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EASY PASS | PAST BIG DIG COVERAGE
SEC probers are said to target the Big Dig
Complaint could cite Kerasiotes
By Raphael Lewis, Globe Staff, 09/06/2002
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PART ONE
Graphics PART TWO
Graphic PART THREE
This series has generated strong response from the state, the public, and Globe columnists.
On Feb. 20, 2003, Bechtel/Parsons Brinckerhoff issued a document disputing the findings of the "Easy Pass" series. Globe editor Martin Baron responded with a defense of the Globe's reporting.
Building a reputation
Central Artery/Tunnel Project
Bechtel
Parsons Brinckerhoff
State Inspector General reports
About "Scheme Z" bridge design
State oversight of the Big Dig
Mass. Turnpike Authority
The Artery Business Committee
On February 11, 2003, Globe reporter Raphael Lewis chatted with Boston.com readers about the Bechtel series.
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2001
ore than two years after news of a $1.4-billion Big Dig cost overrun sent shock waves through Beacon Hill, Wall Street, and Washington, Securities and Exchange Commission investigators have recommended that civil complaints be filed against the Turnpike Authority and two former executives, according to state officials familiar with the case.
The recommendations by local SEC investigators could lead to federal trials for former Turnpike chairman James Kerasiotes, former project manager Patrick Moynihan, and the Turnpike, and come as the commission faces intense pressure to expedite investigations.
Turnpike officials say the financially troubled state agency that oversees the $14.6 billion Central Artery project is contemplating settling the case with the SEC, in part to stop the hemorrhaging of legal fees. So far, the case has cost the Turnpike more than $2.5 million.
According to current and former state officials involved in or familiar with the investigation, the SEC's Boston office finished the first phase of its probe early this summer, about a year after Kerasiotes, Moynihan, and the Turnpike were asked to formally defend their positions before SEC investigators and in written briefs.
They are suspected of failing to disclose knowledge of what was then believed to be $1.4 billion in cost overruns to bond rating agencies before the state, the MBTA, and the Turnpike issued bonds in 1999.
Juan Marcelino, the SEC's district administrator in Boston, yesterday declined to confirm or deny the existence of an investigation.
Kerasiotes, now an executive in a Boston human resources firm, Moynihan, and attorneys for the Turnpike have all insisted that they went public with the overruns as soon as they knew the true scope, on Feb. 1, 2000.
They also argue that no SEC action is necessary because no investor was harmed by the overruns, and that bond prices held steady or increased despite the financial controversy. Also, unlike the Enron debacle, there is no evidence that they enriched themselves through any deception.
With the investigators' findings sent to Washington, the SEC's general counsel and the director of enforcement will examine the case to determine if it should be forwarded to the SEC's five presidentially appointed commissioners. They could choose to file civil complaints in federal court, initiate an internal legal proceeding before an administrative law judge, or drop the matter entirely. Penalties could range from court orders demanding reforms at the agency to fines, and, if applicable, legal disbarments and license revocations.
If the Turnpike does attempt to reach a settlement in the case, it would still have to pay legal bills to defend Kerasiotes and Moynihan.
Joseph Savage, Kerasiotes' attorney, said the SEC has no basis for pressing a legal case against his client.
"We are absolutely confident that the commission will not bring an action against anyone in connection with this matter," Savage said. "And it remains as clear today as it has throughout that no investor lost a cent or was ever, in any way, harmed or misled."
Michael Kendall, Moynihan's lawyer, echoed Savage's comments. "No bondholder lost or gained a penny as a result of anything to do with the Big Dig. And if anyone looks at the facts, they should agree that no one violated any securities laws," he said.
While a settlement between the Turnpike and the SEC could put an end to one of the most embarrassing chapters in the annals of Massachusetts public construction, such a deal could be just the beginning of a new round of legal wrangling for Turnpike board members Christy Mihos and Jordan Levy, both of whom were on the board at the time of the overrun scandal.
Although those familiar with the case say that neither Levy nor Mihos has ever been interviewed or deposed by the SEC, their adversaries at the Turnpike and on Beacon Hill could use a settlement against them by invoking state law.
Chapter 81A of the state's General Laws states that the authority "consists" of its board members.
Therefore, Turnpike officials said, if a settlement includes language that says the authority violated securities laws, that could give Acting Governor Jane Swift, who already tried to oust the two men earlier this year, the ammunition to go after them again. She could allege that the two failed to uphold their fiduciary duties to the authority by not coming forward with the dire financial information.
The groundwork for such a move may have already been laid. In a series of letters to Mihos, Turnpike Chairman Matthew Amorello accused him of inaction as overruns became evident, and recalled the US Senate's reprimand of Enron board members who said they were silent about massive financial problems because they were not privvy to information.
"Your tenure on the Board mandated that you perform your fiduciary responsibilities that you owed to the taxpayers to the highest level," he wrote.
Mihos, interviewed yesterday, said he was informed earlier this week by the Turnpike's lead attorney on the SEC case, Samuel Winer, that neither his name nor Levy's has surfaced in the investigation. As a result, he said, any attempt to hold him responsible for the overrun disclosure scandal is "politics as usual."
"There is no reason to sit down and settle this thing," Mihos said. "The SEC has been clear that everything relative to disclosure, controlling costs and such, has been improved, and that's to our benefit now."
Mihos said that he was informed by Winer that the SEC's chief complaints are against individuals and not the authority. He also said Winer told him that the authority is on firm legal ground, and he is hopeful the SEC will abandon its case against the Turnpike.
"So look it, if they try to settle," Mihos said, "it's politics as usual,"
This story ran on page A1 in the Metro/Region section of the Boston Globe on 09/06/2002.© Copyright 2002 Globe Newspaper Company.
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