Government

Agents Searching NYO, Marchionda’s Home Refuse to Provide Search Warrants

YOUNGSTOWN, Ohio – When state and local law enforcement agents raided the downtown offices of NYO Property Group Thursday, “Many of the documents that were seized were laid out in a conference room. We were in the process of pulling them for supplemental production,” says an attorney for developer Dominic J. Marchionda.

But instead of allowing NYO’s attorneys to “oversee an orderly search, making sure they find what they’re looking for, they just cleaned him out,” says John F. McCaffrey.

Making matters worse, he continues, is that authorities who simultaneously searched NYO’s offices on the third floor of the First National Tower and his home in Poland Township refused to provide a copy of the search warrants.

“I had one of my partners out at both locations and they were told by case agents that they were instructed not to provide the warrant because it was under seal,” McCaffrey says.

“I have been doing this for 30 years and I’ve never encountered that situation.”

The search warrants were signed by a judge in Mahoning County Common Pleas Court. The fact they were sealed suggests a sworn affidavit outlines the necessity for secrecy — as well as who else might be under investigation, potentially past and present city officials.

McCaffrey is a partner with Tucker Ellis LLP in Cleveland who specializes in white collar criminal defense and corporate investigations. He says Marchionda retained his firm less that two weeks ago to assist Youngstown attorney Damian Billak, a sole practitioner, to respond to subpoenas, issued in January, by the office of the Ohio attorney general.

Agents from the attorney general’s office, the Public Integrity Unit of the Ohio auditor, the Ohio Bureau of Criminal Investigation and the Mahoning County Sheriff’s Office spent about four hours at NYO’s office and Marchionda’s home Thursday executing the search warrants. They left with boxes full of documents.

A spokesman for the auditor’s office declined  comment.

Marchionda is restoring and renovating the Stambaugh building downtown, a $31 million project that would transform the landmark into a DoubleTree hotel. An update on that project, for which NYO is borrowing $2.05 million from the city, appears in the MidMarch edition of The Business Journal: Terms include forgiving $750,000 of the loan and zero interest on the balance if certain conditions are met. The Stambaugh historic preservation and renovation project is featured in the latest print edition of The Business Journal.

The state investigation is believed to center on city water and wastewater funds provided to Marchionda’s various corporate entities to help finance his development of the Flats at Wick, Erie Terminal and Wick Tower projects. The buildings contain apartments primarily leased by students at Youngstown State University.

Mayor John McNally learned “four or five weeks ago” that the Ohio attorney general and auditor’s offices were “investigating whether public monies had been properly expended in a transaction involving the city prior to 2014,” when he took office, he said Thursday.

Although McNally offered no details, it’s believed that one aspect of the investigation is the purchase by a Marchionda entity, in 2009, of the Madison Avenue fire station for $1 million. That purchase was related to the development of the Flats at Wick, which USA Campus Suite LLC built in 2010.

To help finance the project, the city provided a $1.2 million grant “for purposes of assisting in certain site preparation,” to wit, water, and waterline-related work, associated site remediation and grading, and “any improvements, enhancements and/or upgrades to the water system that may be necessary” to complete the project, documents show.

City Council’s approval of the $1 million sale of the fire station and $1.2 million in grants to Marchionda’s company occurred simultaneously in June 2009, which some news organizations quote sources as saying the transactions suggest the possibility of money laundering. The transactions took place when Jay Williams was mayor and David Bozanich was city finance director. Bozanich remains finance director and could not be reached for comment.

Since 2009, Marchionda’s various corporate entities have received more than $1.7 million in city grants marked to fund water-related expenses at the Flats, Erie Terminal and Wick Tower projects, and how that money was spent was the focus of a subpoena issued in January 2016.

Attorney Martin Hume, city law director, said he had no direct knowledge regarding the contents of the search warrants and could not comment.

He did say, however, that the city has cooperated fully with all of the state auditor’s requests for information related to Marchionda’s grants.

“We provided a variety of documents and information and that’s all I know,” Hume said. “All requests for documents were met.”

In November 2015, the state issued subpoenas for “any and all documentation” for grant monies directed toward the development of the Erie, Wick and Flats projects. The Erie project received $220,000 in city of Youngstown water and wastewater funds while the Wick Tower project received $500,000. The Flats at Wick received $1.2 million.

The subpoenas were issued Nov. 16, 2015, as part of an audit of the city’s finances for 2014.

According to those subpoenas, the grants required that NYO entities use the funds to improve the water lines that serve the properties. Funds were to be paid to the developer when they city received paid invoices submitted by Marchionda or the NYO subsidiaries working on the projects.

Marchionda’s attorney at the time, Michael J. McGee, filed a legal complaint against the state questioning whether the state auditor is a “policing agency” and arguing that the subpoenas violate his client’s Fifth Amendment right against self-incrimination.

In January 2016,  McGee told The Business Journal, “Dominic Marchionda is an honest businessman. He does what he thinks is best for the city of Youngstown and the community and he’s entitled to honest answers if people are asking for a ton of documents.”

City officials at the time said they were unsure why the office issued the subpoenas.

Lawyers for Marchionda dropped their complaint against the state in February 2016 and the subpoena was withdrawn, according to attorney McCaffrey. This January a second set of subpoenas was issued, culminating in the raids authorized by sealed search warrants a Mahoning County Common Pleas judge issued.

The new subpoenas, which related to the three housing projects, named the developer as an individual but not his corporate entities, McCaffrey says. “I told them, ‘You issued a subpoena to an individual for corporate records. Reissue in the names of the corporations and we will continue to provide the documents you asked for.’  ”

McCaffrey says he wrote March 8 to Dan Kasaris, a prosecutor with the Ohio attorney general’s office, notifying him that he and his firm were new to the case and would soon “have an indication of where we were at being able to provide supplemental production [of subpoenaed records].”

He never received a response.

McCaffrey says his firm was retained this month because of the huge volume of documents, printed and electronic, that needed to be compiled and turned over to authorities.

“Mr. Marchionda has been cooperating with this investigation prior to my involvement,” he emphasizes.

When interviewed late Thursday, McCaffrey said he did not know whether he would have to petition the court to unseal the warrant.

“I’d like to know why the attorney general’s office felt they had to execute a search warrant when there was clear cooperation and compliance going on and had been communicated to them,” he says.

“Criminal Rule 41 clearly says they are required to provide a copy of the warrant and leave an inventory of items they have seized. They did not.”

George Nelson, Dan O’Brien and Josh Medore contributed reporting to this story.

Background:
Jan. 16, 2016: City Provides Records of Marchionda Grant Payments
Jan. 7, 2016: Marchionda Fights Subpoenas for Records of City Grants

Published by The Business Journal, Youngstown, Ohio.