STUMP » Articles » Chicago and Illinois Corruption Followup: Lawsuit Involving the Unpaid Vendors Program » 13 February 2019, 18:28

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Chicago and Illinois Corruption Followup: Lawsuit Involving the Unpaid Vendors Program  

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13 February 2019, 18:28

This is not intended to pile on… exactly. The news post from this morning I had built up over a week, just throwing in random-ish corruption stuff. The following I found out about right after I posted the morning item, and relates directly to something I wrote before.

Remember my post from last week? The Undeniable Corruption of Chicago and Illinois: part 4 – Unpaid Vendors Program — now, in the post, it wasn’t so much that the “advances” were a corrupt system, but that the early-mover was very politically connected… and pretty much got a guaranteed return that is very high compared to Illinois interest rates on short-term bonds.

But… I may have been a little hasty in thinking there was nothing untoward beyond the high interest rates….

Lawsuit: Big Campaign Donors To Mendoza, Solis Engaged In ‘Sham’

Businesses that gave tens of thousands of dollars last year to Illinois Comptroller Susana Mendoza’s political fund allegedly are “front companies” in an ongoing, multimillion-dollar “sham” involving profits from a state program, according to a pending federal civil lawsuit.

Investors in a Chicago firm called Vendor Assistance Program LLC filed the suit last year in Philadelphia. They claim their partners in VAP hid money in shell companies in Florida and Puerto Rico to avoid giving them their fair share of profits from a highly lucrative arrangement with the state of Illinois.

VAP was started in 2010 by Brian Hynes, a politically connected lawyer who’s now a central figure in a widening City Hall corruption scandal. Hynes is a longtime supporter of embattled Ald. Danny Solis (25th Ward) and co-founded VAP with Solis’ sister Patti Solis Doyle. As Illinois’ fiscal woes have deepened, the company has profited from a state initiative to speed payments to government vendors who are owed money.

So it may be that Hynes is screwing over his business partners. I don’t know. I wonder if Hynes will settle out of court.

Last month, WBEZ reported that Mendoza — who is running for Chicago mayor in the Feb. 26 election — gave away nearly $74,000 in campaign contributions from Solis-controlled political funds and another $67,650 that she got last year from five companies set up by VAP investors, including Hynes.

Her costly move followed the revelation that Solis, a veteran alderman from Pilsen, has served as a mole in a federal investigation of government corruption.

I want you to think through what Mendoza has been doing as state comptroller.

MENDOZA POSTS

Let’s go check prior posts I had that referenced Mendoza.

I will link all of them.

Now let me tell you – the 2015 post, Mendoza was Chicago City Clerk, backing up Rahm Emanuel.

All the other posts are where Mendoza was state comptroller. In the last post, I noted Mark Glennon critiquing inserts Mendoza put with Illinois tax refund checks (checks?! They didn’t do direct deposit?)

ILLINOIS COMPTROLLER BRINGS LOVELY CAMPAIGN MESSAGES IN REFUNDS

This isn’t the first time I’ve seen something like this (as in, yes, I’ve seen this sort of thing in New York…but more on that in a bit.)

Wirepoints: Illinois Comptroller Mendoza Inserting Political Messages With Tax Refund Checks – Quicktake

….

….

Most people read these things perfunctorily to see if they can’t just go out and cash their check immediately. In short, I don’t think this is going to have much of an impact on the low info voters. The high info voters already know what’s going on.

Oh, and that message is chock full of numbers, which is anathema to any low info types. If you need to use a specific number in a political message, I would risk two numbers at most, and only if you’re comparing them. Otherwise, stick to one number.

Such as:


…
And that bond crap that the Comptroller is mentioning? That is for ongoing operational bills. That has been going on in Illinois for years. As I mentioned in an April post, the unpaid bill situation has been rolling over for at least 8 years, if not longer.

Mendoza made a lot of noise over the state unpaid bills (maybe she still is, I haven’t checked recently… I assume she’s been focusing on running for Chicago mayor).

A lot of her stink annoyed me, because she acted as if it were all Rauner’s fault… and the unpaid bills definitely existed during the time of Quinn and before.

BACK TO STORY

Let’s go back to the story about the lawsuit:

Mendoza, like other candidates in the mayoral race, has sought to distance herself from the burgeoning City Hall scandal, which has already resulted in a federal criminal charge against a longtime Mendoza mentor, Ald. Ed Burke (14th). But the lawsuit raises new questions about the politically connected companies that have helped fuel her re-election last year.

It claims three of the five VAP-linked firms that gave to Mendoza are accused of being part of the “sham” to divert profits from former partners in Pennsylvania.

….
Fight for profits from lucrative state program

At the center of the lawsuit is a little-known program that speeds up payments by the comptroller’s office to groups that are owed money by the cash-strapped state.

The program, started under former Gov. Pat Quinn, allows state-certified companies to buy up debt from Illinois’ mountain of unpaid bills. Then companies like VAP give unpaid state contractors most of what they’re owed from state government upfront, and later pocket lucrative late-payment penalties once the state comptroller’s office issues a check for the original obligation, sometimes years later.

VAP is the most dominant company in the program, having already bought up $3.8 billion in unpaid state bills.

I will remind you: they’re earning about 12% per year on that $3.8 billion. “Guaranteed”.

The Pennsylvania investors who are behind the lawsuit, operating as Warren Hill LLC, allege that some of the current owners of VAP are scheming to hoard the profits that they are making off the state of Illinois’ financial misery. Warren Hill says the VAP partners have been able to “wrongfully retain Warren Hill’s money, hiding it in front companies based in Puerto Rico and Florida.”

The defendant in the case is yet another Florida entity created by VAP partners, called SFR Equities LLC. SFR bought a 33 percent stake in VAP from Warren Hill for $4 million in 2016, but was obligated to continue sharing VAP profits with Warren Hill under the terms of that sale, records show.

Instead, Warren Hill claims SFR tried to hide its profits in two front companies: Florida-based Bluestone Capital Markets LLC and Blue Stone Finance LLC of Puerto Rico. The two companies allegedly were set up to perpetrate “a sham designed to avoid taxes and to avoid paying Warren Hill what it is owed,” according to court documents.

Okay, if it goes to court, I guess we may find out more details. But this is rather obscure to me.

I’m not quoting the next part – but those Bluestone/Blue Stone companies donated to Mendoza.

You know, the person running the state end of the program, who will or will not ensure they get their 12% per year return.

So – let’s look at those profits:

Public program, big private profits

Documents filed in the federal case provide a first-ever glimpse of just how lucrative VAP’s dealings with Illinois have proven. The company’s net income in 2016 exceeded $17.3 million, according to one balance sheet entered as evidence in the suit.

But Hynes said that was an exaggeration. About 75 or 80 percent of that sum must be paid to banks that loan money to VAP, he said.

Now that it holds the IOUs on $3.8 billion in unpaid state bills, VAP is positioned to pocket late payment penalties that accrue as much as one percent of the original obligation each month. For state bills that are years late in being paid, that means taxpayers have been on the hook for late payment penalties that sometimes have exceeded 20 percent on top of what the state originally owed.

Now I get it. VAP has borrowed money (at a considerably lower rate than 12% per year, I’m sure)… and makes money on the actual arbitrage.

This arbitrage is real (well, as long as Illinois continues paying those “interest penalties”… and hmmm, that state comptroller has a hand in that, but mainly it’s the Illinois Legislature who is at fault for those interest payments.)

At the end of December, VAP had received $201.6 million in late payment premiums from the state and is due another $188.7 million in fees from Springfield, according to the company’s most recent filing on Mendoza’s state website.

Pallasch, the comptroller’s spokesman, said Hynes and VAP pressured Mendoza to speed up payments to the company, before and after the contributions to her re-election campaign.

But Pallasch said Mendoza resisted that pressure and instead “fought to pass legislation” that makes public more information about the program.

So… did that legislation pass? Democrats control the Illinois legislature. If they wanted to make the program more transparent, they could. Somebody could just be providing cover for her.

Hynes is a former aide to Illinois House Speaker Michael Madigan (D-Chicago) and a veteran lobbyist who now lives in Puerto Rico. His name appeared on files taken during a recent FBI raid at Burke’s City Hall office, records show.

….
Hynes says he believes he has nothing to worry about and that federal investigators in the City Hall corruption case have never contacted him.

“I have not retained counsel nor do I think I’ll ever have to,” Hynes said. “I have 100 percent confidence I have no issues whatsoever.”

Pretty sure his companies will have counsel to respond to this lawsuit.

Hynes said he spoke with Solis’ defense lawyer and she told him, “You have a public relations problem, not a legal problem.” The lawyer, former federal prosecutor Lisa Noller, did not return calls.

Hynes says he and his business partners attended the March fundraiser and made contributions to Mendoza there because they thought she was doing a good job as comptroller. Mendoza won re-election in November, but she promptly announced that she would run for the mayor’s office being vacated by Rahm Emanuel at the end of his term this year.

Well, it certainly doesn’t look good to me. The guy is making money off money from unpaid bills. Mendoza oversees the program re: unpaid bills.

This does not look good.

But then, I think Mike Madigan’s primary business of disputing property tax bills for clients also looks horrible. But he’s been doing it for decades. And it’s all legal under Illinois practice. (Note Hynes’s Madigan connection in the news story.)

Similarly for whatever Solis and Burke had been doing with their “day jobs”.

At least Mendoza wasn’t being comptroller and running one of these private companies (or holds part ownership in it). [I’m assuming she hasn’t, because that could not possibly be legal.] She has merely gotten campaign contributions from one of the main people profiting over Illinois being profligate.

I don’t like the look of this, and I don’t like smell of this. But I cannot say that Mendoza really is worse than the aldermen and Mike Madigan, who had similar “arrangements”.

CORRUPTION POSTS


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