By LOUIS FLORES
With less than 3 weeks to go before gubernatorial election, advocates for government reform notice the absence of a key Cuomo aide, Lawrence Schwartz. For months, advocates have been speculating whether Mr. Schwartz would face a possible criminal indictment over his role in interfering with the corruption-fighting work of the Moreland Commission, which Gov. Andrew Cuomo (D-NY) infamously disbanded last March after reaching a political deal with the state legislature. Even before Mr. Schwartz became implicated in the waves of controversies that have engulfed the Moreland Commission, Mr. Schwartz was at the center of yet another Albany political controversy going back at least five years.
According to a 300+ page report issued in October 2010 by the New York State Office of the Inspector General, then-Gov. David Paterson (D-NY) had selected Peter Kiernan and Mr. Schwartz as the executive personnel, who would take part in the evaluation process to select a winning bidder to operate a “racino” at Aqueduct Racetrack in South Ozone Park, Queens. The proposed facility earned the nickname of racino from the combinded terms of race track and casino.
Aqueduct Entertainment Group, or AEG, was a consortium of investors organized as a New York limited liability company that was ultimately selected by former Gov. Paterson on January 29, 2010, to operate the racino, even though AEG had offfered an up-front licensing proposal that was $100 million less than what had been offered by competitors. The AEG bid was also doomed by an investor that would never pass the due diligence review by the state’s Division of the Lottery. The process that awarded to AEG the gambling rights to operate the racino have been described as tainted and possibly corrupt. State Senator John Sampson (D-Brooklyn) was amongst state officials, who tainted the bidding process. In State Senator Sampson’s case, he had leaked confidential bidding information to an AEG lobbyist, according to findings by Inspector General investigators.
In the end, that AEG was even in the running to win the racino contract was a testament, some said, to the powerful influence that some of AEG’s backers were able to exert over Gov. Paterson. One such backer, the Rev. Floyd Flake, was believed to be a primary reason why AEG was still in contention for the contract in spite of its shortcomings. Rev. Flake is an influential powerbroker in Queens politics. At a time when Gov. Paterson was considering a reelection run, it was speculated that Gov. Paterson would have needed Rev. Flake’s political support, creating an appearance of pay-to-play. State Senator Sampson and State Assembly Speaker Sheldon Silver consented with the selection of AEG, in accordance with the legislation governing the racino contract, although Speaker Silver would add caveats, as explained later
The selection of AEG came as a surprise to Lottery officials, who were involved in vetting the bidders for the racino contract. “We have no idea how the Governor and the Legislature could settle on AEG. We thought, we, the Lottery, thought they were nowhere near the top, certainly not in the top three, probably not in the top four,” said William Murray, the state Lottery Deputy Director and Counsel, according to the Inspector General’s report.
Mr. Schwartz’s troubles with Gov. Paterson’s troublesome selection of AEG date back to 2009, when Gov. Paterson reopened bids for the proposed Aqueduct racino after prior attempts stretching back to the Pataki administration had failed to select a winning operator. Mr. Schwartz was faulted in the Inspector General’s report for a range of failures. In minor respects, Mr. Schwartz was criticized for having failed to provide “guidance to the executive agencies despite being acutely aware of the need to refine the process” in respect of the selection of the racino operator. In more serious respects, Mr. “Schwartz further incredulously claimed to not recall myriad meetings he organized and attended, various e-mail correspondence between himself and other individuals, and numerous conversations in which he engaged, and claimed unawareness of the Governor’s selection of AEG despite personally engaging the Governor’s press office in a colloquy about the very subject.”
For a brief time, AEG hired a lobbyist, Frank Sanzillo, due to his “unique relationship” with Mr. Schwartz ; both men had known each other “for a long time,” according to the Inspector General’s report. However, AEG’s use of lobbyists for a state procurement contract may have violated state restrictions on the use of lobbyists for such purposes. It is not known if Mr. Schwartz knew about the possibility that Mr. Sanzillo may have been violating restrictions on lobbying work in respect of state procurement deals. A message requesting an interview with Mr. Schwartz was not answered.
After AEG’s proposal was initially rejected by an early draft memorandum dated September 17, 2009, in which bidders had been evaluated, AEG was ultimately selected by Gov. Paterson in consultation with State Assembly Speaker Silver and State Senator Sampson, as Legislative Leaders, according to a press release published on January 29, 2010, by the governor’s office. After the Inspector General launched an investigation, it was documented that Mr. Schwartz gave testimony that contradicted the testimony given by Gov. Paterson -- in which Mr. Schwartz denied that he was part of the racino operator selection process, even though the governor had told the Inspector General that, indeed, Mr. Schwartz was part of the selection process. Furthermore, Mr. Schwartz contradicted his own testimony when he said that he “was not a part of the evaluation process,” that he was “outside of the process,” even though he had separately testified that his role was to prevent the repetition of mistakes that had caused a previous failure to select a winning bidder. Advocates for government reform separately noted that Mr. Schwartz must have known that he was part of the selection process, especially since he had been the brief target of pressuring by the AEG lobbyist, Mr. Sanzillo. Mr. Schwartz would only be being targeted for lobbying by AEG if Mr. Schwartz was part of the selection process.
The findings in the Inspector General report further found contradiction with Mr. Schwartz’s claim that he was “outside of the process,” when investigators found evidence of his direct involvement in numerous instances from the outset of the bidding review, including meetings with top state officials. “While having apparently abdicated all executive responsibility, Schwartz appears to have actively participated in the process, albeit to no discernable end,” the authors of the Inspector General’s report found. Even after the AEG selection was publicly announced and further controversies over the selection process became the subject of newspaper reports, Mr. Schwartz denied recalling that Gov. Paterson had recused himself, appointing, in his stead, Mr. Schwartz and Mr. Kiernan as his replacement in any future negotiations or discussions about the AEG selection. When Mr. Schwartz was confronted with Gov. Paterson’s recusal, Mr. Schwartz changed his testimony, saying that he did recall the recusal, adding, though, that he did not recall why Gov. Paterson was forced to recuse himself.
In the Inspector General’s report, Mr. Schwartz’s testimony was understandably summed up as “confounding,” finding no evidence that he “took any steps to remedy the mistakes of the previous selection process,” amongst other contradictions to Mr. Schwartz's assertions. Amidst the many inexplicable claims that Mr. Schwartz asserted, the authors of the Inspector General’s report made a notable mention of the fact that Mr. Schwartz claimed that he “never reviewed the relevant memoranda prepared by agencies under his supervision specifically for his review” in respect of the racino bidder selection process. Indeed, by the time AEG had been selected by Gov. Paterson to win the racino contract at Aqueduct Ractrack, pretty much all top state officials wanted to distance themselves from the reportedly tainted process. It was left up to Gov. Paterson’s chauffer, David Johnson, to inform AEG’s financing executive, Michael Wagman, that AEG’s bid had won. Mr. Johnson also provided information to Mr. Wagman about last-minute conditions that Assembly Speaker Silver had added to Gov. Paterson’s selection of AEG. Since Mr. Johnson refused to testify before investigators from the Inspector General’s Office, the investigation report could not identify on whose orders Mr. Johnson placed the call to Mr. Wagman. After AEG failed to meet Speaker Silver’s last-minute conditions, AEG was deselected by the Division of the Lottery on March 9, 2010.
Just days after Gov. Paterson had announced the AEG selection, the Office of the Inspector General began its investigation into the review process, bolstered by a written request from Speaker Silver. Eventually, the AEG deal was referred to the U.S. Attorney’s Office in Manhattan and to the Manhattan District Attorney’s Office for review of possible criminality. Besides Mr. Schwartz, other high-ranking officials were implicated by the Inspector General’s report. Attempts were made to quash the Inspector General’s investigation, and one AEG lobbyist, Hank Sheinkopf, pled the Fifth to avoid making possibly incriminating statements against himself. No charges have ever been filed related to the AEG bid-rigging controversy. A spokesperson for the U.S. Attorney’s Office would not answer questions about the AEG case, and an e-mail with questions addressed the Manhattan District Attorney’s Office was not answered.
Advocates for government reform claim that, because of the involvement in the racino contract review process by some of the state’s top politicians, including Assembly Speaker Silver (D-Manhattan), and other influencial Democratic Party supporters, including the Rev. Flake, prosecutors may be waiting for the clock to run out on the statue of limitation so that none of the top figures will ever be indicted for the reported corruption that took place in the tainted bid rigging process for the racino contract.
Nearing the end of the Paterson administration, Albany became engulfed in series of political corruption cases being primarily prosecuted by lawyers from the U.S. Attorney’s Office in Manhattan. Against that backdrop, then-Attorney General Cuomo campaigned for governor, promising to clean up Albany, a promise that his then political rival, GOP gubernatorial candidate Carl Paladino found difficult to believe. “For four years, he’s been the chief prosecutor of the most corrupt state government in America,” Mr. Paladino said of then-Attorney General Cuomo during a debate that took place in the same month as which the Inspector General’s report was issued. At that 2010 gubernatorial debate with Mr. Cuomo, Mr. Paladino added, “Now he wants to be governor? Well, Andrew, we don’t believe you.”
Mr. Schwartz was a very visible part of the culture of corruption in Albany during that election cycle. Under his watch, he allowed the bidding review process for the proposed Aqueduct racino to spiral out of control. Some government reform activists are divided between believing two possible viewpoints on Mr. Schwartz’s role in the racino contract review process. Either Mr. Schwartz went along with Gov. Paterson’s support of AEG for the benefit of AEG consortium participants, such as the Rev. Flake, who had both close ties to Gov. Paterson and who would be a powerful political ally had Gov. Paterson sought reelection, or Mr. Schwartz might have allowed the process to pick AEG to become unraveled to help push aside Gov. Paterson to make way for a new Democratic Party pick for governor in that year’s election cycle. Some blame the AEG scandal, along with a domestic violence controversy involving the chauffer, Mr. Johnson, to be amongst the reasons Gov. Paterson did not seek reelection in 2010.
In January 2010, the same month as which Gov. Paterson selected AEG, there had been a steady drumbeat of calls for Gov. Paterson to step aside at the end of his term in favor of allowing another candidate to seek the Democratic Party’s nomination for governor. Two months later, AEG would be deselected by the Division of the Lottery ostensibly based on four, last-minute conditions imposed by Speaker Silver, which some saw as a back-handed way to pull the rug out from under the AEG selection. By that time, the Inspector General’s office was already issuing subpoenas for records and seeking the statements of witnesses, creating a political firestorm that led to the Inspector General’s damning report and the referrals to federal and local prosecutors. If there was one political opportunity to be made from Gov. Paterson’s decision not to run for reelection following the AEG scandal, then it surely was the opening it created for the ambitious Attorney General Cuomo, who seized the convenient timing to run for the governorship, which he easily won against Mr. Paladino that November.
In spite of the critical findings by the Inspector General’s investigators, Mr. Schwartz’s role in Albany politics continued after Gov. Paterson’s administration came to an end, because, after Mr. Cuomo won the gubernatorial race, Gov. Cuomo reappointed Mr. Schwartz to the hold the same post in the Cuomo administration, shocking the conscious of AEG investigators. As if by plan, Mr. Schwartz continued his role under Gov. Cuomo as chief advisor to and political protector of the governor, skills that he had honed under Gov. Paterson tumultuous administration. Eventually, though, Mr. Schwartz’s political machinations on behalf of the new governor would again flirt with legal boundaries when it was reported by The New York Times that Mr. Schwartz had interfered with the corruption-fighting work of panel members appointed to the Moreland Commission by Gov. Cuomo. When Moreland commissioners had subpoenaed Buying Time, a media firm that had provided key services to the Cuomo campaign, Mr. Schwartz stepped in to protect Gov. Cuomo. After Mr. Schwartz learned of the subpoena, he reportedly instructed the commissioners to, “Pull it back,” resulting in the subpoena being “swiftly withdrawn,” according to the bombshell report in The New York Times. Buying Time continues to be involved in Cuomo campaign activities that were just this week described by WNYC to appear to circumvent campaign contribution limits.
Mr. Schwartz is amongst a small group of Cuomo administration officials, whose activities to interfere with the Moreland Commission have been best documented. He was reported to have been scheduled to meet with federal prosecutors last August to discuss his activities, but no more reports have followed, and the office of federal prosecutors handing that investigation refuse to comment. However, many advocates for government reform still wonder how was it that Mr. Schwartz escaped prosecutorial attention following the issuance of the Inspector General’s report about the AEG bid-rigging scandal.
More than four years have passed since former Gov. Paterson announced the selection of AEG to operate the racino at Aqueduct Racetrack, a decision reached with Mr. Schwartz’s participation in the review process. Media interest in the bidding controversies has almost entirely subsided, much like with reporting about the Cuomo administration’s reported interference with the Moreland Commission. Like with the AEG controversy then, federal prosecutors have yet to hand down any indictments in connection with reported wrong-doing in respect of the tampering with the Moreland Commission, giving voters and politicians the impression that if wrong-doing reaches some of the state’s highest offices, then prosecutors will eventually look the other way, same as with the media.
Whilst Mr. Schwartz is keeping a low profile, former Gov. Paterson is enjoying a return to the Albany limelight. For former Gov. Paterson, the political setback of having been forced to stepped aside due to controversies, including the AEG bidding process, to allow then Attorney General Cuomo to run for the governorship turned out to be only temporary. Following revelations of possible travel expense improprieties by state party co-chair Keith Wright, Gov. Cuomo appointed former Gov. Paterson in Assemblyman Wright's place as co-chair of the state's Democratic Party, reuniting key players in the orchestra up in Albany after four long years.