Government

Update: McNally Told of Marchionda Probe Weeks Ago

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YOUNGSTOWN, Ohio – Mayor John McNally learned “four or five weeks ago” that the Ohio attorney general and auditor’s officers were “investigating whether public monies had been properly expended in a transaction involving the city prior to 2014,” he told The Business Journal Thursday.

McNally was responding to the morning raids by the Ohio Bureau of Criminal Investigation, the Ohio Auditor’s office and the Mahoning County Sheriff’s Office where search warrants were executed at the home of developer Dominic Marchionda and the downtown office of his NYO Property Group.

An employee of the auditor’s office taking pictures outside Marchionda’s home, 7886 Via Attilio in Poland Township, told The Business Journal the raid was being carried out by the Public Integrity Unit of the auditor’s office. At the same time, the doors to NYO’s office were locked with a sheriff’s deputy standing guard and inside, deputies could be seen collecting materials from the office.

Although McNally offered no details about what he was told by investigators, it’s believed that one aspect of the investigation is the purchase by a Marchionda entity, in 2009, of the closed fire station at 141 Madison Ave., reportedly for $1 million. That purchase was related to the development of a student housing complex, Flats at Wick, that USA Campus Suite LLC built in 2010.

To help finance the Flats 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 fire station sale and $1.2 million in grants to Marchionda’s company from water department funds occurred simultaneously in June 2009. The transactions took place when Jay Williams was mayor and David Bozanich was city finance director. Bozanich remains finance director; he could not be reached for comment Thursday.

A spokesman for the auditor’s office declined to comment on the raids or the status of the investigation. Marchionda’s various corporate entities have received more than $1.7  million in city grants earmarked to fund water-related expenses at his development projects, and how that money was spent was the focus of a subpoena issued in January 2016.

Attorney Martin Hume, the city’s 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 fully cooperated 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.”

Marchionda is currently restoring and renovating the Stambaugh building downtown, a $31 million project that will transform the landmark into a DoubleTree hotel. An update on that project is featured in the latest print edition of The Business Journal.

In November 2015, the state issued subpoenas for “any and all documentation” for grant monies directed toward the development of the Erie Building, Wick Tower and The Flats at Wick 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 funds be used by NYO to improve water lines serving the properties. Funds were to be paid to the developer when the 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 the subpoenas violate his client’s 5th 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 an attorney representing the developer.

Earlier this year a second set of subpoenas was issued, culminating in Thursday’s raids authorized by search warrants handed down under seal by a Mahoning County Common Pleas judge.

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.