SMOGTOWN

In 2005, the U.S. Department of Justice announced in this press release that Anne Sholtz, a then-high-flying entrepreneuer instrumental in creation of the planet’s first smog cap-and-trade, had admitted to defrauding an obscure New York-based energy trader called AG Clean Air. Sholtz’s little-noticed plea and corporate bankrutpcies ignited a mess that still has many smarting and confused, while giving global warming skeptics such as Texas Rep. Joe Barton ammunition to question the prudence of Pres. Obama’s hope for a greenhouse gas market. Oh yeah, there’s also this issue of whether Sholtz, a former Caltech economist and owner of a resplendent mansion, perpetrated an earlier fraud –with the supposed help of ex-CIA and military operatives — that never went investigated or flagged by authorities. See my story about her and “Operation Bald Headed Eagle” for the particulars.

Now, lookie here. The apparent parent company of AG Clean Air,  is one of the creditors of the Tribune Corp. bankruptcy. For those who don’t know, Tribune owns the Los Angeles Times, our hometown paper, the Chicago Tribune and other media assets. As this story shows, former Disney chief executive Michael Eisner is bidding to become Tribune’s post-bankruptcy chairman.

Here’s a crucial passage: “… Tribune and its creditors are still struggling to negotiate a settlement around charges that (Sam) Zell’s 2007 leveraged buyout was a case of “fraudulent conveyance,” meaning the transaction rendered the company insolvent from Day One. That settlement would serve as the basis for a plan of reorganization, but depending on how negotiations go, it could be months in coming or the case could easily devolve into litigation.

Nobody in the case doubts that senior creditors led by money center bank JPMorgan Chase and two hedge funds, Angelo, Gordon & Co. and Oaktree Capital Management, will end up owning Tribune by virtue of their $8.6 billion in claims …”

In a earlier article, the L.A. Times depicted Angelo, Gordon & Co. as a “distressed-debt hedge fund.” Here’s the company’s website, so judge for yourself.

When I contacted the company for comment about my last story on Shotz last summer, the PR flack initially denied there was a connection between AG Clean Air (which apparently stood for Angelo, Gordon Clear Air) and Angelo, Gordon & Co. until I disputed otherwise and said the court documents show the exact same New York address for both entities: 245 Park Ave., 26th floor, New York, NY 10167.

Coincidene? I think not.

Whether AG Clean Air still exists is not clear. That the parent is the same one entangled in the debacle that Sam Zell created with his highly leveraged Tribune purchase some years back seems undeniable.

How Sholtz and AG fit into the L.A. air-pollution saga is detailed and contexualized in our book, Smogtown: the Lung-Burning History of Pollution in Los Angeles.

The new year could well ignite fireworks anew over the Anne Sholtz caper, a story we showcase in our book Smogtown and in Chip’s freelance articles about her intriguing case. It’s a tangled, air-pollution market story involving fraud, red flags, the CIA, a secretive prosecution and much more, with sticky lessons for the carbon market Pres. Obama wants enacted nationally. So far officials at Southern California’s smog-fighting agency, the South Coast Air Quality Management District, hasn’t wanted to acknowledge that their cap-and-trade, known acronymistically as RECLAIM, has been vulnerable to white-collar troubles, and the U.S. Dept. of Justice-L.A. office still probably wishes their mixed-bag prosecution of Sholtz went the way of Compuserve. As George Bush I would say, “Not gonna happen.” Probably.

From the Wall St. Journal/Dow Jones New Service story:

WASHINGTON -(Dow Jones)- U.S. legislators have obtained a court order unsealing documents in a case involving a multi-million-dollar cap-and-trade fraud.

Republican legislators say the records–due to be opened to the public in early January–could shed light on the potential challenges of policing a new, trillion-dollar commodities market that would be created under climate legislation that Congress is considering.

In a rare filing by House lawyers, Reps. Joe Barton (R., Texas) and Greg Walden (R., Ore.), the ranking members respectively of the Energy Committee and the Oversight Subcommittee, asked a federal district court in California to unseal all the closed records regarding the successful prosecution for fraud of Anne Masters Sholtz, a former California Institute of Technology economist.

Lawmakers say Sholtz’s case could expose the weaknesses of a federal cap-and- trade system because it involved the same market mechanism meant to cut emissions …”

Be forewarned there are a lot of errors in these Republicans’ understanding of Sholtz’s case. It involved cap and trade for two smog-forming chemicals unrelated to global warming, and did NOT involve counterfeit credits. However, the federal case against Sholtz did NOT even mention an earlier action involving 500,000 in RECLAIM credits that allegedly bankrolled a CIA-associated currency repatriation effort. See here for that.

For more on this story, here is Rep. Barton’s comments about it and the judicial order lifting the veil of secrecy thrown over many of the case’s key documents.

Meanwhile, some European shenanigans … story link

“The top cops in Europe say carbon-trading has fallen prey to an organized crime scheme that has robbed the continent of $7.4 billion — a massive fraud that lawmakers and energy experts say should send a “red flag” to the U.S., where the House approved cap-and-trade legislation over the summer amid stiff opposition.

In a statement released last week, the Europol police agency said Europe’s cap-and-trade system has been the victim of organized crime during the past 18 months, resulting in losses of roughly $7.4 billion. The agency, headquartered in the Netherlands, estimated that in some countries up to 90 percent of the entire market volume was caused by fraudulent activities.

“These criminal activities endanger the credibility of the European Union Emission Trading System and lead to the loss of significant tax revenue for governments,” Rob Wainwright, Europol’s director, said in a statement …”

On the same day that California unveiled details of its proposed West Coast cap-and-trade to attack greenhouse gases, two House Republicans vehemently opposed to President Obama’s national greenhouse-gas cap-and-trade announced they convinced the U.S. Department of Justice to unseal many of the documents in the enigmatic case of former-hotshot pollution broker Anne Sholtz. Barton and Walden had been pressing for answers about the case from the Justice Department for months now, igniting a whole bunch of behind the scenes activity and rather long-winded and vague regulatory defenses from the regional South Coast Air Quality Management District, which oversees the RECLAIM cap-and-trade for oxides of nitrogen and sulfur, and the U.S. Environmental Protection Agency, which oversees the district’s progress against smog. RECLAIM, short for the Regional Clean Air Incentives Market, began in 1993 as the planet’s first of its kind.

In those letters, which I’ll dig up later, the AQMD insists its systems are essentially scam-proof and the agency does seem to have a good regulatory track record if not for the Sholtz case and the rampant speculation that nearly detonated the market with spiking prices during California’s 2000 and 20001 electricity blackouts — the ones that exposed the likes of Enron’s. Curiously, the AQMD board is still waiting to fully hear an explanation of what occurred, so I’m told. Do the individual members even know about Sholtz’s alleged (but uncharged) misappropriation in mid-1998 of some 500,000 RECLAIM credits from Chevron, Exxon and Aera Corp. that she later sold to Southern California Edison? And how she poured the proceeds form that un-noticed transaction into a daring, alarming and apparently unsuccessful effort — code named “Operation Bald Headed Eagle” — to extract millions of dollars worth of cash, gold, and bonds of former U.S. aid to the Philippines using a cache of CIA and military Special Ops personnel, with supposed diplmomatic immunity no less?

The EPA, meantime, says it’s on top of RECLAIM and that, as of this summer, had no active investigations into any emissions markets anywhere in the country.

All in all it’s a complex, provocative story, one fraught with policy implications and headscratching human behavior, with spy-book sidelines and institutional hubris, and the charge in D.C. to get the lowdown on this now-closed criminal fraud case, in our opinion, is pretty nakedly political.

But wouldn’t it be something if Rep. Joe Barton of Texas (picture above) and Greg Walden of Oregon proved us wrong with a sincere, nonpartisan investigation into:

* how Sholtz TWICE gamed the system she helped concoct?

* why the AQMD and EPA failed to stop her sooner, and nobody at either agency seems very accountable?

* why the Justice Dept. has acted so secretly and oddly in this matter, apparently never following up on Sholtz’s explosive whistleblower tips once she was in custody?

* and how widespread the supposed-CIA and national security types Sholtz worked with in one cap-and-trade-financed “venture” have penetrated situations like this, and why there seems so little interest in probing whether we have a mini-Iran-Contra playing out while we all figured that was so 1980s of the Oliver North dimension?

I know. Click your heels three times and you’ll land in Kansas faster than the answers come here.

Here’s the link to Barton and Walden’s announcement. At the bottom are links to the motion and background documents, which I encourage the interested to read carefully. This was not some flimsy legal effort. It was surgical and well-researched.

If you want a more colorful and detailed look at the Anne Sholtz caper, please read my story, which ran in August in three different publications (before a bunch of blogs snatched ‘em). Here’s the definitive link to “Air of Deceit.”‘

The Hill, which covers the Capitol, has this brief story about the Barton-Walden initiative to get these secret records released.

“Senior Republicans on the House Energy and Commerce Committee are looking to a closed federal wire fraud conviction in California to bolster their argument against climate legislation.

Rep. Joe Barton (Texas), the senior Republican on the committee, and Rep. Greg Walden (Ore.), the top Republican on the committee’s oversight panel, have asked a federal court to unseal documents in the 2005 conviction surrounding a California pollution credit trading program. Barton calls the case a cautionary tale about setting up a massive nationwide carbon emissions trading market.

The two Republicans, who filed a motion Monday in the United States District Court for the Central District of California, want the pleadings unsealed in the case of Anne Masters Sholtz, who pleaded guilty in 2005 to one count of wire fraud following a six-count federal indictment for trying to game a Los Angeles-area pollution abatement initiative …”

In other news:

A somewhat predictable shift in American public opinion about global warming. Washington Post story

President Obama is not going to Copenhagen empty handed. He’s vowing to push for U.S. reductions in a bid to persuade the world, particularly India and China, to get serious as well. From the L.A. Times story

Happy Thanksgiving everyone! Let’s remember what’s important when we return from the break. It’s called sincerity.

* From the L.A. Times story:

“A solar energy project proposed for development on public land in the Mojave Desert would create jobs mostly for Las Vegas and electricity for San Francisco at the expense of the relatively pristine area of east San Bernardino County where it would be built, San Bernardino County Supervisor Brad Mitzelfelt said …

‘Obviously, there is a lot of political pressure to get this project expedited and under construction,” Mitzelfelt said. “But its impacts in San Bernardino County and sensitive and scenic Mojave Desert environment are not worth the benefits.’ … ”

* Hmm, does this sound familiar – a green Ponzi scheme that slipped past the regulatory watchdogs? Not that many honest politicians want to discuss this. From the New York Times post

“Federal regulators have accused four people and two companies of using bogus claims about “green initiatives” to entice more than 300 investors into what was really a $30 million Ponzi scheme.”

* Power to … ummm, the windmills. Sorry, that’s politically incorrect green jabber. Power to the windturbines, micro or massive, whether they spin horizontally or merry-go-round style. Interesting story about this in the L.A. Times (link). Stay tuned on this subject.

* In a scene straight from our book, Smogtown: The Lung-Burning History of Pollution in Los Angeles, comes this latest effort to beat back global warming with “geo-engineering.” Anyone have an air pollution sewer blueprint ready to roll. What I find interesting isn’t the scientific bravado and ingenuity that some might otherwise tab hubris but a discussion of the unintended consequences of messing with Mother Nature.

From the L.A. Times piece:

“If there were some kind of panic button to stop global warming, what would it look like?

How about billions of tiny mirrors, launched into orbit to deflect solar rays away from Earth? Or big, fluffy clouds, artificially whitened so they reflect more sunlight back into space? Or maybe mechanical trees, ugly but effective at sucking carbon dioxide from the air along busy highways?

Outlandish as some of these proposals may seem, scientists and engineers are paying increasing attention to such ideas amid mounting evidence that human-caused climate change is wreaking havoc in some parts of the world.

The proposals belong to a field known as geo-engineering, or manipulation of the environment on a grand scale …”

* Think we’re too cynical here. Read on about what’s happened in China here.

* If that doesn’t depress you about what’s happening in Asia, you always have super-duper dirty L.A. Break out the bubbly – we’re the 7th most toxic city in America (depending on how you calculate that.) Link.

From the L.A. Daily News piece

“Jane Goodall, the champion of chimpanzees, knelt Monday over a newly planted sticky monkey flower and kissed its leaves for good luck.

She had come to Calabasas to tour a restoration project at the headwaters of the Los Angeles River. But as luck would have it, the sticky monkey flower had yet to be planted.

So the world-renowned primatologist and conservationist knelt, grabbed a handful of soil and sunk the plant into the earth.

While she travels all over the world to talk about the importance of conservation and environmental responsibility, Goodall said it all comes down to a very simple message: One flower planted on a hillside can evolve into a global movement.

“I’ve visited these types of restoration projects all over the world, and it always amazes me how Mother Nature restores herself,” Goodall said …”

Global warming:

* The latest on President Obama’s energy bill, and the politics of cap and trade. It’s about the mighty benjamin. Washington Post story.

* A still frightening Washington Post story about how fast temperatures may rise this century.

* Aspens dying off from global warming. Sounds pretty familiar to Ponderosa Pines and smog. This time we’re smarter, right? Story link from the L.A. Times.

* EPA cracking down on coal-fired power plants. Story.

Odds and ends, green-style:

* Terrifiic piece of enviro. investigative reporting. Gosh, what a connect. From a New York Times piece of late.

* Reactive air pollutants: story

California is “failing,” or so says the British. Excuse us if I’ve heard this one before from supposed sharp-eyed observers convinced we’re past the tipping point to social doom. We dip into outsiders fancy for seeing ruin before the ruin is really there in our book Smogtown: the Lung-Burning History of Pollution in Los Angeles. Imagine that: California actually made it out of the 1970s1

From a recent Guardian feature

“California has a special place in the American psyche. It is the Golden State: a playground of the rich and famous with perfect weather. It symbolises a lifestyle of sunshine, swimming pools and the Hollywood dream factory.

But the state that was once held up as the epitome of the boundless opportunities of America has collapsed. From its politics to its economy to its environment and way of life, California is like a patient on life support. At the start of summer the state government was so deeply in debt that it began to issue IOUs instead of wages. Its unemployment rate has soared to more than 12%, the highest figure in 70 years. Desperate to pay off a crippling budget deficit, California is slashing spending in education and healthcare, laying off vast numbers of workers and forcing others to take unpaid leave. In a state made up of sprawling suburbs the collapse of the housing bubble has impoverished millions and kicked tens of thousands of families out of their homes. Its political system is locked in paralysis and the two-term rule of former movie star Arnold Schwarzenegger is seen as a disaster – his approval ratings having sunk to levels that would make George W Bush blush. The crisis is so deep that Professor Kevin Starr, who has written an acclaimed history of the state, recently declared: “California is on the verge of becoming the first failed state in America …”

Scoff as you may at predictions of California’s tragic early demise, don’t dismiss what some “green roofs” can do as one salvo in the battle against global warming. MSNBC story.

Feeling itchy and green all over? You’re not alone. We’re in era of environmental anguish, and unfortunately Tylenol and a margarita aren’t much relief. New York Times post.

We like this move as insurance if Obama-backed legislation focused on dramatically slowing U.S.-generated greenhouse gases while improving our energy efficiency and use of renewables goes down in flames to partisan politics. L.A. Times story.

WAS CONVICTED SMOG-CREDIT SWINDLER ANNE SHOLTZ PART OF SHADY INTERNATIONAL ‘MONEY REPATRIATION’ SCHEMES?

August 20, 2009

By Chip Jacobs for the Pasadena Weekly

The demise of Anne Sholtz’s once-grand life is evident in the smaller things. It’s there in the GPS-tracking bracelet — standard issue for felons in home detention — that looped around her ankle for a year, and in her near-dormant passport. It’s traceable in her pillow, which rests today in leased home miles from the $5-million hillside estate that had broadcast her transformation from Caltech economist to business phenom.

Yes, the wreckage from that existence — the economizing, the isolation from connected friends who now shun her — is graspable.

Where the picture turns as murky as whisky-brown Southern California smog is how Sholtz, as a then-thirtysomething go-getter, was able to deceive the very air-pollution market she helped conceive, and the lessons that holds for keeping financial crooks out of the trillion-dollar, greenhouse-gas trading system that President Obama has trumpeted as a key to curbing global warming.

Unless you’re in the arcane field of emissions trading, chances are you’ve probably never heard of Sholtz before. Last April, the former Pasadena emissions-broker was convicted in federal court of fraud relating to a multimillion-dollar deal for credits in Southern California’s novel smog-exchange. Despite pleas that she sock Sholtz with years behind bars, US Central District Court Judge Audrey Collins gave her just a year in home confinement.

Fortunate with a light sentence in that downtown LA courtroom, Sholtz nonetheless sustained heavy losses outside of it, squandering, among other potential, her chance to build a unique and lucrative pollution-trading business, with access to Obama or Gov. Arnold Schwarzenegger as an industry confidante. Those opportunities gone, she now drives her mother’s car, not the Mercedes or SUV she once did. Rather than expanding her ideas into climate change, she checks in with her parole officer.

Blown prosperity for Sholtz, it’s been no bonanza for others, either.

Between criticism over its secretive, mixed-bag prosecution of her and evidence of Sholtz’s role in a scheme to extract millions in overseas US aid with men purporting to be American intelligence and military operatives, the Department of Justice’s LA office probably wishes she would just fade away. Local smog regulators at the South Coast Air Quality Management District (AQMD), whose market-based regulation proved vulnerable to her deceptions, can relate.

Trouble is some events are just too big to disappear. And the Sholtz case, no matter its relative obscurity or connection to complex regulations, fits that mold because it underscores the need for vigorous oversight of emissions markets against seemingly inevitable Wall Street-style chicanery.

(more…)

Here’s a teaser opening from the Pasadena Weekly story about congressional interest in this case.

“A former Pasadena businesswoman convicted of engineering a fraudulent cap-and-trade pollution credit deal involving millions of dollars and one of the world’s biggest oil companies is at the heart of a congressional inquiry into the government’s latest response to global warming.

Republican Congressmen Joe Barton of Texas, a ranking member of the House Energy and Commerce Committee and one of the Capitol’s leading critics of global warming, and Greg Walden of Oregon, a ranking member of the Oversight and Investigations Subcommittee, want to know more about Anne Masters Sholtz, who in the early 2000s bilked investors out of millions of dollars through her now-defunct Old Pasadena-based companies EonXchange and Automated Credit Exchange.

Sholtz — as the Pasadena Weekly’s Chip Jacobs has reported — ultimately pleaded guilty in Los Angeles federal court in 2005 to one count of wire fraud related to a transaction in which Sholtz represented to New York-based energy trader A.G. Clean Air that Mobil Corp. (now ExxonMobil Corp.) needed a large number of credits to operate in Southern California …”

Without being coy or glib, all I can say is stay tuned. It’s about to get much more interesting. Though this case is delved into our book, Smogtown: The Lung-Burning History of Pollution in Los Angeles, details begging to come out had to wait until basically now.