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UPDATED: Clifford says FBI stepping in to PEDC investigation

PEDC_council_auditThe Federal Bureau of Investigation could be looking for criminal activity in the dealings of the Paris Economic Development Corp.

PEDC Chair Rebecca Clifford dropped that particular bombshell during a meeting with the Paris City Council on Tuesday.

“Hopefully, the FBI will soon complete its investigation into each of the multiple allegations,” Clifford said, although she did not elaborate what those allegations might be. “If criminal activity is confirmed, I am sure that we all want to see the guilty parties punished for their crimes.”

Dallas-based Defenbaugh & Associates was to have submitted at least one written report in early May, but none have been given yet. Clifford spent the first part of the meeting saying there were no written reports. Under repeated questioning from council members about the lack of apparent progress, she said the investigation has generated four reports, but those would not be given to the city or PEDC.

“Because of allegations of criminality, all four of these reports have been turned over to the FBI,” she said. “These reports have been accepted by the FBI for further investigation and/or prosecution. Upon completion of the reports in progress, more reports may be referred to the FBI.”

She said several times that the FBI has “accepted” the reports. What that precisely means is unclear.

“I don’t know what that means,” District Attorney Gary Young said. “I don’t think it means the FBI is necessarily investigating.”

The ball got rolling March 10 when the council voted 4-3 to have PEDC seek an outside forensic audit after receiving an anonymous letter charged the corporation with misconduct related to a deal with Rogers Wade in September 2010. The letter accused PEDC of backing a $5 million loan with only a $40,000 lot as collateral, in addition to possible “unethical” behavior by council members.

The PEDC board asked Clifford to find the firm. She picked Defenbaugh & Associates and said the investigators would be former FBI employees. The investigation was cover October 2010 to the present to look for what Clifford called “weaknesses” in PEDC’s operations and prevent any future fraud, waste and abuse. A preliminary report was due May 1. Now, instead of a full, detailed report, Defenbaugh & Associates expects to deliver a summary report in about two weeks.

The contract calls for weekly verbal updates and monthly written reports. Councilman Richard Grossnickle questioned why the payments were being made when no reports had been delivered. Mayor Matt Frierson asked who received the weekly oral reports.

“Just me,” Clifford said.

The firm recently delivered an invoice of $20,850. More than $20,000 has already been paid as the firm goes through hundreds of documents from the last four years.

“We asked several times about reports, and we were told there were no reports,” Frierson said.

PEDC_council_audit2“No,” Clifford replied. “I said there are no written reports, and I preferred not to comment on the verbal.”

“Have you advised your board of any of this?”

“I have told them the investigation is ongoing and that there is no written report,” she said.

That lack of contact with a larger board was a point of contention for Frierson.

“My concern at this point, the contract was supposed to be between the EDC and this firm, and no one on the EDC has met with them but you,” he said.

Clifford said after Tuesday’s meeting she did not want to get into the substance of the verbal reports until Defenbaugh & Associates was ready to deliver its summary.

“It is an ongoing investigation,” she said. “I do not want to be any part of any hindrance.”

Giving information of potential criminal activity to law enforcement was actually in the contract, Clifford said. Once that happened, PEDC was taken out of the loop.

Federal authorities want to keep a lid on any information possible while an investigation is ongoing, said PEDC board member David Turner, who is an attorney.

“They don’t want information out while they’re investigating potential criminal activity – give them ample chance to hide documents, get their story straight, lawyer up, whatever,” he said. “At the end of the FBI’s investigation, the presentation to a federal grand jury – if it goes that far – then at that point, I’m satisfied the investigator will provide us with all their documentation.”

Councilman Edwin Pickle asked where the process goes from here, with the investigation costing so far about $20,000 a month on a 90-day contract.

“It’s a cap of $50,000, and we don’t have to pay the FBI to investigate,” Clifford said, to laughter from the audience.

“We’re not sure they are investigating,” Pickle replied. “You said they had turned the documentation over to the FBI to determine if they needed to investigate.”

The lack of a written report took up most of the conversation prior to Clifford’s news of a potential federal investigation.

“I hate to spend taxpayer money for something we do not have,” Councilman Benny Plata said. “I would not pay that invoice until we do.”

Grossnickle said it seemed as though Defenbaugh & Associates had “an open checkbook.”

“I’m asking why you paid on a contract when they haven’t done what they said they would do,” he said. “I would demand one. I would say, ‘You are in default of your contract.’”

Pickle asked what the difference was between a forensic audit and a forensic investigation, which Defenbaugh seemed to be conducting. Clifford said it is largely a matter of semantics, although audits are generally conducted by an accounting firm, while an investigation may not be. That was an issue for PEDC Vice-Chairman Stephen Grubbs, an accountant by training. He said a CPA’s report has some weight, while an investigator’s report may not mean as much.

Grubbs said he had “big questions” about the lack of communication.

“What are we really doing here?” he said. “I’m a little disappointed in the way things have turned out.”

Joan Moore, director of the Paris Alternative School for Success, stood up and tried to comment at one point, but Frierson said there was no period for public comment on the agenda.

“You’ve got a problem,” she said as she walked out. “You’ve got a huge problem.”

After the meeting, the mayor said he does not necessarily want any wrongdoing to be found, but if it is, it is important the city learns from its mistakes and find a way to move forward.

“Overall, I think today’s meeting was very necessary,” Frierson said. “We have a responsibility to the citizens to make sure we’re doing everything we can to create a level of trust. Without that, we have no credibility.”

The PEDC chairwoman said the “most disturbing” part of the affair to date has been a “lack of integrity of in most of our news media here in Paris.” She said there has been “ample evidence of wrongdoing presented,” but felt news reports attacked the messengers rather than “condemning the obvious waste and abuse of taxpayer money.”

“News media response in the public interest should have been leading the charge demanding accountability whenever public funding was involved. However, they chose to devote their time in criticizing the current PEDC board and praising the past PEDC…” Here Frierson tried to break in, and Clifford said: “No. I’m finishing. It’s my meeting. No. It’s my meeting.”

“It’s off the agenda,” Frierson said. “It’s under advice of the city attorney. I’m not trying to be disrespectful.”

City Attorney Kent McIlyar said news coverage of the PEDC was not on the agenda, and that line of discussion needed to halt to comply with Texas open meetings law.

“OK. Fine. You know what the investigation is, then. You can make your own judgments on whether you think it has been done appropriately or not,” Clifford said. “We need to be more diligent about what we do as appointed officials and as elected.”

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