ship
operator. Councilmember Kevin Faulconer's job, in whose
District it is, was to smooth-talk its entitlements
through the City and its developer-controlled CCDC. Who
does Faulconer represent? Certainly not the citizens of
San Diego. At heart he is still a big-business PR guy
Everything in San Diego is for sale. It is a "business
Will they get away with it? Maybe not. The California
Coastal Commission is not happy. Here is a
letter dated April 2, 2009 written by its Coastal
Planner, Dianna Lilly, to her opposite number, John
Helmer, at the Port Commission,
commenting on the Port's
Addendum to its original
Environmental Impact Report (MEIR). Ms. Lilly
points out, among other matters, that the oval-shaped
park has been
"redesigned as a driveway
to the proposed new cruise ship terminal on Broadway
Pier". Did they think she wouldn't notice? Or do
they think they have the political muscle to ram the
Coastal Development Permit through at Commission level?
Even if they do, California (CEQA) law is very clear:
you can't make major changes to a Master Environmental
Impact Report (MEIR), as the Port is attempting to do,
by simply writing an "Addendum". Major changes
must be done through an "Amendment" process, which
involves public hearings. That is why Cushman ignored
Ms. Lilly's April 2, 2009 letter. To comply would have
required public hearings! The bait-and-switch cat would
be out of the bag.
So Ms. Lilly wrote them again on
July 2, 2009. This time she spelled it out:
"the Port Master Plan is not a guidance document;
the policies and standards contained within it are to be
followed closely and specifically."
Then her coup de grâce: not only must the
policies and principles of the Master Plan be
consistently and accurately implemented, the Plan
includes those represented graphically and
Remember that graphic
Port Master Plan
narrative incorporated by reference from the
North Embarcadero Visionary Plan? They are part and
parcel of the core planning document - the Port Master
Plan. It's the law.
Ms. Lilly laid it out:
"Once a policy, figure or project is inserted into the
PMP, it is no longer guidance, but the standard of
review." The oval-shaped park graphically
depicted in the
Port Master Plan
must be implemented or there must be new public
Late on Friday August 7, 2009 came the inevitable
lawsuit. A recently formed non-profit entity, based
in San Diego, called "Public Rights to Bay Access and
Parks" has sued the San Diego Unified Port
District asking for a Writ of Mandate setting aside
and vacating various decisions made by the Port
Commission including "redacting a
PMP-designated 10-acre waterfront public tideland park".
We may now have our own version of New York's
Robert Moses titanic battle right here in San Diego.
Our world image for generations to come is at stake.
Here's how the U.S. Naval Facilities Engineering Command
depicted San Diego's version of New York's
Washington Square on page 33 of its
Environmental Impact Statement (EIS) for its
proposed Navy Broadway Complex.
There was always going to be a San Diego
signature park at the bottom of Broadway extending onto
Everybody, including the U.S. Navy, incorporated that
park into their downtown and waterfront plans -
everybody that is except Steve Cushman and his
Carnival Cruise Lines
The next round in this epic battle will be in San
Francisco this Friday August 14, 2009 when the Coastal
Commission will hear an appeal by various San Diego
citizens against the
San Diego Unified Port District alleging that the
Port's findings in granting itself a Coastal Development
Permit are inconsistent with its certified Port Master
Plan. Many San Diegans are flying up for the hearing.
Mayor Sanders has lost
control of City Reform.
by Pat Flannery
Back in 2006 I opposed
Proposition C, the
ballot measure that allowed the City to employ
outside contractors when the Mayor determined, subject
to City Council approval, that private parties could
provide City services more
economically than City staff. I believed at the time
that it was a cop out (pardon the pun) by Mayor Sanders,
who thought that
"Managed Competition" would do
his reform job for him as City Manager.
Background: the City Council had received a
from the Mayor's office on July 12, 2006 resulting in
the Council passing a "Business Process
as part of the implementation of
the ballot measure that created the "Strong
form of government in November 2004.
The Ordinance described BPR as
"designed to change practices and
procedures in City departments to streamline operations
in order to more efficiently and cost effectively
deliver services to the citizens of the City".
The City Council was very specific:
"in order to implement the BPR the
Mayor will be required to restructure and
reorganize City departments and offices, and to move
personnel between such departments and offices".
There is not one mention of Managed Competition in
either the BPR Report or the BPR Ordinance. That is
important because nothing in the BPR Ordinance required
consultation with unions, while Managed Competition
required "meet and confer" consultation with the unions.
So, the unions set about to create a link. If they could
do so they could use California labor laws to impose a
veto on BPR.
And so it turned out. The whole reform movement has been
stalled for over 3 years. As I predicted, the unions
used Prop C to strangle BPR at birth and Sanders was not
up to the job of countering them. Deep down he was still
one of them.
He did not have the foresight or management skills to
see it coming. BPR made him the Strong Mayor voters
intended, but he allowed the unions to take it right
back from him. He was a better politician than City
manager. Managed Competition was hailed by his
supporters as a hit on the unions. It brought in
right wing political contributions
for his campaign. But that is all it did.
is a video of how the unions and their political allies
have left Sanders looking like an incompetent bumbler.
They are now firmly in charge of "Reform".
Watch how the unions have linked BPR to Managed
Competition. As a result the Mayor's entire "Reform City
Hall" movement is dying on the vine.
More importantly the taxpayers are stuck with the bill.
Sanders allowed the City's employees to acquire a veto.
They have taken ownership of the reform process he was
elected to implement. They call any ideas for
efficiencies and economies their "trade secrets".
Instead of a Strong Mayor form of government we got a
Strong Union form of government. Sanders handed it to
them on a plate.
Does Jerry Sanders have a better
solution to the pension crisis than Mike Aguirre?
by Pat Flannery
Because of the growing re-focus on the City's pension
system, whether it is sustainable or whether it will
drive the City into bankruptcy, I decided to do a
careful study of what the system's actuary had to say to
the pension board last Friday, July 17, 2009. I
downloaded the 3 hour 42 min. video, studied it, then
edited it down to three short segments for YouTube and
overlaid it with this actuary's
resulting video segments give a good overview of what
the "asset corridor" is all about.
The board's actuary, Gene Kalwarski of Cheiron Inc.,
started by explaining that there is nothing sinister
about him bringing the "corridor" before the board at
Back in December 2008,
anticipating extraordinary losses in 2009, he had
promised to do so. In fact, professionally, he was
obliged to advise the board.
First he showed what the recent investment losses did to
the system's assets. The market value of those assets on
June 30, 2008
was $4.70 billion. On June
it was down to $3.77 billion, a $1
billion loss. When you factor in the assumed rate of
return, currently at 7.75%,
(that was not achieved)
the loss was $1.21 billion.
The actuarial loss, using the current 25% "smoothing",
was $680 million. Using current amortization policy,
that loss will be amortized over 15 years. It is these
three elements, the assumed rate of return 7.75%, the
25% "smoothing" percentage and the 15 year amortization
period that are discussed in the rest of the
presentation. These are the tools the board will use to
balance the fund's needs with the City's ability to pay.
He briefly looked at the potential impact on retirees
before tackling the main issue of the impact on the
City's contribution if no changes to the actuarial
methodologies are authorized by the board. He explained
how the Actuarial Required Contribution (ARC) will
increase by 50% from $154 million to $224.8 million in
FY 2011 and by more than 100% to $315.1 in FY 2015,
based on the current 7.75% assumed rate of return. But
we all know that we will not achieve a 7.75% return and
that additional losses are a certainty, therefore the
impact will be much worse.
If the City is not given some relief it
"may force plan sponsors to take
other actions that may be detrimental to SDCERS'
Kalwarski. Clearly the
membership, as represented by the board, has a dilemma.
Hence the "Alternative Funding Methodologies" that has
many citizens and politicians disturbed - should the
City pay now or pay later?
I thought Kalwarski did an excellent job in explaining
the interplay of the three actuarial tools mentioned
above: the 25% "asset smoothing" percentage, the 15 year
amortization period and the 7.75% presumed rate of
return. You may have to play the video a few times to
fully grasp this interplay, but it is worth the effort.
There are few things more important for the city right
It turns out that "asset corridors" or actuarial/market
valuation limitations, are not required by the
"Actuarial Standards of Practice" (ASOPs). But Kalwarski
seems a little skittish about getting rid of it for
SDCERS. He told the board that 50% of Cheiron's clients
have an "asset corridor" and 50% do not and that the top
range of those who do is between 105% and 120%. SDCERS'
actuarial value of its assets is currently 131% of their
market value, well above Kalwarski's comfort zone of
the second video segment Kalwarski gets into the
"squishy" ASOP 44 standard. This requires that actuarial
valuations bear a "reasonable relationship" to the
market value and that differences should be recognized
within a "reasonable" time.
This is where the "asset corridor" becomes an expression
of how "reasonable" the actuary sees the smoothing
period or how "sufficiently short" he sees the period
within which the pension board recognizes the difference
between the actuarial and market valuations. He
explained that when using a 120% "corridor", as SDCERS
does currently, 1/6th of actuarial value is "not there".
He seemed unwilling to "un-recognize" more than that.
This may become very significant for the City.
In his summing up, he also seemed to take a reduction in
the smoothing percentage "off the table". Look carefully
Slide 28. Based upon his apparent reluctance to
extend the "corridor" beyond 120%, one would tend to
guess that he will recommend scenario "D". But "D"
requires a big reduction in the smoothing percentage
from 25% to 10%, which he seems unwilling to do.
Scenarios "E" and "F" seem to be his outer "goal posts".
These two scenarios are practically the same because the
effective current AMA/MVA "corridor" is 131%. He has
repeatedly ruled out a combination of widening the
"corridor" and reducing the "smoothing"
percentage, so "E" and "F" are definitely out.
This means that he will have to recommend either the
status quo "A" or reluctantly bust the corridor using
"B" or "C" ("B" and "C" are essentially the same because
the current effective corridor is 131%). Unfortunately
all scenarios assume a totally unrealistic rate of
return of 7.75%. Nobody has suggested touching that as
lowering it would drive the ARC through the roof. So, we
are caught in a fantasy world of 7.75%.
final segment contains revealing questions from the
board. They do seem to "get it". They know, as one board
member put it, that "substantial things have to happen
at the plan sponsor level". Another board member worried
about whether the fund could survive "if the City were
to have difficulties making these payments".
He called it a "cash burn" issue but I would call it an
"asset burn" issue. Cash is an asset so the fund may
already be cannibalizing itself. The benefit payout is
growing at an alarming rate as hundreds of top level
employees make a rush for the door to lock in DROP and
other disappearing benefits.
Two-thirds of the City's ARC payment currently goes to
amortize the "Unfunded Actuarial Liability" (UAL). And
that is only the pre-2004 debt I call the
"over-benefiting" bubble. Then came the "financial
meltdown" bubble. It is becoming abundantly clear that
the City cannot afford to amortize this exploding UAL
debt at a 7.75% assumed rate of return, or at any other
rate for that matter. The whole concept is fantasy.
The trouble is that the remaining one-third of the ARC
may not be sufficient to cover current benefits, let
alone purchase the income-producing assets that will
fund future payments. If the only way to pay current
benefits is to sell assets, anybody who has ever run a
business knows where that is headed.
My guess is that they will allow massive negative
amortization of the UAL and push it back to a 30 year
schedule. That was the one option that did not draw fire
from Kalwarski. But a 30 year schedule, with or without
negative amortization, has huge problems. It will pump
up the UAL to obscene proportions and cram down the
funded ratio to where it will again threaten the City's
credit rating. And all that is just on paper.
The preservation of real assets must be the
board's top priority. But is it too late? If the system
cannot avoid selling real assets (or burning through its
cash reserves) to pay current benefits, without a
massive infusion from the City just when the City can
least afford it, the system is in a tailspin. Is the
concept of amortizing an imaginary asset (the UAL)
masking an underlying asset/liability instability? Is
the recent "financial meltdown" masking the
"over-benefiting" element of the fund's problem? I think
If I were on the board I would ask
Administrator Wescoe for an absolute assurance that
assets are not being sold to pay current benefits, that
he has a sufficient cash reserve. Even if he has, how
long will it last? Benefit payments are supposed to be
paid out of investment income. What happens when
that income goes negative? What happens when an
investment fund like SDCERS has to sell assets in a
falling market to meet cash calls like monthly benefit
payments? Has that already happened? Is it about to
happen? It has happened at CalPERS.
At the very least the City must provide the cash to pay
the monthly checks. Cannibalism is not an option. Nor is
Defaulting on legitimate debt obligations is not
permissible for a municipality. It is not a private
corporation. That is why municipal bonds carry lower
interest rates. Unlike private bonds they are risk free.
However you look at it, the taxpayer is
staring an annual $300 million pension payment in the face, just
to preserve assets. The "over-benefiting" part is a
self-inflicted wound. We might have been able to weather
the "financial meltdown" storm.
Aguirre tried to have the "Cadillac" over-benefits
declared illegal. He got little support and much abuse.
Perhaps Jerry Sanders has a better solution. If not his
fate will be worse than Aguirre's.
What is going on at the Navy Broadway
by Pat Flannery
Those of us who have carefully followed this waterfront
saga over many years have long believed that there has
been deep collusion between the City, CCDC, the Navy and
Doug Manchester. As the Office of the California State
Geologist put it: “San Diego is playing loose with the
troubled complex is back in the news again since last
Friday July 17, 2009 when Superior Court Judge Prager
finished off the lawsuit brought by a citizen group
called the "Navy Broadway Complex Coalition".
This group is convinced that the City and the Navy are
in breach of State law and is expected to file an appeal
within 30 days.
I sat through the entire hearing before
Judge Prager on April 22, 2009 when he appeared
impervious to any citizen argument but rather bound and
determined to give the Navy and the City what they
Although she is not a party to the lawsuit, nobody
has followed the Navy Broadway Complex (NBC) more
doggedly than Katheryn Rhodes, a
Professional Engineer (PE). As a PE she is licensed
to provide professional civil engineering services to
the public. Ms. Rhodes has been doing just that with
regard to Navy Broadway FREE for several years.
her latest work. She has accused the US Navy, CCDC
and the City of San Diego of conspiracy to commit
"honest services fraud". If proven, that is a
very serious charge. She backs it up with 86 pages of
convincing evidence against the City and the Navy. Her
main focus is on the fact that the City and Navy have
not conducted a valid geotechnical fault investigation
for the Navy Broadway site as required by State law.
All development projects located in an “Earthquake Fault
Zone” (formerly known as a “Special Studies Zone”) are
required to submit valid geotechnical fault
investigations at project submittal. The Navy Broadway
project is located in the City of San Diego’s Downtown
Special Fault Zone as defined in the City's General Plan
and approved by the State, even though not yet shown on
State seismic maps, which are years behind.
How then was the Navy able to avoid doing "a valid
geotechnical fault investigation" at project submittal?
Simple. It did an invalid one.
The Navy hired a company called
Geocon Inc, who
did an investigation and, conveniently for the Navy,
reported that they had found no earthquake fault on the
site. However, on January 9, 2007 Walter Landry the City
of San Diego's geologist, told the City Council that the
Geocon report was inadequate. No qualified third-party
reviewer or government official has ever found the
Geocon report adequate, as required by State law. Nor
has it ever been released to the public.
In a bizarre effort to validate this invalid seismic
report, the Navy brass has grossly misrepresented
Oct 6, 2008 letter from Dr. Hough of the U.S.
Geological Survey to Admiral Herring. Judge Prager
relied heavily upon that misrepresentation. The Navy had
pounced on this partial sentence in Dr. Hough's letter:
"... the section presents a
thorough and up-to-date summary of known geological
hazards to which the Broadway Complex is potentially
exposed". Judge Prager largely based his judgment
The Navy and the City used Dr. Hough's letter, over and
over again, to support their false contention that the
U.S. Geological Survey supports the Navy position. Dr.
Hough has since vehemently denied that it was ever her
intention to comment on, let alone validate, the 2006
Geocon report. She points out that she was merely
offering general comments on a draft Environmental
Assessment (EA) sent to her by the Navy for comment.
Ms. Rhodes: "There
is a high likelihood that the active Coronado Fault,
[located within] the active Rose Canyon Fault Zone, the
State-Recognized City of San Diego Special Fault Zone
and reclaimed Port tidelands, is subject to liquefaction
and strong seismic shaking and traverses the Navy
Broadway Complex exactly were high-rise structures
including the Navy’s proposed West Coast Headquarters
are located in the Master Plan." .... "Osama bin Ladin,
who is a Civil Engineer, could not have chosen a more
unsafe site for our Navy West Coast Headquarters".
What drives this irrational
determination of the U.S. Navy brass to build its West
Coast Headquarters atop a known earthquake fault,
alongside a busy railway track where a ship's container,
loaded in some far away port with just about any kind of
explosive device, including nuclear, that could be
detonated yards away from a high-value U.S. Navy
facility, right in the heart of San Diego's waterfront,
one of the most popular tourist destinations in the
What is going on? It makes no sense for our Navy to be
in such a place. Isn't there somewhere else? It's almost
like they are courting another Pearl Harbor. It just
needs to be stopped.
Anatomy of a
by Pat Flannery
The plight of the 112 unit Sommerset Villas condo
project in Escondido, raped and left for dead by a
veritable gang of institutional lenders and ruthless
developers, calls into question the ability of our law
enforcement and media establishment to deal with the
massive fraud that fueled the real estate bubble. The
following is a progress report on my ongoing
investigation into real estate and loan fraud up and
down the state.
Bob Chemaly is CEO of Ralph Giannella's condo conversion
Premier Coastal Development Inc, a Delaware
Corporation, located at 1010 Turquoise Street Suite 200,
San Diego, CA 92109. Bob lives with his wife Linda in a
3,305 square feet house in La Costa which they
bought in July 2001 for $580,000.
Chemaly has done the heavy lifting for Giannella on
several of his condo conversion and sale projects.
Sommerset Villas are the units featured in a number of
news stories about "straw buyers" recruited by a Bay
Area scam artist named Jim McConville.
I have discovered that Giannella was using "straw
buyers" in the Escondido project long before McConville
came on the scene. In fact his own CEO, Bob Chemaly, was
Giannella straw buyer on one unit. Chemaly pulled a
owner-occupied loan out of it on August 31, 2006 (go
to page 6 for the owner-occupied part). He has now put
as a "short sale" i.e. when a lender accepts less than
it is owed to pay off the loan.
home in La Costa
occupied" condo in Escondido
Chemaly took title and arranged the mortgage in his own
name in order to get an owner-occupied rate. Here is the
grant deed and the 2006
mortgage. He then
switched ownership from himself to
Chanel Partners LLC, one of the many LLCs located in
Giannella's office, 1010 Turquoise Street Suite 200, San
Diego, CA 92109. Giannella sold it to himself.
Chemaly signed most of the grant deeds for the 112 units
in Sommerset Villas
on behalf of Giannela's
North Coastal LLC. But in the case of his own
contribution to the scheme he had somebody called Eric
Gregory, an "authorized signer", sign on behalf of
Broadway Coastal LLC,
another Giannella corporation located at 1010
Turquoise Street. There is no record of Broadway Coastal
LLC ever owning the unit. But Giannella's lenders and
title companies didn't seem to worry much about which of
Giannella's many LLCs owned which properties. They liked
all those loan points and all those fat title fees.
Chemaly is now able to arrange a short sale instead of a
foreclosure. Not every borrower is given that
opportunity. Here are the
short sales to date in the Sommerset Villas project.
Note that $1,392,515 has already been written off on
seven units ($198,930 per unit), not including Chemely's
short sale not yet closed.
Here is the full
original sale list of the 112 condo units, starting
on January 4, 2006 and ending on July 18, 2008. The
first purchase by a McConville "straw buyer" was not
until March 27, 2008. Here is
grant deed to Michael Hernandez showing McConville's
Hayward address, signed by Bob Chemaly. The next 32
"purchases" are all by McConville's straw buyers. All 32
grant deeds were signed by Chemaly for North Coastal
But what about the first 80 units? Were they all sold to
genuine buyers? I got copies of the recorded loans. They
are all "owner-occupied". They are all at the same price
as similar units sold to McConville's buyers.
I visited the condo complex last week and studied the
units very carefully. I wanted to see if there was any
sign that the 80 pre-McConville "owner occupied"
purchases were genuine. I spoke to some of the few
remaining tenants. They readily admitted that they no
longer pay rent to anybody and are enjoying a free ride
while they can. I could not find one owner occupier. The
complex looks like a ghost town.
I was able to gain entry to several of the vacant units
on lockboxes, including Chemaly's "owner occupied" unit
1425 N. Broadway #D (now
in escrow as a short sale). The water and gas was turned
off and the grass was waist high in the patio area.
If the units sold to McConville's buyers were the only
problem, the complex might have survived the swindle. 80
clean deals might have absorbed 32 dirty deals. But it
is clear that the "Staggering
Swindle" reported by the Voice of San Diego
started long before McConville.
The Voice of San Diego investigated
this story following a tipoff from a suspicious
Escondido realtor. The tipster called TV 7/39, the San
Diego NBC affiliate, who passed it on to its media
partner, the Voice of San Diego, which published
a story in April 2009. It reported that McConville
pulled off the swindle on the unsuspecting developer,
The Voice reported that McConville purchased
32 units at a discounted bulk price from Giannella and
then sold them on to straw buyers. I researched the
titles and discovered that McConville had never taken
title to any of the units. Each unit was transferred
directly from a Giannela LLC to each buyer. That made me
I contacted three of McConville's buyers who eagerly
told me their stories. I asked one of them, Vicki
Jenkins, who appears to be the leader, about some
closing documents the Voice had published on
April 10, 2009 under the
Sent to McConville's Company".
She sent me this
explanatory email. She also sent me
minutes of the McConville's meeting on January 10,
2008 at her house.
She told me that the first she and her two friends
learned of the so-called "Addendum
to Purchase Agreement" (that was part of the closing
documents I was interested in) was when Will Carless
from the Voice of San Diego
contacted Frances Greenspan on March 4, 2009, who
referred him to Ms. Jenkins. I asked how Carless
had gotten hold of these closing documents. He got them,
she said, from Giannella's attorney.
Ms. Jenkins then sent me this
summary she had previously prepared for law
enforcement and had also sent to Carless on March 9,
2009, a month before he published his "Staggering
Swindle" story on April 10, 2009.
In it Ms. Jenkins explains that the first two mortgage
payments were made by McConville, April 1st and May 1st
2008, but none after that. She tells of how for several
months she was in denial. She did not want to believe
that any of this was happening. She wanted to believe in
the goodness of people. She clung to the belief that
McConville would put the whole thing right, as his staff
were assuring her he would.
Jenkins' memo for law enforcement and the lenders makes
it clear that these three McConville buyers at least,
were doing everything possible to alert the lenders and
law enforcement that fraud had been committed. These
three buyers at least, wanted no part in the fraud that
was still unfolding. That is not what they signed on
for, they said.
Will Carless and the Voice of San Diego should
have seen right away that the real fraudsters were the
developers and the lenders. Look at the
original sale list. Then look at the
foreclosure list. Some of the 80 units sold by
Giannella were already being foreclosed before
McConville came along to make quick work of the
remaining 32. That's what he was hired to do. Yes, this
was indeed a "staggering swindle", but it was a very
different swindle from the one reported by the Voice
of San Diego.
The Voice put the spotlight on McConville and his
straw buyers, avoiding mention of the 80 units already
sold by Giannella at similarly inflated prices to
similar straw buyers.
original sale list
shows that the total sales value of the 112 units was
$38,870,240 and the total value of the loans was
$35,392,409. The acquisition
and development loan to be paid off was only
$6,256,000 originally loaned by Irvine-based
Berkshire Mortgage, a privately held
commercial mortgage lender, now owned by
Deutsche Bank, headquartered in Frankfurt Germany.
was the borrower on that original
(still outstanding?) acquisition and development
$6,256,000 Berkshire Mortgage loan. Presumably he
is still involved with Giannella as an owner of the
units even though he deeded some of them from his
MG Woodlands Townhomes LP to North Coastal LLC on
April 4, 2005.
A separate declaration accompanying that
grant deed at recordation declared it a "full value"
sale for $6,325,000. That is only $69,000 more
than the loan he put on it on September 19, 2000. He
could not have taken back a note as no new liens were
filed. Nor did the supposed purchaser, Giannella,
assume the existing loan of
$6,256,000. If that were the case the County transfer
tax would have been $75.90, not $6,957.50 as actually
paid. Also, par. 21 of the
Deed of Trust has an acceleration clause which
requires lender's consent for an assumption.
For the above grant deed to be genuine, i.e. not
fraudulent as to its declaration and county transfer tax
paid, Gleiberman would have literally given the complex
away to Giannella. In my experience developers don't do
The fundamental question then is this: who received the
$32,614,240? How was it divvied
up? Did the conspiracy between developers, loan
officers, title officers, escrow officers, appraisers
and notaries amount to racketeering? This is far greater
than a one man scam by McConville.
The 112 units sold for a total of
$38,870,240 with only $6,256,000 to be paid off ($38,870,240
$6,256,000 = $32,614,240). Lenders contributed
of this cash bonanza.
Only $3,477,831 was put down by 112 borrowers i.e. an
average of 91% loan-to-value ratio or an average of only
9% down. And it is probable that even that was only on
That is the "staggering swindle" that needs to be
investigated, not the gullibility of three women who
knew nothing about real estate and "got in their own
way" as Vicki Jenkins so poignantly put it.
I asked the three McConville buyers if they were
aware that they had applied for several owner-occupied
loans at the same time (a particularly sensitive point
for me). They seemed totally unaware that the loans were
in fact owner-occupied loans. They said they had never
seen the closing documents, much less had them explained
to them. This seemed to stir them to even greater levels
of indignation at how they had been duped and were still
being duped by attorneys and the media. They are now a
force to be reckoned with.
In her memo to law enforcement and the Voice,
Vicki Jenkins explained that McConville put in 20% of
his own money (she now wonders where that money came
from). But that had been the clincher for her and her
friends. Why would he risk approximately $70,000 of his
own money on each condo? To them, McConville was the
real investor and they were merely small co-investors,
putting up nothing but their own good credit.
Reading and re-reading Jenkins'
summary to law enforcement and her
explanatory email to me, I concentrated on the part
where Carless got
these documents from Giannella, presented them to
the three buyers and then published them
under the title "Payments
Sent to McConville's Company".
I wondered why the Voice would report that
McConville purchased units at a bulk price and then
re-sold them to his straw buyers at a vastly inflated
price, when Giannella's own
letter and "Addendum
to Purchase Agreement" clearly described Giannella
as the seller, who "made payments" to
McConville's company? This was contradictory.
And what was this all about? Vicki Jenkins wrote:
"Will had requested a dated signed
statement from us on March 18, 2009 to give to Ralph
Gianelli's attorney, that it was okay to release the
information to him." Why would Giannella's
attorney want a signed statement from the three buyers,
releasing his own closing statement to him? It could
only mean that he wanted proof that these buyers had
finally seen the forged closing papers.
The Voice had become a messenger boy for
Giannella. Will Carless had procured a receipt from a
buyer for a so-called closing document that the escrow
officer to whom it was addressed had never seen. Vicki
Jenkins told in her
explanatory email how
she immediately contacted Donna, the escrow officer at
Stewart Title, for an explanation:
"I called Donna back on 3/20/09 (I
have our conversation documented.) and said, "Donna, you
gave me just the buyer's side. She stated that legally
she could only give me the buyer’s side. I then said
then why do I have an addendum to escrow with a letter
directed to you that states that you must disclose both
the sellers and the buyer’s side and the 3-MAC addendum
to me. She declared, "What are you talking about?" I
have never seen such a document. Would you send me a
copy of this document?" I did and then I called her back
and asked her if she received it. She said, "I just
don't care anymore." I said okay and then she hung up."
The Voice knew these closing documents were
forged. Will Carless, who got the documents from
Giannella's attorney, also spoke to Donna the escrow
officer and got the same response - she knew nothing
about them. Yet he went ahead and reported that
agreed to pay a discount price for the condos and then
sold them for higher prices to the buyers he'd rounded
and that: "The
developers of the projects were under pressure from
banks to make sales and pay back their loans. The banks
agreed to consider selling the units at a discount price
if an investor was willing to buy in bulk, said Rob
Chemaly, a Premier representative."
The Voice had become hopelessly trapped in
Giannella's web by now.
As for "pressure from banks", the only bank involved was
Deutsche Bank, most of whose modest loan of
$6,256,000 would already have been
paid off from the massive $27,975,240 sales
proceeds Giannella and his partners had already raked in
by selling the first 80 units at vastly inflated prices
to straw buyers. Look again at the
original sale list.
According to San Diego County Tax records at least 6 of
the 32 McConville "sales" have already been quitclaimed
back to Giannella's LLC. Here are the latest
Tax records on those
units. Giannella and the banks are not out of the
woods if Vicki Jenkins and her two friends have anything
to do with it. They said they will continue to challenge
the prosecutorial system and the media to do its job. I
will support them by continuing my investigation into
who pocketed the Sommerset Villas $32,614,240.