NY Times, June 23, 2014
By Matt Flegenheimer, William K. Rashbaum and Kate Zernike
Investigations into the Christie administration and the Port Authority of New York and New Jersey have zeroed in on possible securities law violations stemming from a $1.8 billion road repair agreement in 2011, according to people briefed on the matter.
While the inquiries were prompted by the apparently politically motivated lane closings at the George Washington Bridge last year, these investigations center on another crossing: the Pulaski Skyway, the crumbling elevated roadway connecting Newark and Jersey City. They are being conducted by the Manhattan district attorney and the Securities and Exchange Commission.
The inquiries into securities law violations focus on a period of 2010 and 2011 when Gov. Chris Christie’s administration pressed the Port Authority to pay for extensive repairs to the Skyway and related road projects, diverting money that was to be used on a new Hudson River rail tunnel that Mr. Christie canceled in October 2010.
Again and again, Port Authority lawyers warned against the move: The Pulaski Skyway, they noted, is owned and operated by the state, putting it outside the agency’s purview, according to dozens of memos and emails reviewed by investigators and obtained by The New York Times.
But the Christie administration relentlessly lobbied to use the money for the Skyway, with Mr. Christie announcing publicly that the state planned to rely on Port Authority funds even before an agreement was reached. Eventually, the authority justified the Skyway repairs by casting the bridge as an access road to the Lincoln Tunnel, even though they are not directly connected.
In bond documents describing the Skyway reconstruction and other repairs, the Port Authority has called the projects “Lincoln Tunnel Access Infrastructure Improvements.”
The accuracy of this characterization is now a major focus of the investigations, according to several people briefed on the matter. Under a New York State law known as the Martin Act, prosecutors can bring felony charges for intentionally deceiving bond holders, without having to prove any intent to defraud or even establish that any fraud occurred.
Two veteran prosecutors in the Manhattan district attorney’s office public corruption unit are working with two S.E.C. lawyers who are experts in such bond issues, one person briefed on the matter said, and another noted that while the agencies were each conducting separate parallel inquiries, they were working together.
In addition to criminal charges under the Martin Act, the investigations could result in civil action under the Martin Act or by the S.E.C., under federal securities laws.
The office of the Manhattan district attorney, Cyrus R. Vance Jr., and the S.E.C. declined to comment.
Since the lane closing scandal widened this year, Mr. Christie’s office has been the subject of investigations by the United States attorney in Newark, Paul J. Fishman, and the New Jersey Legislature. Mr. Christie also ordered an internal investigation of his office, an effort that cost millions and which cleared him of any wrongdoing. At a moment when the governor’s stewardship of state finances has faced mounting scrutiny, the Skyway investigations — and potential disclosures — could undermine his carefully cultivated image as a responsible spender as he tries to move beyond the political fallout from the lane closings.
In addition to the Pulaski Skyway, the Manhattan district attorney is also in the early stages of investigating repair projects on the Goethals and Bayonne Bridges, among others. While prosecutors have issued dozens of subpoenas, no formal accusations have been made and the precise targets of the inquiry, whether individuals or agencies, remain unclear.
The lane closings at the George Washington Bridge are still the subject of a federal investigation.
Among those who have received subpoenas from Mr. Vance’s office is Jeffrey Chiesa, a close friend of Mr. Christie’s for more than two decades who has served as New Jersey’s attorney general and as a United States senator. He was the governor’s chief counsel in 2011 when the authority’s lawyers amended the funding resolution with what critics have said was a questionable legal justification. A person familiar with that subpoena said Mr. Chiesa was not a target of the investigation.
One person briefed on the matter said the funds had been used to fill a hole in the New Jersey state budget, noting that the inquiries seek to determine whether the fiscal contortions were creative politics or criminal maneuvers.
The Christie administration said it wanted to pay for the Pulaski Skyway repairs soon after the trans-Hudson tunnel was canceled. At the time, the state had limited money for major transportation projects, and Mr. Christie, a Republican, resisted increasing the gas tax to raise more. The justification for using the tunnel money for the Skyway was first reported by The Record, a North Jersey newspaper.
In November 2010, Port Authority lawyers prepared a memo saying that the agency could not help with the Skyway. Bill Baroni, the deputy executive director and Mr. Christie’s top staff appointee at the agency, sent the memo to Deborah Gramiccioni, then the director of the governor’s authorities unit, on Nov. 2. (Mr. Baroni resigned amid the George Washington Bridge scandal; Mr. Christie chose Ms. Gramiccioni to replace him.)
Mr. Christie’s office had also sent specific questions to the Port Authority, asking whether the money from the tunnel project could be used to pay for road and bridge projects. Neither was possible, they were told.
Bondholder covenants, the lawyers explained, limited the kinds of projects the agency could spend money on, and previous court decisions had found that the Port Authority had “no authority” to build roads that were not on the property of airports or marine terminals controlled by the agency.
The memo sent to Ms. Gramiccioni recommended other projects on which the money could be spent. Mr. Christie was undeterred. At a news conference in January 2011, he announced his intention to use the Port Authority money to pay for the Skyway repairs, trumpeting the span’s relationship to the Holland Tunnel — a move that took some Port Authority administrators by surprise, according to former agency officials.
Agency lawyers warned that any connection to the Holland Tunnel would not legally justify the expense. Because that tunnel predated the Port Authority, lawyers concluded, the agency was not authorized to pay for access roads to it.
In meetings, emails and letters between November 2010 and February 2011, administration officials including James Simpson, the New Jersey transportation commissioner, and Richard Bagger, the governor’s chief of staff, continued to press the Port Authority for funding.
Mr. Baroni wrote that Port Authority lawyers could find “absolutely no support” for repairing the Skyway.
But in March, state transportation officials announced they intended to spend the Port Authority money on the Skyway anyway. Christopher Hartwyk, then a deputy counsel at the authority, emailed Mr. Baroni, quoting a popular children’s book about the nature of endless demand: “If you give a mouse a cookie, he is going to want a glass of milk.”
Days later, though, Mr. Baroni made clear to colleagues at the agency that he had been given no choice. “It’s evident to say, but we gotta figure this out,” he emailed Mr. Hartwyk on March 24.
Later that day, Mr. Christie held another news conference announcing his plans to use the Port Authority money, arguing that it would allow the state to reduce its reliance on borrowing for state road projects. Overnight, lawyers for the Port Authority refined a resolution to justify the spending.
By the afternoon of March 25, they had removed language from a memo arguing that the agency lacked the authority to finance the projects.
“We are now saying we have legislative authority,” the revised document read.
It was around this time that lawyers first raised the possibility of identifying the projects as roads that “approach and feed into the Lincoln Tunnel.” The rationale hinged in part on a previous finding that the Lincoln and Holland Tunnels were interdependent: If the projects improved access to the Holland Tunnel, the thinking went, then the Lincoln Tunnel would be affected, too.
On March 29, the Port Authority unanimously approved a resolution authorizing the projects, which were referred to as, simply, “access infrastructure enhancement.”
Mr. Christie and his allies have played down questions about the funding model. Ms. Gramiccioni noted that the plan was “thoroughly vetted” by lawyers at the New Jersey attorney general’s office.
Asked about the projects at a news conference in April, the governor went a step further.
“Dozens and dozens of lawyers from both sides of the river reviewed that financing plan and approved it,” he said, “as did the commissioners of the Port Authority.”
In interviews for the case, the S.E.C. has asked whether the Port Authority sought or received outside legal or bond counsel to help determine whether the agency could legally justify paying for the projects. It did not, the Port Authority said on Monday.
Christie allies have said the justification for using the money for the Pulaski Skyway grew out of a healthy dialogue, which featured administration aides, the Port Authority, New Jersey’s Transportation Department and the attorney general’s office. According to emails, the discussion extended well past March 2011, when the Port Authority board approved the projects.
Ms. Gramiccioni said on Monday that the administration “did everything in our power” to avoid placing pressure on the Port Authority by asking the attorney general’s office to work directly with agency lawyers.
Asked if the agency had ever previously referred to the Pulaski Skyway as an access road to the Lincoln Tunnel, a spokesman for the Port Authority declined to comment, citing the continuing investigations.
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