Runoff Race For Mayor

by Mark Smiley | May 25, 2019 | Main Articles

Hancock Campaign Goes Hyper Negative

by Glen Richardson

In the May 7 Denver Municipal Election two-time incumbent Mayor Michael Hancock received only 38.65% of the vote and his prior pledge to not campaign negatively went very much out the window. Led by the Brownstein Farber Law Firm, the lobbying firm CRL Associates, Colorado Concern and myriad “high-density developers,” money has poured into the Hancock campaign to muddy up political neophyte Jamie Giellis who finished second with 24.86% of the vote.

Hancock had hoped, and expected, to receive over 50% of the vote and had only run positive ads about himself and his affability, which apparently was not effective as over 60% of Denver voters voted for someone other than Hancock. After election night, two other main challengers Lisa Calderón and Penfield Tate endorsed Giellis. Hancock, in response, garnered the support of former mayors Wellington Webb and John Hickenlooper.

Giellis, who had never run for political office before, appeared shocked at first by the Hancock onslaught and appeared ill-prepared for the inevitable claim by the Hancock forces that she was a “racist.” Giellis had appeared on the Brother Jeff Fard’s radio show and did not correctly identify what each of the letters in the acronym NAACP stood for. The failure to correctly identify each of the letters made national news.

Not being a seasoned politician, Giellis did not scrub all of her social media when she entered the mayor’s race, and what she asserts are seemingly innocent observations were recast as being “racist.” Her notation that in some cities there were seemingly few Chinese in today’s Chinatowns was claimed to be anti-Asian. A tweet for a “meet & greet fundraiser at La Cocinita for a nacho/taco bar, lowriders, and a conversation about Denver on May 16” was declared by the Hancock campaign to be anti-Hispanic even though the event was titled such by the owner of La Cocinita restaurant, a Hispanic, and not Giellis.

On Saturday, before the ballots went out on May 20, Hancock began television ads which stated, “like Trump, (Giellis) called undocumented immigrants criminals.” A Denver Post fact checker reputed the claim but the ad has appeared to be effective even if apparently dishonest.

Giellis did, however, appear to rebound. Lacking money for television ads she had a press conference where she accused Hancock of fostering a “poisonous culture” of sexual harassment with graphs showing Denver taxpayers paying nearly $1.5 million in settlements and legal fees during Hancock’s eight years in office.

A review of where each of the candidates performed best in the May 7 election shows that Giellis performed best in the areas where many developers had inserted projects, often against the wishes of the surrounding neighborhoods, including Cherry Creek, Hilltop, Crestmoor, Country Club and Virginia Village. Hancock performed best in his northeast Denver home turf as well as outlying areas where high-density development has not yet occurred.

A major bone of contention between the candidates is the issue of homelessness. Both opposed and voted against Initiative 300 the so-called “Right to Survive” ballot issue which went down to a crushing defeat. Hancock supports the “camping ban” that prevents camping overnight on city property. Giellis does not support the ban as she believes all it does is try to sanitize downtown and push the homeless into the local neighborhoods. She proposes a combination of designated campsites in sanitary locations along with tiny home locations to address the problems of homelessness.

Hancock, with a massive fundraising advantage, hopes that his name recognition and advertising campaign will win out in the end. Giellis, who personally toured every neighborhood in Denver, hopes her person-to-person campaigning will defeat what she views as a cynical negative advertising blitz being relied on by the mayor.

The last time an incumbent mayor lost in Denver was in 1983 when a young Federico Peña defeated 74-year-old incumbent Bill McNichols. Hancock is deemed the favorite, notwithstanding getting less than 40% of the vote in the first round. Almost 40% of the Denver electorate turned out in the first round which was far higher than expected. The higher the turnout the better the chances of the challenger, according to experts, as citizens happy with the status quo often tend not to vote.

The runoff election is set for June 4, 2019, and ballots have already been mailed by the City and County of Denver.

Initiated Ordinance 302 And Council Runoffs Will Help Determine Denver’s Future

by Mark Smiley | May 25, 2019 | Main Articles

by Glen Richardson

While the runoff for the next Mayor of Denver has taken most of the media attention, there are five runoff spots for City Council as well as the City Clerk and Recorder position on the June 4 ballot. In addition, there is a vote on Initiated Ordinance 302 which would mandate voter approval before Denver spends money on trying to lure the Winter Olympics to the city. The proposition was not on the May 7 ballot as the necessary petitions were not turned in until after the day for inclusion in that voting.

The Council runoff races are in Districts 1 (the Highlands and Federal Boulevard area in North Denver), District 3 (West Denver including Sloan’s Lake), District 5 (Central Southeast Denver including Hilltop and Crestmoor), District 9 (Downtown Denver and Five Points, and District 10 (Cherry Creek and Country Club). Three of the races involve incumbents (Districts 5, 9, and 10) which is abnormally high in a city that has upset an incumbent only once in the last three-and-one-half decades (Espinoza over Shepherd in District 1 in 2015). This indicates, according to some, a high level of unhappiness on how growth has been managed in the City and County of Denver during Michael Hancock’s eight years in office, which the City Council in large part controls.

In the runoff for City Clerk and Recorder, term-limited City Councilman Paul Lopez drew only 37% of the vote in the first round which surprised many election observers given his high name recognition. His personal backing of a massive Sloan’s Lake development has been his anathema to some voters. Others attribute Lopez’s poor showing to a disastrous debate performance against Peg Perl who appeared to be highly qualified for the position, while Lopez came across, at best, as amiable but incompetent for the position.

Another surprise in the first round was the showing in District 9 of Councilman Albus Brooks who is deemed by many the heir apparent to Mayor Hancock. He bested challenger Candi CdeBaca in the first round by only 45% to 43%. Voters appeared upset by Brooks being too close to the business group the Downtown Denver Partnership and high-density developers. New developments in the district have forced many African American families who have lived in the district for generations out of Denver.

In District 10 incumbent Wayne New received 39% of the round on May 7 while challenger Chris Hines attracted 30% of the vote. Some felt New did not do enough to challenge Mayor Hancock on myriad issues in his first term, but many fear Hines will be little more than a puppet for developers if he were to get into office.

In Council District 1 the leader of control growth on the Council, Rafael Espinoza elected not to run for a second term after upsetting incumbent Susan Shepherd in 2015. He indicated he could do more outside of Council to encourage reasonable and beneficial growth, and strongly backed his top aide Amanda Sandoval. She is in a runoff with Denver Fire Department Lieutenant Mike Somma who is counting on massive union support for his runoff bid. While unions often do not heavily participate in first round elections they do often throw in their money and manpower for runoffs.

In Council District 3 where incumbent Paul Lopez was term-limited, immigrant rights activist Jamie Torres was the top vote getter in round one with 40% while longtime community leader Veronica Barela received 36%. The vote may depend on the massive Sloan’s Lake development pushed by Paul Lopez and Brownstein Farber Law Firm that is opposed by Barela and many residents.

The only incumbent to fail to win or be the top vote getter in round one was Mary Beth Susman who attracted only 36% of the vote and was bested by political newcomer Amanda Sawyer. Susman is viewed as highly vulnerable for voting against residents’ wishes numerous times for high density development in her District.

A highly interesting side note is Initiated Ordinance 302 which would require a vote of Denver residents before using money or resources in an effort to obtain an Olympic bid. The measure was a result of an effort by Denver to host the 2020 Winter Games which eventually gave Salt Lake City the chance to potentially bid to host the 2030 Winter Games. While developers and some in the business community strongly backed the bid, it was largely opposed by many everyday citizens who saw no reason to spend potentially tens of millions to lure growth and more people to the Denver metro area. The vote is seen as a test of the popularity of rapid if not uncontrolled growth.

Election Day is June 4, 2019, but ballots were sent out by mail on May 20. In the first round the voting was slow up and until election day, May 7, when almost half of the final vote tally were turned in.

Heather Gardens Hosts HOA Town Hall

by Mark Smiley | Apr 29, 2019 | Main Articles

Capacity Crowd Demands More Transparency

by Ruthy Wexler

The reason a group of residents pleaded with legislators to hold an HOA Town Hall early in April was that one of the few regulatory measures the Colorado legislature has applied to HOAs (Home Owner Associations) is that the property managers (community association managers, or CAMS) hired to run them must be licensed, and that licensing law, sunsetting July 19, 2019, was up for discussion and vote mid-April. State senators Nancy Todd and Rhonda Fields and state representatives Mike Weissman and Janet Buckner not only agreed to hold the HOA Town Hall on April 6, 2019, but assembled a panel of experts for the event. Well over 100 residents attended, writing their questions down on the 3×5 cards provided by the four legislators, who assured the standing-room-only crowd that the cards would be kept and studied. “The result,” said Weissman, “would be a document we will all share widely.”

The panelists — attorneys Suzanne Leff and Brian Matise; Jefferey Riester, from the state HOA office; realtor Jim Smith and homeowner advocate Stan Hrincevich — barely made a dent in the pile of cards, most of which voiced concern about, as a longtime Denver realtor put it, “moral and ethical transgressions” by the very entities supposedly there to support homeowners. When one homeowner complained that her management company refused to give her the financial records she’d requested — and Leff, a partner at Winzenburg, Leff, Purvis & Payne, assured the woman she has a “perfect right under the law to those records” and suggested something the woman had already done (put the request in writing) the audience groaned in unison.

‘I know, I know,” empathized Leff. “But I urge you to use those avenues … when communities work well it is wonderful. I want communities to work!”

If a partner in a law firm that “practices community association law on a daily basis” wants HOA communities to work — if legislators, as they asserted, want HOAs to work better for homeowners — and if homeowners desperately want their communities to work — then what is the problem?

Up To You

One step in the direction of making HOA communities work better was the establishment, in 2011, of the Colorado HOA Information & Resource Center, under the Department of Regulatory Agencies (DORA). This office was originally conceived as an ombudsman, or advocate for homeowners. Now, explained Riester, Director of Legislative Affairs for that office, “we provide information, tell homeowners what rights they have under the law, accept complaints and compile those complaints in a report that goes to the General Assembly.”

“When we file a complaint with your office, it doesn’t go anywhere,” said an older gentleman.

“At this time,” Riester said, “there are no bills that would increase the teeth of this office to enforce complaints.”

“Short of filing suit, where can homeowners go?” asked the gentleman.

“We don’t provide legal advice,” Reister said. “Just: these are the facts, now it’s up to you to do what you have to do.

“Our department is currently up for sunset review,” he added. “So please, if you think the office should have more teeth, give input.”

Hrincevich, who founded Colorado HOA Forum five years ago to “improve HOA governance through legislative reform,” took the mic.

“Here is what you’re not being told,” he began.

Bunk

“When the HOA office was created, the law provided for that office to investigate complaints,” Hrincevich said. “Right before the law was complete, that was taken out.

“Then in 2013 the CO legislature directed a study of HOAs in Colorado. The [resultant] study recommended that the HOA Office install out of court dispute resolution process for homeowners.”

“You have to be very careful with alternate dispute resolution,” interjected Matise, whose practice at BurgSimpson includes general counsel for homeowner associations. “It would be expensive.”

“That is bunk,” Hrincevich said. “It’s bunk to say it would cost money or be too hard. All the groundwork has been laid. Don’t need a committee. Don’t need any further studies. We keep riding politicians to do what the 2013 study recommended. But they ignore us.”

Profit Center

The discussion touched on various subjects like street jurisdiction (HOAs or city?) and disabled parking spots (how to get one), to which the panel had various, legalese-laden answers, but when the subject of Transfer Fees arose, there was no ambiguity. Panelists and residents agreed that the fees management companies charge for an HOA home sale were excessive and unjustified. Jim Smith, who has penned several Denver Post columns about “predatory transfer fees” said, “It’s nothing but a profit center for these companies.”

“When I was about to close,” said former HOA homeowner Nancy Markow, “I needed a status letter (showing dues currency) which I printed out myself. But they charged $150, then charged for that letter to go through something called Association Online, then through a company called Homeline for an additional….”            

In the end, Markow paid almost $1,000 in transfer fees.

Depending On Legislation

The discussion kept circling back to the CAM Licensing law. The four legislators said they were in favor of continuing licensing. Buck Bailey, a property manager, thought the current way CAMs have been licensed wasn’t working. Weissman said, “CAM is a profession that can control your property and your money.

“That’s why we want HB 1212 to pass,” said Weissman.    

A realtor observed how much responsibility lies on the shoulders of the HOA board, who have to negotiate contracts with the management company, a “problem,” she said, because these volunteer homeowners “do not know how to read a contract or have any idea of contract vocabulary.”

“These boards are running roughshod over homeowners,” said Teri Chavez.

“Board members do just what they want … because they can,” expostulated Candice Compton.

Panelists, acknowledging the ultimate power of HOA boards, advised a “can’t lick ’em, join ’em” approach.

“Become more engaged,” said Matise.

“If you don’t like what’s going on,” said Weissman, “get on the board and change it up.”

Homeowner Judy McGree Carrington protested. “You are looking at this from a privileged perspective,” she said. “The neighborhood I’m in is filled with working class people. They don’t have time to attend HOA meetings. They’re coming in from work, making dinner. When they do go, they’re shouted down.

“This is why,” emphasized Carrington, “we are depending on legislation. Because you can’t legislate morality. But you can legislate behavior.”

Challenge

“Before we leave,” said Hrincevich, “I would like each of the legislators to say they’ll support a bill for out of court dispute resolution. Without that, you can forget all about your governing documents, your state law, because there is simply no enforcement.”

Weissman finally broke the silence. “I am not willing to take away anyone’s right to go to court.”

Weissman was assured court would always be an option.

Buckner said, “I don’t know what the final bill will look like so I really can’t say.”

Fields said, “I don’t think I understand the subject enough to give you an answer,” Todd finally said, “[Homeowners] have to be protected. We’ll figure out something,” and the room burst into applause.

“This is my 15th year as a legislator,” exclaimed Todd, who is retiring, “and I just hope …, I never hear the word HOA again!”

Mystery

“HOAs are supposed to run on democracy,” said Teri Chavez, “but homeowners develop apathy because it doesn’t work out that way.”

“The rampant abuse of HOA boards and management companies will not end anytime soon if we are to depend on legislation,” said the realtor.

The legislators, on the other hand, voiced approval of what Fields called “a rich, thoughtful and constructive town hall.”

“I was shocked and disappointed that the legislators wouldn’t commit to anything being asked of them, however reasonable,” said Smith.

Hrincevich called the event “ornamental,” adding, “Legislators know these issues. Why they don’t do anything … is a mystery. “

Many have said that the reason legislators do not respond to homeowners’ needs is the presence of a powerful national lobby, the Community Association Institute (CAI), which represents the interests of management companies and HOA attorneys and other vendors benefiting from the HOA industry. (CAI’s membership is only 2% homeowners.)

One week after the HOA Town Hall, Hrincevich viewed a letter national CAI sent to its Colorado membership: that read in part, “We need you to email or call members of the Finance Committee and let them know you support HB 1212.” The letter explained how the bill had been “preamended” and “is the version we support.” The letter promised, “Bonus points if you can testify!”

“All our recommended changes were ignored,” Hrincevich said, “resulting in an ineffective licensing program. But CAI and special interests were able to preamend this bill. In other words, the industry that is to be regulated has successfully influenced the sponsors of this bill to include their interests. Is this the way government is supposed to work for the people?”

Amid Scandal And Explosive Growth Denver Public Works Is Under Scrutiny

by Mark Smiley | Apr 29, 2019 | Main Articles

Corrupt Bidding For Convention Center Expansion Alleged; City Auditor Now Scrutinizing On-Call Construction Contracts

by Glen Richardson

Denver’s reputation as one of the Best Places to Live — Ranked #1 by US News & World Report in 2016 — has been dealt another blow. Outdoor activities, proximity to the mountains, art, craft beers and marijuana that draws visitors to our city and distinguishes it from its metropolitan colleagues has been compromised by the Convention Center expansion scandal.

The scandal uncovered last November amounts to dereliction of duty by the City’s Public Works division delivering the services that help define the quality of life in Denver. Public Works said that it discover-ed the bidding process to pick a contractor for the project had been interfered with. Reportedly there was an improper release of city documents, improper discussions about the process and even altering of approved plans. The city claimed two companies, Trammell Crow and Mortenson, tainted the bidding. In response the companies retorted: “If Denver was truly unaware of Trammell Crow’s conduct, it was the City’s lapse in oversight that created the situation.”

The City’s Public Works is responsible for the design and construction management of streets, bridges and public buildings plus transportation through its offices of parking management, transportation planning and operations.

On-Call Audit

Since then a newly completed examination and audit of Public Works by City Auditor Timothy M. O’Brien, CPA, reveals the branch needs to improve contract competitiveness and enforce policies during the bidding process while working on some on-call contracts. “It’s in the best interest of the taxpayers to keep a close eye on the new construction projects going on with all the new bond money,” Auditor O’Brien explains. “I decided it was important to start auditing on-call construction contracts in a way we hadn’t before, to make sure we’re getting what we pay for and that we’re using a truly competitive process.”

The Auditor’s Office worked with CliftonLarsonAllen LLP to complete a third-party examination with limited scope of Halcyon Construction’s on-call contract with Public Works. Halcyon had an agreement with Public Works for up to $3 million to cover work between May 1, 2015, and April 30, 2018. According to the examination, Public Works should expand its pool of contractors to allow for a more competitive environment and for more opportunities for other contractors to be considered for work. Public Works should also make sure to follow the requirements of its mini-bid process, which was not used at all on some projects.

The examination also found significant increases in project costs due to change orders from Halcyon. The company had a considerably higher percentage of change orders than the other small business enterprise contractors in the bidding pool. In some projects tested, the change order amounts plus the original work order resulted in the total project cost being higher than other contractors’ bids submitted during the mini-bid process. Halcyon’s percentage of change orders through November 2018 was 27%, compared to other contractor percentages of 3.5%, 8.3%, and 8.2%. Furthermore, for three of the projects tested, the project managers could not locate any formal documentation evidencing that inspections were performed during these projects that could identify when performance was not in line with the work order.

Ordinance Delayed

Problems with construction management by Denver Public Works was first reported by District 10 City Councilman Wayne New last summer and published in a front page August 2018 Chronicle article. A construction management ordinance was drafted by New at that time and was finally announced by Public Works on March 27, six months later. Implementation of the new Public Works procedures will likely begin at an equally sluggish pace.

“There is no doubt now that the problems have resulted from Public Works’ inability to require pre-permitting and pre-construction planning and construction management agreements regarding area traffic flow, street closure, parking meter management, defined offsite parking arrangements and noise mitigation,” New said then.

The City Councilman says now as he did six months earlier, “it is my hope the ordinance will mitigate the trials and tribulations businesses and residents have experienced in Cherry Creek and throughout the City.”

Biking Boondoggle

The high-profile Executive Director of Public Works Eulois Cleckley — the hand-picked protégé of Mayor Michael B. Hancock — has emerged as a central figure in the growing glitches and uproar within the 1,300 employee Public Works department. He was chosen to implement Hancock’s Mobility Action Plan and thus take attention away from the City’s knotty high-density developments. That job, department insiders say, he has been successfully completing.

Hancock, Cleckley and Councilwoman Mary Beth Susman are now proposing the creation of a new Department of Transportation & Infrastructure. Unlike restructuring the department of Public Works, it will likely require voter approval but would push a rumored “in-the-works $900 million bond issue.” Meanwhile the City’s 2019 budget includes $27 million for transportation and mobility improvements including more than $7 million to build more and more bicycle lanes.

Akin to the unmanaged developments being built in almost every Denver neighborhood, new bike lanes are also clogging traffic and destroying commerce. Bicycle lanes on 14th and 15th Streets in Denver have stolen space from motorists and only made downtown traffic worse, particularly in proximity to hotels and public attractions. Lanes on South Broadway that cost roughly $13 million seem superfluous and have crushed business along the corridor. Owner Ron Vicksman of LeGrue’s — a Broadway landmark for nearly a century — attributed his decision to close after all those years was due to the loss of parking spaces following installation of the bike lanes. Vehicle registration fees, ownership taxes and gasoline excise taxes are big revenue raisers but bicycles aren’t contributors. Critics thus argue they are nothing more than a form of social engineering.

Sawyer Gaining Ground On Susman In District 5 Battle Royale

by Mark Smiley | Apr 1, 2019 | Main Articles

Four Candidates For A Single Seat
by Mark Smiley

The Denver municipal election is set for May 7, 2019, and City Council District 5 promises to be a close race with incumbent Mary Beth Susman vulnerable to defeat or perhaps a run-off election which would be slated for June 4, 2019. A run-off would occur if no candidate receives more than 50% of the vote. In that case, the top two vote getters would go head-to-head in the June 4th election.

Incumbent Susman has a reputation in Denver for being a proponent of high-density development even in quiet residential neighborhoods. As a result of her negative reputation she has garnered three opponents for the District 5 seat. District 5 includes the neighborhoods of Hilltop, Crestmoor, Mayfair, Lowry, Windsor, Washington Virginia Vale, Hale and Montclair.

One candidate who is apparently gaining ground and hoping to defeat Susman on May 7 or at least June 4, is Amanda Sawyer. Sawyer’s message is resonating with voters and experts say she has a legitimate shot to upset the incumbent Susman. Susman has $106,000 in her war chest while Sawyer has approximately $75,000.

Also in the hunt for the District 5 seat are Michele Fry and Steve Replin. Fry, a lifelong Mayfair resident, also has attracted supporters with her experience in government and close ties to the community. She has raised $24,000 to date.

Replin, although a dark horse candidate, has proposed a two-year moratorium on building anything within the city. To date, Replin has not yet reported any outside contributions to his campaign.

District 5 is known for activists fighting inappropriate development and, in at least one case, they were victorious. The proposed Green Flats project on Holly Street, which this newspaper covered extensively, was defeated by neighborhood groups even though Councilperson Susman tried to force the development on the neighborhood.

The Green Flats project is what prompted Sawyer’s interest to run for the District 5 seat. She has been vocal about development in her district and is unafraid to ask the tough questions of developers. She recognizes that development will happen in Denver, but she wants a more thoughtful approach and protection of the character of the neighborhoods.

As Denver voters are grappling with this decision in District 5, a candidate forum is scheduled to help them make an informed decision. The Cranmer Park/Hilltop Civic Association and Bellevue-Hale Neighborhood Association will co-host a forum on Tuesday, April 16, 2019, at 6:30 p.m. for the candidates seeking the District 5 Denver City Council seat: Michele Fry, Steve Replin, Amanda Sawyer and Mary Beth Susman.

Additionally, there will be information and presentations on ballot initiatives. Specifically, they have invited the supporting and opposing organizations for Initiative 300, The Right To Survive, to present their positions an take questions.

The forum will be held at Hill Campus of Arts and Sciences located at 451 Clermont Street in Denver. For more information on the candidates, visit their websites at: sawyerfordenvercitycouncil.org, www.fry for5.com, www.replinforcouncil.com, and www.susmanfordistrict5.com.

BLACK TIE SOCIETY CIVIL WAR

by Mark Smiley | Apr 1, 2019 | Main Articles

The Fight Leads Back To Brownstein Farber Law Firm
by Julie Hayden

It is the fight and the lawsuit that all the rich and powerful in Denver are obsessively talking about, but is being kept out of the news by the efforts of the all powerful Brownstein Hyatt Farber and Schreck LLP law firm (Brownstein Farber) its principals and/or persons on their behalf. It has been dubbed the “Black Tie Society Civil War” as many of the litigants are featured on webpages of “Blacktie Colorado” attending high society and major charitable soirées. The lawsuit accuses Cherry Creek multi-millionaire James Lustig of “masterminding” the scheme, using friends and family, tied by blood and marriage as “straw purchasers” to reap millions of dollars in stock manipulations. If you think the stock market is rigged for the benefit of the rich, the lawsuit appears to be proof positive of that fact.

Berlin Claims

David Berlin, a Denver securities mogul, through two investment companies he controls (Detroit Street Partners, Inc. and Birchwood Resources, Inc.) filed two lawsuits in late 2017 and early 2018 which were later consolidated into a single suit (the Lawsuit) in Federal District Court in Colorado. His companies are suing 20-odd individuals and companies who are a veritable “Who’s Who” of Denver society, alleging securities fraud and racketeering.

In the lawsuits Berlin alleged that the parties masterminded by James A. Lustig, another major Denver securities mogul, participated in a market manipulation scheme to fraudulently obtain allocation of initial public offering (IPO) shares from J.P. Morgan Securities LLC and eight other banks which include such other financial titans as Goldman Sachs & Co., Deutsche Bank Securities Inc., and Citigroup Markets Inc. (the Banks). He alleges they engaged in “countless instances of market manipulation, wire fraud, securities fraud and other racketeering activities” that cost Berlin entities “to the tune of tens of millions of dollars.” Lustig’s wife, Debbie, is the sister of Cindy Farber, who is the wife of Steve Farber, a co-founder of the all-powerful Brownstein Farber law firm. Steve Farber is in turn accused of heading one of the key defendants CLFS Equities, LLLP (CLFS).

Brownstein Farber Drafts Key Documents

Berlin claims Brownstein Farber drafted contractual provisions among the defendants that “would purport to keep [the scheme] confidential and “and were used in, “racketeering activity” as defined by Colorado statutes “and that Brownstein Farber’s actions could be construed as “having participated in racketeering enterprise” under Colorado law.

It goes on to specifically allege that “upon information and belief, Brownstein Farber co-founder Steven W. Farber is the ‘F” in CLFS.”

IPOs

The consolidated Lawsuit revolves around the fact that major banks act as underwriters for the initial offering to the public of shares in a company (IPO shares). The banks cannot simply reserve the IPO shares for themselves but must offer them to independent entities or individuals. The initial price of the IPO is set by the banks in consultation with company going public with the banks having the major say. If the initial offering price is set low enough it is almost guaranteed that the IPO shares can immediately be resold for a profit with little or no risk in the secondary market.

The holders of the IPO shares, unlike average investors, will make millions off the initial offering even if the shares later tank. Over the years the banks have indirectly tried to figure out various schemes to take as much of the profits on the immediate resale of IPO shares as possible for themselves which may have dubious legality, but they have gotten away with it for many a decade. The consolidated Lawsuit goes to extreme lengths not to allege any wrongful actions by the Banks and even refers to them as the “Innocent Banks” as Berlin clearly does not wish to offend some of the the most powerful financial institutions in the world.

The Allocation Scam

Berlin’s companies were for many years allocated IPO shares due to the fact they were deemed preferred customers with ten million dollars or more deposited with the bank. In order to rake in more of the profits the Banks began in 2011 to demand that the customer provide a minimum of $600,000 per year in commissions from trading through the bank rather than simply $10 million on deposit. In order to spread the wealth around the Banks adopted a rule that a group of clients with $600,000 or more would be given a greater number of IPOs than a single customer with the same amount of total commissions. Thus five customers with $600,000 in commissions each would collectively garner more IPO shares than a single customer who generated $3 million in commissions.

Berlin alleges that Lustig, with the help and connivance of Brownstein Farber, devised a racketeering scheme to take advantage of the new allocation rules to the detriment of the Berlin companies. Lustig set up a scheme whereby Lustig and other entities including CLFS would advance to straw companies he set up for relatives and friends $600,000 plus. The straw companies were then directed to buy shares of identified companies that would be quickly sold that afternoon. The sole purpose of the trades was to generate commissions for the banks so that the straw company would be allocated IPO shares. Berlin claimed the quick purchases and sale of stock with no purpose to profit on the sale were illegal “churning” and “wash sales.” The $600,000 plus would be repaid with interest by the straw companies. Forty percent of the profits from the immediate sale of IPO shares would then be paid to Lustig or Lustig entities under the guise of accounting and administrative services.

What is amazing is that even after paying the Banks huge sums of money in worthless commissions there was so much money in the reselling of the IPO shares that Lustig and the other Defendants still netted millions in profits.

Defendants’ Defenses

A principal defense by many of the Defendants to the purported illegal activity appears to the participation of Brownstein Farber in drawing up the documents regarding the purported scheme including non-disclosure agreements alleged to hide the illegal scheme from federal and state regulators. As stated in the Motion to Dismiss by Jeremy and Mia Abelson (son-in-law and daughter of James A. Lustig):

In fact, there would be no reason for anyone, especially the Abelson Defendants, to think there was anything untoward in actively and deliberately maximizing their eligibility for IPO allocation because the lawyers involved in the effort had raised no concerns or warnings. Specifically, according to Plaintiffs, the “highly sophisticated” Brownstein Hyatt Farber Schreck, LLP (“Brownstein”) was retained to draft non-disclosure agreements (“NDAs”) to be signed by the entities with which the Lustig Defendants are alleged to have engaged. Brownstein participation reassured the Abelson Defendants that engaging with the Lustig Defendants — and even entering into confidentiality agreements in connection with such engagement — was not unlawful or even problematic in any way . . . It is also evidence of good faith on the part of the Abelson Defendants (and negation of intent to defraud . . .) that they understood that highly reputable lawyers were involved and raised no red flags.

It is not clear how much of the defense that Brownstein Farber was involved doing legal work for the project (and therefore nothing could possibly be illegal) will stand up in court. Berlin alleges that the straw companies necessarily engaged in fraud on the Banks in order to get the IPO shares including that the funds used were from personal or family wealth, and (2) that Lustig did not have a beneficial interest in the profits from the IPO shares. Various of the Defendants seem to indicate they signed whatever Lustig and/or Brownstein Farber told them to sign without obtaining their own separate legal counsel.

Bo Brownstein To Jail And Close Connections

The Defendants were, however, undoubtedly aware that Drew “Bo” Brownstein (the son of the co-founder of Brownstein Farber, Norm Brownstein), was sentenced in 2012 to federal prison for a year and a day and fined $2.44 million for illegal insider securities trades. But in that case no one alleged that Brownstein Farber firm had set up the illegal insider trades.

The willingness to rely simply on Brownstein Farber was perhaps due to the close connections of all of the Defendants to each other. In addition, some of the Defendants may have employed Brownstein Farber in other unrelated legal matters. The Defendants are a dizzying montage of relatives and friends, including James Lustig’s close acquaintance William Sander and Sander’s step-son Jonathan Marsico, the nephew of mutual fund giant Tom Marsico; brothers Brandon and Brett Perry, in addition to their mother, Ricki Rest; Buzz Alterman and his ex-brother-in-law, Andrew Harrison; real estate titan Skip Miller, and Miller’s son-in-law and work colleague Steve Shoflick, who is married to Lustig’s niece; Lustig’s brother-in-law, and work colleague. Local investors Samuel Zaitz and William Hall are also Defendants along with Jake Cohen, Todd Eberstein and Jan Falber.

One of the other defendants, Jeremy Abelson typifies the close connections between the alleged “straw purchasers”: he is married to Lustig’s niece Mia Abelson who is Skip Miller’s daughter, is Schoflick’s brother-in-law and brother-in-law to Mia’s sister Melissa Mackiernan, another Defendant.

Other Defendants listed in the lawsuit include Denny Pepper, Ronald Vlosich, Kenneth Ricek, Aaron Wolk, John Goldenberg and Jonathon Vinnik.

David Berlin himself was very much part of that close-knit group of high society friends and relatives that he is now suing. As stated in Lustig’s Motion to Dismiss:

Demonstrating that David Berlin, the owner of both Plaintiffs, previously worked alongside many of the defendants and engaged in the conduct he now labels racketeering. Plaintiffs all allege they ‘previously had access to a database’ controlled by the Lustig defendants which contains information about IPO share distribution practices.

The Defendants, along with the defense that the documents were drawn up by Brownstein Farber and therefore must be legal, also state that the fraudulent misstatements were made to the Banks and not to Berlin and Berlin did not rely on them to his detriment. Moreover, they claim that the sale and immediate reselling of the stocks were not illegal “churning” or “wash sales” as those terms are defined. They also state that if Berlin has any cause of action it is against the Banks who drew up any and all new IPO allocation criteria that he is now complaining about.

Out Of The Public Eye

Why Brownstein Farber or people on their behalf have tried, heretofore highly successfully, to keep the lawsuits out of public purview is that in the lawsuits appear possible alleged criminal activities by Brownstein Farber and as well as each of the Defendants. Insiders indicate that at least in Colorado Brownstein Farber is almost bulletproof. The U.S. Attorney for the District of Colorado at the time of the filings was Bob Troyer, who was a former Brownstein Farber partner. The new U.S. Attorney for Colorado is Jason Dunn who was, at the time of his appointment, a Brownstein Farber partner.

Any claim of violation of Colorado securities or racketeering law would be brought by Colorado Attorney General Phil Weiser, who was elected in no small part because of money contributed or raised by Brownstein Farber. Insiders also note that most federal and state judges in Colorado have gotten their positions due in large part to the influence of Brownstein Farber, making any criminal legal action difficult.

The only real concern to the law firm is if authorities outside of Colorado take notice. Insiders note that the charges against Bo Brownstein were brought by the U.S. Attorney for Southern District of New York in a federal court in New York City.

The Denver federal court docket indicates that next action to be taken in the lawsuit is scheduled for May for a Status Conference with all the parties. More people may start to pay attention to the Black Tie Society Civil War as public awareness of its existence and implications grows and grows.


The above article cites Jeremy & Mia Abelson and Jonathan Marsico & Sam Zaitz as defendants in the Berlin litigation matter. They were all dismissed from the matter and are no longer defendants in this action.