New York, NY —
Click here for Part 1As WNYC's Amy Eddings reported yesterday, four law enforcement agencies are investigating whether a non-profit AIDS housing group violated criminal and civil laws by improperly diverting its funds for the profit and entertainment of it's founders. Now WNYC's Andrea Bernstein continues our special investigation with a look at how the group grew and thrived during the Giuliani years.
In 1995, Sterling Zinsmeyer was a political leader in the gay community with a background in social services. With Gordon Duggins, an Episcopal priest, Zinsmeyer founded Praxis Housing Initiatives for people with AIDS. To get city business, they turned to Ray Harding, the chief of the Liberal Party, who has been described as a one-man smoke-filled room.
Harding had provided crucial help to Rudy Giuliani during his 1993 campaign for Mayor. By 1995, the lobbyist had become the man to go to if you wanted a city contract - and that's what Zinsmeyer did, according to Robert Peters, a founding director of Praxis.
Peters: We were asked what it is that we were seeking. We explained that we were seeking to try to do a project with the St. Nicholas hotel in Harlem to house people with AIDS.
Harding asked for a check for $15,000, and Peters said they wrote it right there. Then, as Peters and Zinsmeyer watched, Harding called Fran Reiter, a deputy Mayor under Giuliani and a former top official in the Liberal Party.
We asked Harding about the meeting. He said he couldn't remember the substance but checked his diary and confirmed it took place at 9:30 am on Tuesday, November 28, 1995. Reiter's own diary shows three meetings with Zinsmeyer shortly thereafer.
Reiter: We had a situation that I was very much involved with in terms of the dire need for housing and the problems of temporary housing for people with AIDS.
Within weeks of those meetings, Peters says, Praxis was in business.
Peters: It created the agency. It saved the agency the agency at that point had no business with the city. It meant that Praxis housing would become a viable group, a viable entity. It meant you got into the game.
Since that time, Peters has had a bitter falling out with Zinsmeyer and Duggins. But Praxis own records show the organization did indeed grow seven-fold the year after it paid Harding $15,000, to an almost $6-million dollar a year organization.
A lot of that that money, according to former employees and internal records, didn't go to AIDS housing. Instead, it was spent by Duggins and Zinsmeyer on themselves, their friends and their family. Praxis spokeswoman isn't commenting. Duggins attorney, who doesn't speak for the organization or its board, says there was no fraud whatsoever.
While Praxis was growing, another AIDS Housing organization was coming under scrutiny from the Giuliani Administration. The organization, Housing Works, had been launched as the service oriented arm of the AIDS direct action group ACT-UP.
Housing Works frequently staged noisy demonstrations, antagonizing the mayor. Reiter herself ordered an audit of Housing Works. An internal city hall memo taken during a top level meeting over whether the group should retain its contracts noted Fran Hates them.
In October of 1997 - a month before voters would decide whether to re-
elect Giuliani - housing works staged another demonstration.
Demonstrators: Hey Rudy, we're dying you've got to stop lying! Hey Rudy we're dying you've got to stop lying.
That day, the administration halted all Housing Works contracts. Matt Brinckerhoff is the group's lawyer.
Brinckerhoff: They went out and basically looked for every contract that was sort of in the pipeline and stopped all them in their tracks and Housing Works did not get another city contract for five years.
In a 1999 decision, federal Judge Allen Schwartz found the Giuliani administration had retaliated against Housing Works for exercising its first amendment rights.
While Housing Works was getting scrutinized, Praxis was not. Three high level employees who worked for the Giuliani Administration said there were early clues something might be wrong. Every time Praxis applied for funds they had a different chief financial officer, said one, He said he brought this to the attention of his superiors but nothing was done.
Cyril Brosnan was chair of the Praxis board until last June - he says he did try to get to the root of what was going on with the group's finances.
Brosnan: Mistakes are one thing. But deliberate obfuscation, deliberately using public - public -- dollars for their own for-profit entities, This is not mistakes.
Brosnan says his attempts to run the board were complicated by the fact that both Duggins and Zinsmeyer, were earning a salary and on the board. That's not illegal. But city contracts say no board members should be paid. That language, city officials say, is designed to prevent conflicts of interest.
The Giuliani Administration did not look into this, either.
During this time Zinsmeyer continued to build ties with top Giuliani appointees. His annual Christmas Tree trimming party at his West 18th Street apartment featured a glittering array of city officials, according to Robert Peters and half a dozen other people who attended.
Peters: I thought this was an interesting way that business happened in New York City, it wasn't just a social affair, clearly all kinds of people were off in corners with their martinis talking about business matters.
Among those entertained was Greg Caldwell, a top aide to Reiter who later ran the city's AIDS services department. Neither Zinsmeyer nor Caldwell responded to repeated requests for an interview made over a two week period. But Caldwell is on the record in a housing works lawsuit acknowledging he socialized with Zinsmeyer - and at the same time considered Praxis as one organization that could replace Housing Works. Former Deputy Mayor Fran Reiter remembers those talks.
Reiter: I can certainly recall discussions about how we make up for that but I don't remember Praxis in particular being necessarily at the forefront of that.
From 1998 on, Praxis's work grew: its city contracts rose to $12 million, its federal contracts to 4 million dollars by 2002.
Many of those dollars, as WNYC has reported , were flowing out of the non-profit and into for-profit agencies set up by Duggins and Zinsmeyer. George Serrano, a Praxis comptroller until 1999, says the money was going to entertain Duggins' and Zinsmeyer and their associates.
Serrano: Well, angry is not what I might use, maybe a little stronger word, being that we found out that money that was meant to help poor people went for their own for-profit making adventures.
Housing Works Attorney Brinkerhoff says the Giuliani administration should have noticed long ago.
Brinckerhoff: I've examined thousands and thousands of pages of documents over the last five years in this arena. There is no way that they weren't getting information that should have led them to at least want to poke around a little bit more.
Reiter: I think that's ridiculous.
Former Deputy Mayor Reiter says she never heard a single complaint.
Rieter: I think If there had been anything brought to my attention or to anybody's attention in the Giuliani administration regarding any impropriety from sterling or any other group it would have been investigated.
Now, there are investigations. During the WNYC investigation into Praxis and after City Limits magazine began publishing its own reports, the State Attorney General launched a probe. The U.S. Attorney, the federal Department of Housing and Urban Development, and the city Department of Investigation are also looking into Praxis.
Praxis continues to get city business to this day - about $10 million a year. The city says its cooperating with the investigations.
Meanwhile, Mayor Bloomberg's Administration continues to fight Housing Works in court. A trial is expected in early 2004.
For WNYC, I'm Andrea Bernstein.