Providence's Alternative Source!

Good money after bad
With his role in the state credit union crisis, Antonio Giordano didn't seem like the best risk for public money. But that did nothing to stop a $15 million loan -- now in default -- from the US Department of Housing and Urban Development

Illustration by Mark Reusch

Taxpayers are about to bail out another of Antonio "Antone" Giordano's bad loans.

Eleven years after his shady financial deals helped to precipitate Rhode Island's credit union crisis, Giordano has defaulted on a $15.3 million loan insured by the US Department of Housing and Urban Development (HUD).

In May 1995, HUD backed the loan to Giordano's Coventry Health Care Associates to refinance and rehabilitate the 344-bed Coventry Health Center. By February 2001, however, Giordano's lawyer, former deputy House speaker Edward Maggiacomo, asked a Superior Court judge to place the company in receivership -- the state court equivalent of bankruptcy. The nursing home, a plain three-story building, sits behind the Coventry post office just south of Route 3. Renamed Brookside Villa, it remains open under the supervision of court-appointed receiver Allan Shine.

Within several months, HUD and Shine plan to auction off the business and property. There will be no minimum bid, Shine says, so it's impossible to project how much taxpayers could lose from guaranteeing the $15.3 million loan.

The 2001 receivership filing came a less than a month after the Rhode Island Depositors Economic Protection Corporation (DEPCO) finally settled its multi-million lawsuit against Giordano for his role in the credit union crisis. HUD isn't talking about its deals with Giordano, but it appears that the oft-troubled federal agency never held the North Kingstown developer's part in the credit union crisis against him.

Officials from HUD's Providence office declined repeated requests for an interview. The agency's new national media policy, established when George W. Bush became president in January 2001, allows only HUD Secretary Mel Martinez and his press secretary to talk on the record with the press, according to Andrew Lluberes, a HUD spokesman in Washington, DC.

Instead of agreeing to an interview, HUD officials in Providence would respond only to written questions. Asked how HUD could give Giordano a loan guarantee after his role in the credit union crisis, the agency responded in writing, "A credit analysis was undertaken on the principals of the mortgagor entities. Our current file search did not reveal any adverse credit indicators or defaults on any loans, including loans granted by any Rhode Island Credit Unions."

HUD's Providence office is apparently not unique in granting questionable loan guarantees. The General Accounting Office (GAO), the research arm of Congress, which responded after questions were raised by US Senator Susan Collins of Maine, is currently investigating HUD's relations with banks and its oversight of loan guarantees. "There have been defaults elsewhere," explains Stanley Czerwinski, the GAO's director for housing. While he refuses to comment on the ongoing investigation -- expected to be completed this summer -- Czerwinski says, "If we're looking at it, it's an area that obviously deserves attention."

In fact, the $15.3 million Coventry loan guarantee in 1995 wasn't the only assistance extended to Giordano businesses by HUD after the credit union crisis. HUD guaranteed another $22.7 million in loans for two other Giordano nursing homes: Hillside Health Center on Providence's East Side and Mount St. Francis Health Center in Woonsocket in 1996 and 1999. Again, according to a written response to questions, a file search by the Providence HUD office "did not reveal any adverse credit indicators or default on any loans, including loans granted by any Rhode Island Credit Unions."

Giordano didn't return phone calls from the Phoenix.

GIORDANO HAS A long relationship with HUD's Providence office. As part of the 1995 Coventry Health Center loan application, he listed his involvement in 29 other HUD projects, mostly as a principal of the general contractor, Mast Construction Inc. While HUD supported several Giordano projects during the 1990s, its dealings with the developer have not always been cordial.

In 1987, Giordano was accused of making "false representations to HUD with regard to construction costs and payment of subcontractors or misused construction funds" for projects in Westerly, Burrillville, and Coventry, according to a letter from Thomas Demery, then HUD's assistant secretary. Giordano was suspended for four years from participating in HUD programs.

The developer's notoriety received its biggest boost, however during the state credit union crisis. In 1991, newly elected Governor Bruce Sundlun closed 46 Rhode Island credit unions that were insured by the now-defunct Rhode Island Share and Deposit Indemnity Corporation (RISDIC). Fourteen of the banks, with an aggregate of $1.3 billion in deposits, never reopened, according to the report of the Select Commission to Investigate the Failure of RISDIC-Insured Institutions.

Many of the failed banks had made many large, risky loans on overvalued property, making them vulnerable to even a slight decline in the real estate market, according to the commission report. When the market declined in late 1987, borrowers were unable to make payments. Rather than take foreclose on the delinquent properties, the report concludes, many of the largest credit unions falsified their financial records to hide the bad loans. When the enormity of the credit union insolvency was finally revealed in late 1990, RISDIC didn't have adequate funds to insure deposits and Sundlun closed the banks to prevent further losses.

Hundreds of angry demonstrators then descended on the State House, demanding their money. Sundlun and the General Assembly agreed to issue bonds so depositors could receive their savings from the closed banks, and to repay the bonds, the legislature raised the sales tax from six percent to seven percent. Finally, DEPCO was created to liquidate the closed credit unions' remaining assets and pursue civil action against the borrowers, lawyers, and accountants who caused the financial collapse.

Legislators also created the select commission to investigate. In its 1992 report, the commission highlighted 10 borrowing groups, including one led by Giordano, whose abuses demanded civil suits or criminal investigation.

Following the commission's cue, DEPCO sued Giordano, his business partners, and his wife, Mary, to recover the more than $10 million they had borrowed from one of the most reckless lenders in the crisis, Marquette Credit Union of Woonsocket.

In 1987, according to the commission report, Marquette loaned Woodland Manor I Associates (WMI), a developer whose four principals were Giordano, Robert Rocchio of Warwick, Pasquale Confreda of Warwick, and John Assalone Sr. of Coventry, $7.2 million to convert a Coventry public housing project, Woodland Manor I, into condominiums. A sprawling, non-descript suburban housing project, Woodland Manor I is located behind the Coventry post office, just a short walk from Brookside Villa.

Maggiacomo, Giordano's long-time lawyer, arranged the Woodland Manor I loan for the Giordano group at the same time that his firm, Adler, Pollock & Sheehan, represented Marquette. In reward for its services on both sides of the transaction, the firm received a $100,000 "premium fee" from the loan proceeds. The ethics of the arrangement were later questioned, but Maggiacomo, a one-time member of the Democratic National Committee, continued to help Giordano broker future business deals.

The Woodland Manor I condominium conversion, however, was not successful. Tenants sued, delaying the sale of units, and by January 1989, the loan was 113 days delinquent. To hide that delinquency, Marquette's senior vice president of lending told the commission, Marquette loaned GRA Associates, a partnership between Giordano, Rocchio, and Assalone, another $2.28 million to purchase 26 condominiums from WMI. "In effect," the commission report concluded, "the partners bought their own units with 100-percent financing from Marquette."

The loan was a good deal for Giordano and his partners. They pocketed some of the proceeds, according to the report, and used other amounts to make their first loan current. But the net effect for Marquette, according to the report, was negative. The credit union had loaned more money to delinquent borrowers and not increased the value of the collateral securing the loan.

By April 1989, both loans were delinquent, so Marquette and three other credit unions arranged a third loan for $955,000. In late 1990, Marquette planned to make a fourth loan to the partners, for another $7.92 million, to cover the first three loans, but the state closed the credit unions before it could be finalized.

DESPITE GIORDANO'S public history of loan delinquency during the credit union crisis, the Providence HUD office agreed in May 1995 to guarantee a $15.3 million loan at nine percent interest to Coventry Health Center Associates, a partnership half-owned by Giordano. The other half, according to HUD documents, was controlled by his Woodland Manor I partners -- Assalone, Confreda, Rocchio, and Domenick DelVecchio of North Kingstown.

The money was used, according to a HUD spokesperson, to refinance existing HUD-insured debt and to substantially renovate the nursing home. The HUD spokesperson, in response to questions submitted by the Phoenix, says a credit analysis of Coventry Health Care Associates "did not reveal any adverse credit indicators or defaults on any loans including loans granted by any Rhode Island Credit Unions."

It's hard to imagine that HUD was unaware of Giordano's RISDIC loans in May 1995. Just four months before, the controversial developer had flaunted his wealth by holding his daughter's New Year's Eve wedding at Providence's Westin Hotel. In front page stories, one of which included a photo of him, the Providence Journal noted that Giordano spent an estimated $100,000 on the wedding, booking 200 rooms and the Westin's $1200-a-night Presidential Suite. Shortly after the newlyweds arrived in a cream-colored antique Rolls Royce, the Journal reported, First Night attendees were denied entrance to the hotel because they had neither wedding invitations nor room reservations. Within days, a Journal editorial and the oft-silent House Speaker John Harwood criticized the impropriety of allowing Giordano to bar citizens from the state-owned hotel. It came exactly four years after his delinquent loans helped force the state to close the credit unions.

HUD wasn't the only government agency, however, to overlook Giordano's role in the credit union crisis. In 1994, the Rhode Island Department of Health waived its regulations to help Giordano acquire Hillside Health Center, the former Jewish Home for the Aged, on Providence's East Side. The health department requires new nursing home owners to make a 20-percent down payment as part of a sales agreement. The rule ensures that owners are committed to keeping the facility open and lowers the interest rate costs that are factored into Medicaid reimbursements. But after listening to Maggiacomo's pleas for leniency, then-health director Barbara DeBuono granted Giordano a waiver, allowing him to acquire the home with only a 10-percent down payment.

At the time, DeBuono declined a request for an interview, but members of the Health Services Council, which recommended easing the rules, said they feared that adherence to the rules would sink Giordano's purchase and force the Jewish home to permanently close.

DEPCO finally recouped some money from Giordano in May 1996, when the Woodland Manor I property was sold by a court-appointed receiver for $4 million. Oddly, the buyer was yet another corporation controlled by Giordano. At the same time, the developer tried to convince DEPCO to write off $3 million of his companies' debts, but the agency instead pressed its case in court to collect the balance of what was owed by Giordano and his partners.

In June 1999, HUD made two more deals with Giordano, guaranteeing a $13 million loan to renovate Hillside and a $1.1 million second mortgage at Mount St. Francis Health Center in Woonsocket. This followed HUD's guarantee of an $8.6 million first mortgage for Mount St. Francis in 1996.

Six weeks after the loan guarantees were finalized in 1999, however, Giordano stopped paying on his HUD-backed loan for the Coventry Health Center. According to documents obtained through the Freedom of Information Act, Coventry Health Center failed to make its $164,017 monthly payment in August 1999. In a March 2000 letter to HUD, Giordano blamed his financial problems in Coventry on a 1997 union election "and the resulting negative publicity."

In August 1997, health center employees voted, 88-161, against joining the New England Health Care Employees Union, District 1199. But 1199 organizer Patrick Quinn says the unionization effort was merely a symptom of the nursing home's problems. The health center paid low wages, he says, and could not hire enough staff. Instead, Giordano hired temporary workers, who typically provide poor care, Quinn says. The poor care, Quinn continues, caused the bad publicity that damaged the nursing home's finances by encouraging relatives to take their elderly family members elsewhere.

Nevertheless, Giordano struggled to maintain control of the nursing home, even hiring Casimir Kolaski, a former director of HUD's Providence office, to lobby on his behalf. Kolaski Housing Advisors, Inc. is now located in the same Providence building as Giordano's office and the two businesses share a receptionist. During the same period, in January 2001, Giordano and his partners finally settled the DEPCO lawsuit, agreeing to repay the state $8 million, plus five percent interest over six years.

But Giordano's efforts to keep Coventry failed, and in February 2001, Maggiacomo walked into Superior Court to place the nursing home in receivership. In addition to the $15 million HUD mortgage, according to the interim financial report issued last year by receiver Shine, the business owes about $10 million to unsecured creditors, including $4.5 million to the US Internal Revenue Service, $65,905 to the Town of Coventry, and $48,979 in overdue unemployment and temporary disability taxes.

Working with HUD, Shine plans to sell the recently renamed Brookside Villa at auction within several months. No minimum price will be set, he says, but the sale must be approved by Superior Court Judge Michael Silverstein.

Issue Date: February 22 - 28, 2002