An agency rife with questionable deals

Loans were granted to companies with ties to EDC board members

November 18, 1999|By Laura Sullivan | Laura Sullivan,SUN STAFF

The loan awarded to Robert E. Thompson and his bowling alley is one of the more striking examples of apparent conflicts of interest at the Anne Arundel Economic Development Corp., but it is not the only one.

In at least four other instances since 1993, members of the agency's board granted loans to companies with financial ties to themselves or their business partners. In a fifth case, a board member developed such ties while an agency loan was outstanding.

"If true, I think it's disgusting," County Executive Janet S. Owens said when told about the loans.

"I expect a level of public accountability and trust. I know it's privatized, but it is an arm of county government and its board members are to be held to as high a standard as my department heads."

FOR THE RECORD - An article in the November 18 editions of The Sun incorrectly stated that a member of the board of directors of the Anne Arundel County Economic Development Corporation, Scarlett Breeding, "helped arrange" a loan to a veterinary clinic which had hired Ms. Breeding's architectural firm to design a building. Ms. Breeding was present at the Economic Development Corporation board of directors meeting at which the loan was presented by the Corporation's Finance Committee, and the loan was not rejected by the board. Ms. Breeding did not, however, play a more significant role in the loan's approval than any other board member. The Sun regrets the error.

Last November, for example, board members Scarlett Breeding and Andrew R. Lombardo helped arrange a $300,000 loan to 2 Dudes LLC, a company planning to build a veterinary clinic in Annapolis.

At the time the loan came before the board, Breeding's firm had been hired to design the building and Lombardo was the company's accountant.

But agency board minutes do not reflect that either Breeding or Lombardo disclosed their business relationship with 2 Dudes. Shortly after the loan was approved, construction began on the $1 million building on Bestgate Road.

Breeding, who remains on the agency's board, acknowledged that her firm -- Alt Breeding Schwarz LLC -- has been 2 Dudes' architect since April 3, 1996. But she provided no further details.

"I have no comment whatsoever. There has been no wrongdoing at the [agency]," she said.

Lombardo, who was a member of the agency's board and its loan review committee until Owens replaced him in July, said he told both the board and the committee about his connection to the clinic. The board's loan committee refused to make its minutes public.

Longtime board member Leonard A. Blackshear and newly appointed member Ermis Sfakiyanudis recently acknowledged for the first time that some loans have been "unfortunate."

But they said the agency has changed since Owens took office last December.

"The board has taken back authority over the loan program and will return it to the spirit of what it was intended to do," said Sfakiyanudis, who was appointed in July.

Other examples of apparent conflicts of interest found by The Sun include:

In March 1995, the agency lent Annapolis restaurateur Bill Muelhauser $250,000 to expand the popular Rams Head Tavern. In 1997, he received a second loan of $60,000.

A year later, longtime board member Jay I. Winer, then the agency's chairman, began negotiating with Muelhauser to persuade him to open a second Rams Head in Savage Mill, Winer's struggling Howard County retail complex.

Muelhauser said he began the talks but the second Rams Head Tavern was a deal between his son Kyle and Winer, and had little to do with him. State records show, however, that Muelhauser created the franchise in August 1998 under his own name and transferred it to his son in February. Winer declined to comment.

In November 1997, Annapolis-based Towne Park Ltd. sought an agency loan to expand its business supplying hotels with parking attendants and bellhops.

Lombardo, a board member at the time, had been Towne Park's accountant for more than a decade. Towne Park Vice President Joseph T. Wobbe said Lombardo and the agency's then-director, Richard J. Morgan, helped steer the loan through.

Both men "stepped up to the plate for us," Wobbe said. "We were a very [financially] lopsided company at the time, and they waved those issues off. They had golden eyes for us."

Lombardo said he did not see a conflict because he recused himself from discussing Towne Park with the agency, both in the loan committee and with the board. Board minutes show that a discussion took place but do not reflect anyone recusing himself; the agency has refused to release the loan committee's minutes.

In two cases previously reported in The Sun, board members' connections ran even deeper.

George and Mary Chamberlain, two former Annapolis residents, received a $25,000 agency loan in 1994 to build a cellular phone network on the Eastern Shore.

They allege that then-Chairman Winer suggested that they go into business with another Annapolis firm, West Shore Communications. The Chamberlains say West Shore agreed to invest in their business as long as they used their loan money to draft a detailed engineering plan.

The Chamberlains contend that when they shared their engineering plan with West Shore, the company refused to invest and stole their concept. After defaulting on their loan and losing their house, the Chamberlains learned that Winer and then-board member Charles F. Delavan were two of three partners in West Shore.

This summer, the Chamberlains filed suit in Anne Arundel Circuit Court, seeking $10 million in damages, naming West Shore and Winer among the defendants.

Winer and Delavan have denied any wrongdoing.

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