A mortgage broker serving a 14-year prison sentence after he pleaded guilty to a $140 million fraud testified Monday that he served as a conduit for a $50,000 bribe to Mayor Ray Nagin from Home Solutions of America CEO Frank Fradella.
Michael McGrath, who is serving time in a medium-security federal prison in Florida, wore an orange prison jumpsuit as he testified, and he was led away in shackles when Nagin’s corruption trial broke for lunch.
While many of the witnesses to testify against Nagin are convicted felons, McGrath is the first one who has already been sentenced.
Before the FBI raided his New Jersey home in 2009 and sent his life into a tailspin, McGrath testified that he was a major investor in Home Solutions, the publicly traded disaster recovery firm Fradella helmed. McGrath’s stake was about $5 million.
In early 2008, McGrath said he became concerned about the company’s condition – problems included investor lawsuits, a Securities and Exchange Commission inquiry and horrible bookkeeping — and he asked Fradella to put him on the board. Fradella did so.
Within months, he testified, it was clear Home Solutions was in real trouble, and he and Fradella hatched a plan to save it. The plan was for Fradella to land some big contracts, while McGrath tried to negotiate with bankers and other creditors.
Fradella had his sights set on three major deals in New Orleans: the redevelopment of the defunct Market Street power plant, a proposed NASCAR racetrack on the site of the old Six Flags amusement park in New Orleans East, and the new public hospital complex being built in Mid-City.
For the first two projects, the men considered Nagin’s support vital; Fradella vigorously pursued it, and appeared to have it, McGrath testified – testimony that appeared to be supported by emails introduced as evidence.
In one giddy email about the racetrack proposal, Fradella wrote McGrath to say: “There are so many ways to make money in this, it’s silly. Just the flip on the land could yield $3-$5MM. The construction budget alone is $250MM. It will be in an area marked for immediate bond and tax incentives called ‘New Orleans East,’ a prime Nagin focus.”
Amid that backdrop, Fradella told McGrath in June 2008 that Nagin wanted a $50,000 bribe, and that it couldn’t come from Fradella because of his position with Home Solutions, a city vendor.
So they devised a scheme by which McGrath paid Stone Age, the Nagin family granite firm, with a check from his daughter’s trust account. McGrath was then reimbursed by Home Solutions by being given a discount on stock; the $50,000 differential between the cost and what he paid was reported to the SEC as an “advisory fee.”
McGrath said he had hoped to use another intermediary to get the money to Nagin, but didn’t want to bring anyone else into the scheme.
“How do you ask someone to bribe someone?” asked McGrath, who in addition to mortgage fraud pleaded guilty to bribing a public official in New Jersey. “It’s hard to write that check.”
McGrath said he personally delivered the check to Nagin, who had come to a meeting to lend his support for Home Solutions’ projects at an investor meeting. Afterward, he testified, Nagin patted him on the back and thanked him.
As part of what McGrath termed a “cover story,” he eventually received some paperwork showing he had a 5 percent stake in Stone Age. McGrath said there was no pretense that the stake was real, and that he never again heard from anyone associated with Stone Age. He said he did not believe he had kept the paperwork, noting that he could not produce it when the government asked him for it.
While neither of the big projects for which Fradella sought Nagin’s help ever came to fruition – a fact Nagin’s defense lawyer, Robert Jenkins, is sure to highlight during cross-examination -- McGrath said he and Fradella felt they were close to landing them in 2008. He said Nagin was key to establishing Fradella and Home Solutions’ credibility with investors and partners, such as developer Michael Samuel, who owned the Market Street power plant and was planning to partner with Home Solutions to redevelop it into shops and homes.
“Ray Nagin was always viewed as Frank’s guy,” McGrath testified. “Frank would tout, if you will, his relationship with Mr. Nagin, to his investors, to Michael Samuel.
“The only value Frank Fradella was bringing to the table was his relationship with Mr. Nagin.”