From The Tribune
The netherworld of EarthQuest is a complex financial maze that challenges even the most intrepid investigator. But The Tribune is dedicated to unwinding this tangled web called EarthQuest so that all taxpayers will know how their elected officials have spent their hard-earned tax dollars.
This article will focus on one aspect of EarthQuest, the 2009 municipal bond sale. Specifically, how were the proceeds of that bond sale, totaling $7.635 million, disbursed, to whom and for what purposes. The bond proceeds were actually reimbursed to Global EarthQuest Ventures, LP, an entity of the Marlin-Atlantis Companies (the “Developer Group”). But The Tribune will spotlight those parties that ultimately received payment, thereby removing the ‘corporate veil’ of the Developer Group that would otherwise shroud the identities of the true recipients.
But first, it is important to note that the issuance and sale of municipal bonds in the public markets is very costly. From a relative perspective, the issuance costs decline proportionately as the size of the bond sale increases. But for a small bond sale, such as EarthQuest, this process is enormously expensive.
Case in point, out of the $7.635 million in bonds that were sold in 2009, EMCID’s issuance costs equaled $1,986,103, or 33 percent of the gross bond sale proceeds. Thus, before any EarthQuest expenses are even considered, the net proceeds from the bond sale have already been reduced to $5,648,897.
Ostensibly, the remaining $5,648,897 in bond proceeds were to be used to pay the for planning and design services of EarthQuest. But as detailed below, only about 30 percent of the bond proceeds were actually spent on these services. The remaining 70 percent was paid to numerous other parties, most legitimate, but a few highly questionable, if not suspect.
It is those few to whom a disproportionate share of the bond funds would go, fattening their wallets, with little or no contribution to the planning and design of EarthQuest. For one fortunate son, Don Holbrook, the bond sale was akin to winning the lottery without even buying a ticket. For taxpayers, these few will taint the entire bond sale process in a disturbing commentary on the abject failure of EMCID to protect the financial interests of its taxpayers.
In April of 2009, the bond sale occurred and the net proceeds of $5,648,897 were paid to the Developer Group to reimburse costs incurred by numerous parties involved with EarthQuest. Notwithstanding, $3,635,726.73, or 65 percent, of the total net proceeds, was paid for costs incurred by only four parties. Those four are Contour Entertainment, The Developer Group, Don Holbrook and Don Lessem.
First, Contour Entertainment was paid $1,726,978.37 out of the bond proceeds. Originally employed by the Developer as the lead designer and planner for EarthQuest, it is their work that largely constitutes the “intellectual property” often referred to by Frank McCrady, president of EMCID.
Contour’s work product is an essential component of EarthQuest, provided the project is built as originally conceived (i.e. a dinosaur-themed park). But due to the thematic nature of those plans, it is doubtful that work product would hold any value to a another party if EarthQuest isn’t built. Therefore, repeated assurances by EMCID officials as to the value of the intellectual property must be qualified. That is, any perceived value of the intellectual property is wholly dependent upon EarthQuest being built as originally planned.
Second, the Developer was paid $824,100.43. One developer entity is the owner of the EarthQuest land while another entity is the developer of EarthQuest. In reality, the Developer Group was little more than a financial conduit through which millions of dollars flowed, both for its benefit and the benefit of others.
Virtually all of the $824,100.43 paid to the Developer Group was for only two reasons: (i) $500,000 for administrative and overhead expenses, and; (ii) $222,289.86 for interest due on the EarthQuest land loan for the time period of December, 2008 through May of 2009.
Justifying the reimbursement of $500,000 for administrative costs is extremely subjective. Most of the administrative expenses reimbursed were likely on-going costs that existed prior to EarthQuest. Whatever marginal increases may have been attributable to EarthQuest is very much “in the eye of the beholder” and difficult to quantify with any certainty.
But how can EMCID even attempt to justify the payment of $222,289.86 of interest on a land loan the Developer incurred two years before the bond sale? To do so defies all logic and explanation. How did paying the interest on the Developer’s pre-existing debts benefit the planning and development of EarthQuest? Incredibly, as unwarranted as this decision was by EMCID, it would not be the last time EMCID would do the same again. (See EMCID Clairvoyance in today’s paper.)
Third, Don Holbrook, consultant, was paid an eye-popping $773,963.43 out of the bond proceeds. Holbrook is truly a consultant extraordinaire, capable of walking on both sides of one street at the same time. That is, despite the obvious conflict of interests, he represented both EMCID and the Developer Group as their respective consultants on EarthQuest.
In an email dated April 18, 2012, McCrady acknowledged to The Tribune that EMCID had retained, and paid Holbrook, as its consultant, the sums of $27,000 and $277,000. Out of the 2009 bond proceeds, Holbrook was paid $273,963.43 by EMCID for work on tax incentive and legislative matters. EMCID subsequently paid him an additional $500,000 (as the Developer’s consultant) as a finder’s fee for the EarthQuest site.
Consequently, Holbrook has been paid more than $800,000 by EMCID, presuming the $277,000 and the $273,963.43 mentioned above refer to the same fee. Furthermore, while Holbrook was carting off EMCID’s bank vault, he and his merry band of minions were also plundering the EarthQuest Institute for every dime it had received. Under the auspices of EMCID, Holbrook alone stripped out at least $328,255.00 from the Institute. (For details, see The Tribune article dated April 4, 2012). Altogether, it appears that Holbrook received, from EMCID and the Institute, upwards o $1,200,000 for his various, if not nefarious, EarthQuest activities.
The level of compensation paid to Holbrook is beyond any rational explanation, let alone comprehension. What possible justification can the EMCID leadership and board make to its constituents that Holbrook was deserving of these unwarranted, outrageous, indeed, unbelievable sums of money?
Last, but certainly not least, is “Dino” Don Lessem. It was Lessem that ignited the flame of inspiration for the EarthQuest Institute in 2006. But his dreams were incinerated by the raging fire of EarthQuest’s implosion.
In a recent letter to The Tribune, Lessem openly regretted many of the decisions he and others made regarding EarthQuest, especially as those decisions pertained to money matters. He lamented the waste and excessive salaries paid to Holbrook and others. He was appalled at the lack of interest that Leon Cubillas and the EMCID board took in regards to the Institute. He rued the complete lack of accountability on the part of almost everyone involved in the EarthQuest project.
Surprisingly, he commended the articles of The Tribune as being “very thorough” and did not dispute any assertions that have been set forth by The Tribune. Clearly concerned about the possible demise of EarthQuest and all the money that has been lost, he nevertheless stated that “[he] is not a squanderer of public or private funds, nor a deceiver of anyone” and that he “was not paid a dime” as for efforts related to the Institute.
Apparently, however, his magnanimity did not extend to EarthQuest. For out of the bond sale he was paid $310,674.50 by EMCID for “contribution and licensing rights.” Again, what possible justification can EMCID make for this enormous expense for a project that will never be to a consultant who no longer is?
Sadly, like the unsinkable H.M.S. Titanic that sank 100 years ago, the EarthQuest juggernaut appears headed to its own date with destiny. Yet, history is not determined by past events, but by current decisions. Unfortunately, EMCID’s decisions provide few answers, but many questions.
Why did the EMCID leadership and board turn a blind eye to these excessive expenditures? Why were these huge payments never disclosed or discussed in the corporate minutes or with the public until now? Why did EMCID not engage its own accountants to conduct an audit of all payments from the bond sale instead of a mere compilation based on original agreements dating back to 2008?
For the southeast Montgomery County taxpayers there will be ay least 21,000,000 “whys” over the next 28 years, when the last payment of this bond is paid by the citizens.