Police raids, asset seizures, SEC cease and desist orders.
Illegal slot machines masquerading as charity fundraising.
A take down by the Mad Max of Wall Street.
Yet another corporate adventure for the “acting” managing director of Bayside Housing and Services, the group Port Townsend City Council wants to get the Cherry Street Project. The City Manager ignored a $1 million cash offer that would have bailed taxpayers out of that mess because he had been directed to deal only with Bayside Housing.
Gary Keister is Bayside’s “acting” manager director. He has held that position for going on two years and basically controls Bayside with his two fellow investors in the Old Alcohol Plant and his wife, who are also Bayside trustees and officers.
I wrote about the red flags surrounding Bayside and the whistleblower complaint from a former employee now being investigated by the Washington Attorney General’s Office. You can read those stories here and here.
Mr. Keister is a convicted felon. He was sentenced to 41 months in federal prison on conviction for 35 counts of bank fraud, four counts of money laundering and one count of conspiracy committed while operating a Tukwila hardware-construction wholesaler from 1986 to 1988. The charges arose from sophisticated manipulation of a network of corporations he controlled and used to defraud First Interstate Bank of $1.2 million. After he was caught and punished, he assembled a new network of interconnected, commonly-controlled corporations. One corporation became his flagship, a sort of hub for all the others. According to an autobiographical promotional profile, that corporation, Wescom Capital, would have begun business while he was still in prison.
I thought I had found all the Gary Keister corporations–about a couple dozen here in Washington. Their purposes range from bio-fuels development to telecommunications to property management to utilities, though none of them seem to have amounted to much. Keister’s profiles claim he ran other corporations, such as an international food processing company. He has also claimed to have owned a commercial fishing fleet. Then I stumbled across another five corporations in Nevada.
Then a former employee tipped me off to one more I had missed. This one was called Washington Station LLC. It was a 2001 joint venture with an Austin, Texas company called BGI, Inc. At the time BGI was a hot penny stock, soaring from pennies to an evaluation more than 500 times higher.
It crashed fast when police in Texas and North Dakota started seizing the illegal slot machines it had placed in VFW and bingo halls. And then the SEC stepped in. But not before Anthony Elgindy blew the whistle. He was known as the “Mad Max of Wall Street.” A boiler room con artist himself, he was an FBI informant and delighted in exposing stock scams, taking down fraudulent corporations and “pump-and-dump” stock schemes while raking in short-selling profits for himself and his followers. In 2001 he set his sights on BGI and turned up Gary Keister.
Keister’s “Wescom,” Elgindy wrote, “is the master of stock promotion.”
“Charity Station”
Founded in 1994, the main product of Austin, Texas-based BGI, Inc. was a phone card dispenser called “Lucky Strike.” In exchange for buying a phone card that allowed only a two-minute call, the purchaser was entitled to participate in a sweepstakes for an instant cash payout.
In 2001 BGI stock hit a 52-week high of $5.14.
But its fortunes were turning sour at the same time management hyped the company. Its 2000 revenue, according to the 10K filed with the Securities and Exchange Commission, plummeted by almost 40%. It had an explanation: competition. And it had a solution: renaming its machines as “Donation Station” and “Charity Station” and promoting them as charity fundraising vehicles.
It also had a big problem: law enforcement considered its machines to be illegal slot machines.
As Elgindy would report, the company assured investors its machines were legal. But the Texas Attorney General disagreed. And so did the North Dakota Supreme Court.
Enter Gary Keister and his Wescom Capital. BGI announced August 13, 2001, that it had hired Wescom Consulting “to aid its expansion in the promotional sweepstakes and prepaid phone card markets. Financial arrangements call for the two companies to share expenses and revenue. Wescom Consulting will target three areas — general management, finances and marketing.”
Wescom Consulting was identified as “a division” of Keister’s Wescom Capital. “”Wescom will give us the operational expertise we need to focus on diversifying our product line and creating strong, sustained revenue,” said BGI’s CEO at the time (he would be gone soon).
The next day, BGI announced a new CFO, who happened to also have been the CFO of Keister’s Wescom Capital. That man, James Sylvester, signed off on Wescom Capital’s 2000 annual report to the Washington Secretary of State as assistant secretary and was identified as a director or officer (his title is not legible on the scanned document).
A couple weeks later, BGI and Wescom Capital announced a joint venture, called Washington Station LLC. “to explore expansion opportunities…for Charity Station.” According to Elgindy, “a source familiar with BGI and its management offered a few more details about the business. He said the Charity Station machines were structured so that for every $1 a customer put in the machine, 72 cents were paid out in prizes, BGI got 45% of the profit, and the charity and location split the remainder. Like the Lucky Strike phone card machine, the Charity Station both looks and acts like a slot machine. As a matter of a fact , according to certain law enforcement officers, the machine is nothing more than a slot machine with a different face.”
The raids started quickly. October 3, police in McAllen, Texas seized 25 machines. According to an article in the McAllen Monitor quoted by Elgindy (but no longer available online), “.. investigators collected evidence in hopes of securing a grand jury indictment on those believed to be behind the scheme. The grand jury will have to evaluate their guilt in connection with five violations that include keeping a gambling venue and possession of a gambling device,” police said. If convicted, the suspects face a maximum penalty of one year in prison. The article continues, “Police said that many were duped into thinking the gambling machines were legal because signs posted in the area said all proceeds went to charity. A poster on the wall called the room a “Donation Station” and said proceeds from the “Charitable Sweepstakes” went to the Department of Texas Veterans of Foreign Wars. Furthermore, “Patrons might have been further confused by forms they saw tacked to the side of the machines, which advertised that tickets for free games could be obtained by writing to Charity Promotions Associates in Austin. However, telephone information operators and officials from the Office of the Texas Secretary of State did not have such an organization listed in their records.”
Then came three raids in New Braunfels, Texas that netted 200 machines. Laredo and Fort Worth police seized 72 Charity Station machines. Bexar County seized 8 machines and nearly $1 million from the company’s bank accounts. Rio Grande City police seized 33 machines. The Texas Attorney General and El Paso police seized 69 Charity Stations.
The Securities and Exchange Commission enforcement staff recommended fraud charges. BGI agreed to a cease-and-desist order. It voluntarily delisted its stock. Investors lost everything, but some insiders had cashed out before the stock crashed.
Sylvester was gone as BGI CFO within three months. Keister and Wescom Capital, and the joint venture to promote the Charity Station gambling machines, dropped out of sight.
Elgindy saw it all coming.
The Mad Max of Wall Street
Elgindy had been part of two large boiler room operations taken down by federal authorities. He turned informant and said he had dedicated himself to exposing stock fraud. He bragged that because he had done so much of it, he could spot scams from afar. He also profited off his insight by shorting stocks he exposed.
He developed a huge online following and posted many of his reports at siliconinvestor.com, which is no longer operational. On January 10, 2002 Elgindy announced he had started covering BGI and its illegal slot machine business. He exposed the fact that the favorable industry press on BGI had been a paid plant by a corrupt stock media company, owned by a man with a prison record.
Keister and Wescom turned up on Elgindy’s radar.
“Wescom is the master of stock promotion,” Elgindy wrote. It sounds like he was already familiar with Wescom but I can’t verify that. Elgindy dragged out Keister’s convictions for bank fraud and money laundering. And he claimed that he had found evidence from Hawaii, where Sylvester–the Wescom CFO made BGI’S CFO–had been an accountant. The link to the evidence is no longer operable. According to Elgindy, “that link says he used unethical practices while doing his job.”
Elgindy predicted storm clouds and he was right. BGI stock not only sank, it was delisted. Elgindy’s full report is available by clicking here.
Elgindy after prison, 2010
Elgindy was good at spotting dishonesty because he was himself a crook and remained so until a huge investigation caught him and two corrupt FBI officers. He didn’t escape prison this time. Authorities suspected Elgindy, an Egyptian American born Amir Ibrahim Elgindy, had inside information on the 9/11 attacks. He had issued instructions to liquidate all his holdings just days before the planes hit the Twin Towers. A few years after release from prison he killed himself.
This American Greed episode [click here for transcript] tells the fascinating and troubling story of The Mad Max of Wall Street. Who could ever have imagined that one of his targets would be in talks with the City of Port Townsend to take over the Cherry Street Project?
[This article has been corrected to reflect that Sylvester’s exact title with Wescom Capital is not legible on the scanned 2000 filing with the Washington Secretary of State.]
Should taxpayers have concerns about handing over the failed Cherry Street Project and another $300,000 to Bayside Housing? So far taxpayers are out about $2.33 million dollars on what is now widely recognized as a boondoggle and symbol of government incompetence and waste. Taxpayers got burned with the first group entrusted with the project and public largesse. That group, Homeward Bound Community Land Trust, was incompetent and not altogether honest, and defaulted on its commitments.
In September 2020 City Council directed the City Manager to negotiate a handover of the project to another local non-profit, Bayside Housing and Services. The latest Cherry Street giveaway was going to hit taxpayers harder. Taxpayers would eat all the indebtedness on the project and deliver it debt-free. Bayside would get more than $300,000 in cash unspent by Homeward Bound. Bayside would only be required to complete renovation and build-out of 8 apartments in the 70-year old building barged here form Victoria, B.C. in May 2017. After that, they could do whatever they wanted with the rest of valuable 1.5 acres on a hillside above the golf course.
The City Manager disregarded a $1 million cash offer for the property because he had been instructed to only negotiate with Bayside.
I reported in October 2020 that, despite headlines trumpeting the turnover, this was still “not a done deal.” We have since learned that Bayside and the City have been engaged in negotiations. Bayside has retained legal counsel to assist in the transaction and has been searching for partners to join on the project.
In that report I raised questions about whether, like Homeward Bound, Bayside lacked the resources and qualifications to get the job done. Would taxpayers again be left holding the bag? Bayside had never built anything. It owns no real estate. It had been unable to obtain financing, though its public reports show skyrocketing revenue and assets.
Bayside earned a lot of respect in the community under its first managing director, Aislinn Palmer (now using her married name, Diamante). She grew the fledgling organization from nothing into one of the most highly regarded non-profits in Jefferson County. But Diamante resigned abruptly in July 2019. Bayside made no mention of her departure–not a single public farewell or well wishes for her next venture. Diamante is now running operations at Fort Worden. She won’t tell us why she left. “I can’t talk about that,” she said.
Takeover and Conflicts of Interest
I had suspicions she may have left because things at Bayside were getting out of her control, and not in a good way. In October 2020 I asked Gary J. Keister why she left. Keister has been serving since Diamante’s departure as “acting” managing director. He’s been acting in that capacity for going on two years. Keister also manages the Old Alcohol Plant. This hotel/restaurant business is owned by Inn Properties, LLC. Keister is majority owner along with two other men who are also trustees of Bayside Housing. One has been president. The other is secretary/treasurer. Keister’s wife is also a Bayside trustee.
The Old Alcohol Plant rents rooms to Bayside. Kiester oversees billings to Bayside. He also oversees payments from Bayside to the Old Alcohol Plant. He’s on both sides of what are clearly not arms-length transactions. His business partner in the Old Alcohol Plant who is Bayside’s treasurer and the other trustees with ownership interests in the Old Alcohol Plant are also on both sides of these transactions.
We asked Keister if Palmer/Diamante resigned because of ethical concerns, and whether she had been unsuccessful in getting the trustees to address those concerns. Keister has not responded to our emailed questions.
“Our Wonderful Founders”
Keister is now effectively in control of Bayside Housing. A video released by Bayside in December 2020 is promoted as “Hear from our wonderful founders…” The “founders” in the video are Gary and Susan Keister. The video rewrites history. The Keisters were not the founders. Bayside was incorporated September 10, 2014 by individuals associated with the Society of St. Vincent de Paul of Eastern Jefferson County. Keister’s group of real estate investors were going to be Bayside’s landlord after it had purchased and renovated the Old Alcohol Plant. Bayside’s founders at one point mothballed the organization because Keister had been unable to rent them space when needed. In 2016 Kiester told The Leader he was not in control of the Bayside project.
Bayside’s original founders and trustees are gone, just like Palmer/Diamante. Inn Properties and Bayside have also seen resignations by accounting personnel.
Dodgy Finances, Corporate Shell Games, Money Laundering and Bank Fraud
Port Townsend Free Press has obtained what appears to be a whistleblower complaint against Keister and the way he is directing the finances of Bayside Housing. From the allegations in the complaint (I repeat, allegations) it would appear that the whistleblower has detailed, first-hand knowledge. The Washington Attorney General’s office has acknowledged receiving a complaint. The complaint obtained by PTFP alleges a plethora of conflicts of interest, possible abuse of Bayside’s non-profit status to cover cash flow needs of the Old Alcohol Plant, and specific allegations of fraud in how rooms supposedly for homeless persons are being charged to Bayside when in fact they are being rented to Old Alcohol Plant hotel customers. I will return to the whistleblower complaint in the next article. (You can read that article, published March 8, 2020 at this link.)
Keister has not responded to any of our recent questions, though he did confirm by email in January that a huge pledge receivable (upwards of $700,000, according to the whistleblower), has never been collected though it is years later still being reported as an asset. “It remains fully committed,” wrote Keister. The whistleblower alleges that pledge is illusory because it comes from Inn Properties, the corporation behind the Old Alcohol Plant controlled by Keister. The whistleblower says they doubt Inn Properties has that kind of money and that Inn Properties itself is heavily in debt.
What looks to be questionable reporting of assets–booking pledges never received as income and carrying them as assets–may be a red flag. It makes the organization look like it is doing much better than it really is. This could help in getting loans or attracting donations. It deserves a closer look. Playing fast and loose with financial information and sophisticated manipulation of inter-related corporations is what in 1992 landed Gary J. Keister in federal prison for money laundering and bank fraud.
Apparently while still in prison, Keister began assembling a new network of corporations. I have identified almost 30 corporations with Seattle and later Port Townsend and Port Hadlock addresses for which Keister was a governor or registered agent, or one of the corporations he controlled was a governor or registered agent of another corporation.
1239 Water Street, “Suite” A, Port Townsend
The addresses of the corporations in this network eventually became 1239 Water Street, Suite A, Port Townsend. This address is a nondescript door between the dumpster and drive-up window at the U.S. Bank. According to a bank employee, this space has not been rented for years. Keister now runs his corporate networks from his Old Alcohol Plant offices.
Who Is Gary Keister?
One of Kiester’s autobiographical profiles, from his personal blog.
Biographical profiles published by Keister on various websites claim he was the head of several corporations, such as “Hudson Bay Group,” an investment company called Veribus, Inc. and a corporation with fish processing plants around the world. He also claimed that Wescom Capital, operating out of the space by the dumpster behind U.S. Bank, “regularly handles transactions ranging between $5 to $50 million.” He did not respond to questions asking for verification of these claims, nor have I found any information to corroborate those claims. The only information I located on the fish processing company, John Cabot Company, was an expired trademark coming back to an Everett, WA address and mention of the ruins of a fish processing facility in Seldovia, Alaska.
In another autobiographical profile he says that he worked in the Middle East as an advisor to AID contractors, “and upon returning to the US took a position as president for an international food processing company” (which he does not identify).
None of the biographies published by Mr. Keister mention running Augustine Unlimited, a construction-hardware wholesale business in Tukwila, when he was committing bank fraud and money laundering crimes.
In October 2019, after Aislinn Palmer Diamante’s departure, articles of incorporation of a for-profit corporation called Bayside Housing LLC were filed with the Washington Secretary of State. The Governor of this for-profit Bayside Housing was identified as Wescom Capital. The Governor of Wescom Capital is Gary Keister. The stated business purpose of this for-profit Bayside Housing: real estate.
One of the corporations with which Keister got involved after prison was St. Joseph’s Housing Group of Seattle. The purpose of this non-profit corporation, like the non-profit Bayside Housing, was to provide housing and transitional services. It started in 1992. It never filed an IRS 990, an annual report required of nonprofits with annual income exceeding $50,000. In one annual state corporation report, its income was reported as less than $4,000. Keister appeared suddenly in 2005 as Vice-President and Chair. The non-profit began to shed directors. In 2007 it was just Keister as President and Chair and a secretary. On February 2, 2009 the Secretary of State dissolved St. Joseph’s Housing Group for failure to file a list of officers within the time required by law.
Keister, in an interview with The Leader, has claimed he was “associated” with the project in Seattle “where homes owned by Housing and Urban Development were sold at the height of the housing market and used to build 50 units called Monica’s Place.” There is a Monica’s Village Place in Seattle. It is a 53-unit apartment building built in 2011 by Catholic Community Services of Western Washington.
UNITED STATES OF AMERICA v. GARY KEISTER
Everybody deserves a second chance. But conviction for multiple counts of bank fraud and money laundering in a sophisticated scheme to bilk $1.2 million dollars out of bank is worth taking into consideration when weighing whether valuable public resources should be entrusted to such a person. Former Bayside Housing and Inn Properties employees who have spoken on condition of confidentiality say they wanted to give Gary Keister the benefit of the doubt, but, to paraphrase one former key employee, began to wonder whether “a leopard could change its spots.”
Keister was the owner of Augustine Unlimited, a Tukwila construction/hardware wholesaler, which he ran from 1986 until 1988 when he sought Chapter 11 bankruptcy. He was accused and convicted of making false statements to First Interstate Bank to obtain loans of $1.2 million. Much of the money was eventually repaid, but the bank still lost between $200,000 and $400,000.
Keister was convicted of one count of conspiracy, four counts of money laundering and 35 counts of bank fraud. He was denied bail upon conviction and sentenced to 41 months in prison. His sentence was “enhanced” by the U.S. District Court judge due to his leadership role and the sophistication of the scheme he orchestrated.
In its 1994 decision upholding Keister’s conviction and sentence, the U.S. Court of Appeals for the Ninth Circuit described Keister’s scheme:
When Keister acquired Augustine in late 1986, he obtained a line of credit from First Interstate Bank of Washington (FIWA). Under the terms of the line of credit agreement, Augustine would submit receivables data daily to FIWA and FIWA would extend credit to Augustine on the basis of Augustine’s receivables. The agreement provided that Augustine was to refrain from engaging in any business not reasonably related to its normal business. The crux of the allegations against Keister were that: (1) he falsified receivables data to increase the availability of funds under Augustine’s line of credit; (2) he funneled money advanced under Augustine’s line of credit through other business entities under his control and then redirected the funds into Augustine as injections of new capital, which the terms of the line of credit agreement required him to make; (3) he used Augustine’s line of credit to provide credit to other business entities under his control in violation of the line-of-credit agreement.
As reported by The Seattle Times, “Rather than invest the money in Augustine Unlimited as intended by the bank, Keister spent the loans on personal debts, homes and other businesses.”
Keister was convicted on or about July 10, 1992. He was sentenced to 41 months. His conviction was upheld January 3, 1994. He began rebuilding his corporate network on May 5, 1995 when he filed articles of incorporation for Wescom Capital, that “regularly” handled “transactions ranging from $5 to $50 million.” One of Keister’s autobiographical profiles says Wescom started business in 1994, when he would still have been in prison.
NEXT: The Whistleblower Complaint and More Red Flags (You can read that article, published March 8, 2020 by clicking here).
“Let’s do this!” says Michelle West, owner of Evergreen Fitness in the Glen Cove area south of Port Townsend. “Starting 5:30 a.m. Monday January 11, we are open.”
Under the guidelines for fitness establishments announced by Governor Inslee on January 5, Evergreen Fitness may have up to 22 people at a time in its cavernous, multi-level facility. The rules require 500 square feet for each athlete (yes, if you’re 82 years old and you’re in the gym, you are an athlete). Also, exercise classes will be permitted to resume in groups of no more than five people. Just dropping by is not permitted. Members must make appointments to get the blood flowing again and start working off those extra COVID lock-down pounds. Each session may last up to 45 minutes.
West was already launching the “Jefferson County Health and Fitness Challenge” on January 11. That will be an eight-week program, with Zoom meetings, personal attention from a NASM accredited trainer, weekly challenges, and instructional materials. Participants may also enroll in beginner or intermediate guided walks or a special fitness assessment with two fitness routines customized for their home equipment. Registration starts at $39.
As part of the challenge, participants can win 20% of the fees collected, with 5% awarded to first and second runners-up.
Reopening means six employees getting back to work. In addition to its sprawling main floor with free weights, work-out equipment and cardio machines, Evergreen has an upstairs exercise floor and two sizable studios. Its large size will allow it to take full benefit of the Governor’s provisions for reopening.
And there’s a massage studio and tanning rooms that have remained in business the whole time, in compliance with the Governor’s guidelines. The juice bar will also reopen.
“I’m so grateful,” says West, “to members who jumped with us through all the changing hoops and rules and continued to be supportive and encouraging.”
No one has lost time off their contracts. West is extending all existing contracts to add on the days when the gym was closed. Evergreen is accepting new members.
For more information, call 360-302-1132 or click evergreenfitness.net. Members may begin reserving their workout and class time by logging on to myiclubonline.com. Spots in the gym areas may be reserved up to ten days in advance and up to eight days in advance for classes. The classes will include live senior group fitness leaders and virtual Les Mills instructors. Reservations may be made now.
West has been resourceful in keeping her business alive. It has been hard. She’s seen membership renewals drop and revenues plummet. She’s kept her building dark and cold and taken other steps in her business and personal life to save money. But she’s kept busy, promoting health and fitness and keeping members updated with regular email communications. She has worked closely with local government and health authorities to seek clarification on sometimes vague guidelines and bring her facility into compliance with all that is required of her. She has talked with many members personally to encourage them, not just to be patient, but also to take care of themselves and not let their health suffer.
Just as she’s encouraged members, they’ve also encouraged her. Now with the clouds lifting, the lights will be coming on in Evergreen Fitness.
“We really don’t have a future if we try to remain status quo,” David Timmons, Acting Executive Director of the Fort Worden Public Development Authority told its Board of Directors at their December 9, 2020, special meeting. The PDA will run out of money in several weeks. It needs over $1.5 million to cover operating and capital costs over the next six to seven months, and then it will face over $1 million a year in maintenance costs while the hospitality industry, its major source of funds, recovers from COVID lockdowns.
Timmons recommended that to survive the PDA privatize its hospitality and facilities operations as two separate nonprofit corporations. The Board unanimously authorized him to proceed with preparing a more formalized plan that will be presented at its December 16 regular meeting.
Timmons so far has worked more than minor miracles with the PDA’s disastrous financial situation. He has succeeded in obtaining deferments of major loans with Kitsap Bank. Historic Tax Credits will be secured. A $200,000 donation is helping with operating costs, though it is not enough to stave off impending collapse on the the PDA’s current course. Maker’s Square is anticipated to be ready for occupancy within weeks. Washington State Parks is considering stepping in to take over major maintenance needs, at least for the short term. Centrum is considering partnering on Maker’s Square. The KPTZ lease is on track. Operations have been curtailed, buildings closed and staff furloughed to cut expenses.
“Things are starting to fall in place,” said Timmons, but “the big items” are still unresolved. The biggest item is the need for money just to stay afloat. Taking out a line of credit would be one solution. But that is not possible.
“We’re just not credit worthy,” Timmons told the Board. The PDA cannot realistically expect to secure more loans. At best, its millions in outstanding debt payments are being deferred. A completely new corporate entity is required if there is to be any chance of attracting investors who will provide desperately needed new funds.
“We don’t have a workable business plan in place right now,” he said. The COVID crisis destroyed the PDA’s hospitality business, which had already been struggling with huge maintenance and repair costs on the historic facility.
Timmons’s recommendation would create a new nonprofit corporation to run the hospitality side of the PDA’s activities. It would operate under a long term franchise agreement, with the PDA retaining control over the real estate, which, in turn, is leased State Parks property. Phase two would see a nonprofit corporation created to maintain and repair Fort Worden’s buildings.
“Bankruptcy would be easier,” said Treasurer Jeffrey Jackson, but this is the best hope for keeping the PDA alive.
Even with the privatization of hospitality and maintenance operations, the PDA’s future remains very shaky. It must find–very quickly, said Timmons–investors to extend $1.5 million in new loans. That’s going to be “a leap of faith,” according to Timmons.
The PDA has millions in debt and is facing an accountability audit by the State Auditor that will look closely at issues of fiscal malfeasance. Criminal investigators were called in after abuse of credit cards was discovered. Over a million dollars in dedicated loan funds were diverted to cover other expenses, while the Board appears to have been purposefully kept in the dark.
Timmons stepped in after CEO Dave Robison was stripped of responsibilities then retired.
The bridge loans will almost certainly require a guarantor. The City of Port Townsend has been approached to guarantee $900,000 of loans needed for capital projects. No commitment has been made. Mayor Michelle Sandoval was one of the on-line attendees at the special meeting but said nothing more than letting the BOD know she was listening.
The City created the PDA a decade ago. With 170 jobs at its peak, Fort Worden PDA became one of the area’s major employers. It grew rapidly from nothing in 2014 to $7 million in revenue in 2019.
The City is facing its own dire financial situation. It is over $17 million in debt and is experiencing reduced tax revenues. It has slashed its 2021 budget and projects continued depressed revenues. [At the same time, as we have reported, the City has ignored an offer of $1 million cash to bail it out of the failed Cherry Street Project. That sum would be more than enough to back up a loan guarantee to keep the PDA afloat during the coming critical months.]
Board member and past Chair Cindy Finnie questioned whether it was realistic to believe that State Parks would step in to cover the enormous maintenance cost of Fort Worden’s old buildings. “This is our Achilles heel,” she said. The hospitality side of the business depends on a facility that is attractive to visitors. She cautioned the Board to include in its forecasts added expenses when it came time to ramp up operations for the Summer season. Timmons has repeatedly informed the Board that the aging infrastructure is beyond repair stage, and frequently needs complete replacement.
Timmons’ effort to obtain a partner for the Maker’s Square project addresses what–to this author and a business consultant who has studied the project–may have been a fatal shortcoming in its business plan from the beginning. The comparative models of other makers enterprises that were used to evaluate Maker’s Square’s potential for success had major funding partners, including government entities, or other support systems. None operated as municipal corporations, which the PDA is. Those operations did not rely on significant income from food and hospitality. Maker’s Square’s business model requires that Maker’s Square itself–not Fort Worden’s other hospitality operations–generate over a quarter million dollars a year in profit from those sources. Lastly, Maker’s Square’s business model, which had always projected two years of losses followed by a future of just breaking even, did not depend on sizable gifts or outside funding.
With the added debt burden for Maker’s Square resulting from diversion of funds and the prolonged downturn in the hospitality industry, its original business model is no longer valid. Enlisting a major partner such as Centrum may be the only thing that keeps it from failing. Large gifts ang government help will be needed. Timmons has hopes that the area’s legislators will be able to bring state resources to the rescue.
Timmons has been working with a nightmarish situation. He impresses at every meeting with his firm grip on problems, his financial expertise, and his crisis management skills. The news has been very bad, but he has not exhibited panic or despair. His calm and always realistic approach is providing a desperately needed ray of hope. The highly accomplished Board he serves is also stepping up and giving him the support he needs. But, though many important pieces are falling in place and a path ahead has been mapped, as the pragmatic Timmons cautioned, “This is going to be a stretch.”
Our local gyms are struggling. If you want them around when the Governor lifts his lock down order, you need to support them now.
The Port Townsend Athletic Club has been closed since March. It is in such dire straits the owner has established a Go Fund Me campaign. She needs to raise $200,000 not just to reopen the doors, but to keep the building. All the work, the huge investment poured into repurposing a structure that in its first life had been a brewery will be lost the community if the PTAC fails. This will be a huge blow to the attractiveness of PT for young and old. All of its classes, its weigh room, the cardio room, the hot tub, the exercise courts will be gone and we will have a very large building sitting empty in the heart of our downtown.
Port Townsend Athletic Club
The Go Fund Me page for the Port Townsend Athletic Club is at this link right here. Show them some love by helping to keep this wonderful gym from going under.
I was a member of PTAC when I first moved to Port Townsend. I really liked the place and all the classes. But Evergreen Fitness was so much closer to my home, and I had become friends with its owner, Michelle West. I was in the quiet, darkened, spacious and cold building yesterday helping Michele modify signs advertising her tanning facilities. Governor Inslee has not again closed tanning rooms. Senselessly, he closed them in the Spring even though they are a model of social distancing–you’re in there all by your lonesome. Besides, we now know that UV kills COVID. Evergreen can still make some money from its tanning rooms. Its massage services are also still open, an odd but welcome wrinkle in the Governor’s guidelines. You can make a reservation for either service by calling or texting Evergreen at 360-302-1132.
Michelle says while anyone’s there, she’d love to make them a smoothie and show them her lines of vitamins, supplements, protein powders, and yoga supplies.
Evergreen reopened when Jefferson County went into Phase 2. Michelle consulted our county commissioners and health officer, and took extraordinary measures to ensure a safe facility. She carefully regulated guest numbers to stay within the reduced capacity ceiling. Staff rigorously cleaned the machines and equipment. Guests did a terrific job, as well, wiping down what they used. The place really is huge. (see featured photo). There is enough room to spread out on the main gym floor. If someone was on free weights, you could move to the far side of the room where the weight racks took a right turn along the wall, or try the machines, or move to the sprawling upstairs, or into one of the two big exercise studios.
Michelle doesn’t talk much about hard she’s been hit, but she’s been hit hard. Evergreen’s membership is down around 50% through cancellations and those who did not renew memberships.
Business is dead for these fitness centers, and taxes are eating them alive. Evergreen got hit with a huge and much higher reassessment, maybe PTAC, as well. And the County Commissioners have raised everyone’s taxes 1%. Insurance and other fixed costs have not gone away, either. And mortgages must still be paid.
Staying healthy is critical for our aged population. It is a lot harder to get back into shape at 70 after months away from the gym than it is at 25. Some folks may never fully recover their strength and stamina as their physical conditioning has deteriorated during these months of closed gyms. Walking is not enough, far from it. That is a delusion into which too many old people fall because walking is easy. All those classes that helped with core strength and balance prevented the kind of falls that mean a life taking a sad, irreversible turn for the worse. Lock down blues and depression need the antidote of physical stimulation. It’s necessary for mental health. We know that vigorous exercise, and particularly weight training, help stave off mental decline and dementia.
When we come out of this we will need our gyms more than we did earlier this year. Make sure there are gyms to reopen. Don’t cancel your monthly membership payments. Steve Crosby of Port Townsend has even better idea. He’s paid his entire 2021 membership at Evergreen up front. I’m going to do the same.
And help PTAC in their desperate need. Once again, their Go Fund Me page is here.
You’re going to be around after this over. Consider this an investment in a healthy future for you and your family.
[Received from Michelle West after publication: “Thank you Jim. I appreciate your support of Evergreen fitness. As soon as the governor gave guidelines for fitness centers to open, I was in contact with the county commissioners office making sure I was following the reopening guidelines as strictly as possible. My front desk staff and I worked hard to get the place open five days later which was Monday, June 1, 2020. I’m very grateful to all the members that continue to show their support, and my front desk staff for following all of the rigid guidelines. We were open and doing ok (yes, just ok, financially) for the last 5 1/2 months, and it’s frustrating to be closed down again… it is a very hard financial hit, and a struggle as indeed you said, difficult for me to talk about. I love Evergreen fitness and I truly believe in it. Yes, support is needed from the community so when all of these restrictions are lifted we still have an Evergreen Fitness to go back to. Thanks again for your support. Michelle west, owner, Evergreen fitness Center“]
The following is an mail shared with us anonymously that has been sent from the co-chairs of the Fort Worden Public Development Authority to the Mayor of Port Townsend. Due its anonymous origins it went into our spam box and we did not discover it until this evening. It was sent to us November 18. The email from the co-chairs to the Mayor, and also all members of City Council, was delivered November 16.
This letter discloses an ongoing criminal investigation and the escalation of other investigations into financial malfeasance that has rendered the Fort Worden PDA’s financial situation a “house of cards.”
The email appears authentic based on the level of detail, and key statements that are confirmed by matters in the public record. The information about the criminal investigation, and the disciplinary action against Dave Robison, who has now left after being CEO for nine years, has not previously been made public.
Here is the letter from the co-chairs of the Fort Worden PDA to Mayor Michelle Sandoval, with copies to the city manager and the Washington State Parks Agency Administration.
Mayor Michelle Sandoval
Port Townsend City Council via Mayor Sandoval
Port Townsend, Washington
Re: Fort Worden Public Development Authority
SENT BY EMAIL TRANSMISSION
Dear Mayor Sandoval and Members of the City Council:
As Co-Chairs of the Fort Worden Lifelong Learning Center Public Development Authority (PDA), we are acutely aware of the criticisms that have been expressed about the state of the PDA. Because of the financial irregularities that we have uncovered and revealed to the public, it is understandable that some in our community have lost confidence in the PDA and our leadership. We remain devoted to the Authority’s and Fort Worden’s long-term success and believe it will once again become a thriving place of arts, culture, and learning. We believe that we, along with our board members, possess the knowledge and experience required to partner with the new Interim Executive Director to complete the short-term mission critical requirements to secure the Makers Square Historic Tax Credits and mount a fundraising campaign for working capital to keep the Fort running (we received a $200K commitment on Friday). We both have the commitment to continue in our roles and believe that we have the experience and knowledge to lead the PDA out of this crisis. We are prepared to engage in dialogue about the future of the PDA and its leadership and to identify solutions to very difficult circumstances. Our goal has always been to create a win-win for the PDA, its partners, the City, our community, and State Parks.
We have heard from you and the City Manager that there has been a lack of accountability at the PDA. If by that you mean an unwillingness to accept responsibility or to account for one’s actions, we must respectfully disagree with you. We have devoted ourselves nearly full-time to the PDA, and have acted with due deliberation in responding to net revenue shortfalls and audit findings, rethinking the future business model required for a long-term sustainable operation, confronting personnel problems, addressing financial irregularities that were uncovered, working in the face of impossible odds to find solutions to the collapse of revenue due to COVID shut-downs and restrictions, and collaborating with our Fort Worden partners to re-imagine business and governance models. When a member of our staff uncovered two very serious financial irregularities (totaling just over $10,000 combined), we immediately reached out to City Manager Mauro, Mayor Sandoval, the Port Townsend Police Department, and the State Auditor’s Office. We also engaged the services of a forensics account, who is also a certified fraud investigator, to verify the PDA’s preliminary findings, and we sought the counsel of a retired assistant district attorney who headed up a white collar crime unit. And just two weeks ago, we cooperated willingly and transparently with the State Auditor’s Office to identify potential risks as part of an upcoming 2018-2019 audit and accompanying Accountability Audit.
We also note that as part of the PDA’s 2016-17 Accountability Audit, which we did not receive until January 2020, the State Auditor’s Office stated that “Independent audits provide essential accountability and transparency for Authority operations. This information is valuable to management, the governing body and public stakeholders when assessing the government’s stewardship of public resources.” The PDA board as a whole and its co-chairs took very seriously the findings of the Financial Audit and the Accountability Audit. The State Auditor concluded in the Accountability Audit that, “This report describes the overall results and conclusions for the areas we examined. In those selected areas, Authority operations complied, in all material respects with the applicable state laws, regulations, and its own policies, and provided adequate controls over the safeguarding of public resources.” The State Auditors examined the following areas during this audit period: 1) Cash receipting-timeliness and completeness of deposits at the Café and Taps; 2) Accounts payable-credit card disbursements; 3) Payroll-gross wages and overtime; and 4) Procurement-professional services. Since that time, the Acting Associate Executive Director, who was given full responsibility for overseeing PDA finances, has discovered that the Authority has not complied in the past year in the area of Accounts Payable and Procurement of Professional Services, the latter where we have discovered alleged fraud. During the exit interview with the State auditors, both Treasurer Jackson and Co-Chair Hutton asked the auditors if there were any areas in which we should be concerned and pay particular attention, or if there were questions they should have asked that they did not. We were not directed beyond the findings of the Financial Audit and the Accountability Audit. The February 17, 2020 memorandum to the PDA and FW Foundation boards of directors, and interested parties and media outlined the PDA’s response to the audits and the actions the PDA would take to correct findings. The treasurer has worked diligently to ensure that the PDA financial staff followed through with these corrections.
Unfortunately, as our white collar crime counsel has emphasized, individuals intent on nefarious action can usually succeed. Our now Interim Executive Director, then serving as Acting Associate Executive Director with full financial and operational authority since June, discovered that the reports that the PDA Board received during the first and second quarters of 2020 were likely not tied to the general ledger. This possible misrepresentation of the PDA’s finances is now being examined by the State Auditor’s Office and our own contracted certified public accountant. The PDA’s accountability for this potential malfeasance is demonstrated by our engagement of highly respected expert in state and city finance to review our books, a forensic accountant, and two CPAs to restate our finances from GAAP to cash basis and prepare accurate financial reports.
It has also come to our attention recently that the PDA is being criticized for refusing this winter a significant gift in the $1 million range. Let us be clear that the PDA does not accept gifts, no matter their size, that are accompanied by conditions that are contrary to our long-erm viability. One of our longest serving directors strongly counseled against accepting this gift, and the co-chairs fully concurred. Despite the fact that the gift would have provided a much needed short-term benefit, it would have seriously compromised the PDA’s financial stewardship and established an untenable precedent.
As co-chairs, we have kept the PDA Board of Directors closely apprised of all issues and actions by staff, along with our own actions, and have been transparent in our decision making and financial reporting—well beyond what is required by statute. The one exception is that we had been asked by the Port Townsend Police Department and the State Auditor’s Office not to reveal publicly that we had reported information that suggested alleged fraud due to possible negative impact on an active ongoing investigation and potential future litigation. The situation in which the PDA now finds itself requires that its stakeholders understand more fully the full range of financial challenges confronting the Authority.
We are well aware that we have been criticized for not taking more decisive action regarding the now retired Executive Director’s apparent lack of oversight of key staff. Actually, we did take decisive action about which you are aware. As a result of our investigation and performance review, the former Executive Director was relieved of personnel and financial management responsibilities. We did not, however, show our Executive Director the door, which is what some in the community wanted and
expected. Neither one of us is unfamiliar with terminating executive staff. It is much more difficult sometimes not to take such action, and in this case we wanted to respect an individual’s intention to retire within a few months after a more than 30-year career serving Port Townsend in various capacities. Additionally, we made the decision that it was critical to utilize the knowledge and expertise the former Executive Director possessed to complete the Makers Square project and secure very complicated Historic Tax Credits, without which the PDA and the Makers Square project would be at serious risk. These two responsibilities are critical to giving Fort Worden a fighting chance. And it should be noted that we have discovered zero evidence that the former Executive Director had knowledge of or participated in the alleged fraud incidents. In retrospect, we would make the same humanitarian and business logic decision, even though we have experienced scorn for that decision.
The PDA has a remarkably committed and talented Board. They have demonstrated their commitment, devotion, and caring, as well as hard-nosed oversight and decision making for many years. A recent example of the extent to which they care for Fort Worden and its people was funding $80,000 out of their own pockets to cover three months of health insurance for all employees who were placed on standby status or furloughed. Individual board members have also covered expenses such as converting our existing GAAP financials to BARS accounting to facilitate the upcoming audit and paying delinquent insurance expenses. The range of experience and talent among the Board members is remarkable. The Board has experience in finance and accounting; hospitality management; business development; corporate and nonprofit leadership; construction management; education; public relations and strategic communications; publishing and reporting; and social and economic entrepreneurship. We trust that you appreciate all that the Board has done to build the Fort Worden enterprise and its commitment to sustaining a State Park’s campus that is home to a thriving lifelong learning center—one which has more room to grow, prosper, and become more coordinated and diverse in post-COVID times.
Finally, we would like to express a deep disappointment and a regret. It is public knowledge that the Fort Worden did not qualify for any federal, state, or county relief dollars. While other organizations—for profit and nonprofit—received Paycheck Protection Program and Personal Protection Equipment funding, the Fort Worden PDA received nothing. We know of nonprofit organizations in our area with much smaller budgets and much smaller staff that received $250,000 to $400,000 in relief aid. Fort Worden qualified for and received zero aid by virtue of being a quasi-public entity. This in the face of losing upwards of 90 percent of our revenue, leaving insufficient funds to cover even fixed costs like utilities, internet service, and insurance. The City knew this to be the case, yet has not offer any assistance to the PDA. The City leadership has always professed to the importance of Fort Worden—the PDA and all of its partner organizations—as a cultural and economic driver for the City. The original effort to create the PDA nearly a decade ago came out of this belief. We know full well that the City has its own enormous financial challenges. We hold out hope that the City would offer some tangible assistance to an organization that has grown from a $1 million to a $7 million enterprise in six years, and from just over 14 full-time employees to 85 full-time year-round employees, and 175 employees during the summer season (pre-COVID). We feel it is important to stress, contrary to some people’s beliefs, the reason the PDA is in this financial situation is due to COVID and our adherence to the necessary State restrictions that are still ongoing. As a result of the closure of Fort Worden State Parks in March and the ongoing restrictions, the PDA has lost upwards of 90% of its 2020 revenue. The financial irregularities that we uncovered have exacerbated the situation, to be sure. As co-chairs, our regret—our mea culpa—is that we have not advocated with the City more forcefully for the PDA during this crisis.
Undoubtedly, there are decisions and actions that we could have made differently or better. Yet, we have been absolutely devoted to “doing the right things, and doing things right” on behalf of Fort Worden. We remain committed to the future success of Fort Worden and have appreciated the opportunity to serve Fort Worden and Port Townsend in our capacity as PDA Board members and, recently, as co-chairs. We stand ready to engage in dialogue with the hopes of finding solutions to the crisis that has impacted the PDA, and every organization, every family, and every individual in our community and the nation.
Sincerely,
Norm Tonina Todd Hutton
Co-Chair Co-Chair
Cc: John Mauro, City Manager
Fort Worden PDA Board of Directors
David Timmons, Interim PDA Executive Director
Peter Herzog, Assistant Director, Parks Development, WA States Parks Agency Administration
