Lakers’ NBA title caps a lucrative month for sports business

It didn’t hurt that the Lakers were up against their rivals, the Celtics, for the NBA title. But it isn’t just ABC and the NBA that are scoring financially. There’s hockey, golf, tennis, and the World Cup, too.

Los Angeles Lakers guard Kobe Bryant reacts as time runs out in Game 7 of the NBA basketball finals, Thursday, June 17, in Los Angeles. The Lakers won 83-79.
(Mark J. Terrill/AP)

By Mark Trumbull, Staff writer
posted June 18, 2010 at 3:59 pm EDT

Mo Vaughn’s home runs

By Amanda Fung

Published: February 14, 2010 – 5:59 am

Mo Vaughn (right) and Eugene Schneur revitalized a drug-infested five-building complex in Brooklyn, and made it a decent place to live. Photo by Buck Ennis.

Six months after Mo Vaughn set up Omni New York in 2004, the fledgling real estate firm struck, snapping up a 286-unit affordable housing complex in the Bronx. By the end of its second year, Omni New York had tripled its holdings to a total of 869 units.

As far as most people were concerned, however, Mr. Vaughn was still a Mets first baseman, even though his baseball career ended in 2003.

“I wanted people to take us seriously and know that we were the real deal,” says Mr. Vaughn, who is seated at a Brooklyn eatery with his partner, Eugene Schneur, explaining his transition from baseball hero to real estate mogul—albeit one whose new uniform includes not just sharply tailored suits but large diamond-encrusted hoop earrings. “I wanted respect.”

These days he’s got it—not as the American League’s former MVP but as the managing director of one of the city’s best-regarded and most active buyers and managers of affordable housing. Along the way, Mr. Vaughn and company have earned a place as one of the city’s top choices for turning around distressed residential properties.

Today Omni ranks as a midsize firm capable of competing with the bigger players, swallowing up sprawling properties such as the decrepit 14-building, 416-unit complex in the South Bronx that Omni bought the mortgage on at a foreclosure auction—with the city’s blessing—in December. “Given their track record, they are ideally suited to deal with troubled projects,” says NYC Housing Preservation and Development Commissioner Rafael Cestero.

Since 2004, Omni has spent over $500 million buying and rehabilitating 21 affordable-housing buildings with a total of nearly 3,500 units in the Bronx, Brooklyn, Long Island and as far away as Wyoming. The majority of the buildings they own and manage are Section 8 buildings, whose low-income tenants rely on federal vouchers to help pay their rent. Omni finances its deals using tax-exempt bonds and the proceeds from the sale of low-income-housing tax credits.

Making money and doing good

That is exactly what it did when it acquired the Noble Drew Ali Plaza in the Brownsville section of Brooklyn—the 2007 deal that put Omni on the map. At the time, the five-building complex with 358 units was a haven for drug dealers and addicts, its hallways urine-soaked and graffiti-lined and its apartments crumbling.

Omni purchased the property out of bankruptcy for $23 million with financing from various city agencies, including HPD, as well as federal grants. The developer then poured $25 million into refurbishing everything from new elevators and energy-saving appliances to 326 security cameras. After two years of work, Messrs. Schneur and Vaughn capped off the revitalization by giving the complex a new handle: “The Plaza.”

“Noble Drew Ali, without a doubt, was one of the most complicated projects [we've seen],” says Mr. Cestero. “They restored it to a quality place for people to live by taking a very aggressive approach to renovating buildings.”

Today Mr. Vaughn, who played for the Boston Red Sox in the 1990s, spends most of his time on the operations side of the business, working with Omni’s construction, management and maintenance teams, while Mr. Schneur focuses on the dealmaking.

“I’m the eyes,” said Mr. Vaughn, who got his start in real estate by investing in Manhattan nightclubs with help from Mr. Schneur, then his attorney. “I make sure that everything that needs to get done gets done.”

In fact, Omni was his idea. In Ohio, where Mr. Vaughn spent his off-seasons, he met a developer successfully buying affordable housing using tax credits and decided to try the concept out in New York.

“They are smart people,” says Lisa Gomez, executive vice president of affordable housing developer L+M Development Partners. “They get how to do affordable housing and look to the double bottom line [of making money and doing good].”

Size doesn’t matter

But competition for distressed properties is increasing as the drought in luxury housing deals drags on. Meanwhile, the price of tax credits—a key currency in such deals—has plummeted by nearly a third, forcing Omni to scramble for more state and city subsidies to fill the gap.

“We used to be able to get deals done without subsidies,” says Mr. Schneur.

Omni’s rapid growth also presents challenges. By year’s end, it expects to have close to 5,000 units. For a firm whose two founders visited their early holdings as many as four times a week, the sheer scale of the portfolio now makes maintaining that degree of oversight difficult—even with the aid of a staff at its midtown headquarters that now numbers about 120.

“We can’t cut corners and be complacent,” says Mr. Vaughn. “If we continue to be humble and work hard, we will be fine.”

In fact, Mr. Vaughn and his partner are stepping up their act. Prior to the market collapse, Omni had been priced out of Manhattan. Mr. Schneur recalls one deal where Omni bid $20 million for a Manhattan building that went for $30 million.

Last month, Omni had better luck, buying its first Manhattan properties—two Section 8 buildings in Harlem with 53 units—for $5.5 million. Now, as a number of big, financially troubled properties, including Lawrence Gluck’s 1,230-unit Riverton in Harlem, make their way through foreclosure, they are weighing a bid. Even Manhattan’s vast middle-income oasis Stuyvesant Town-Peter Cooper Village looms as a potential target.

“Size doesn’t matter,” says Mr. Vaughn. “They fit within our philosophy of preserving decent affordable housing.”

Christy Mihos aide: ’Financial advantage’ key in 2010 race

BOSTON — The chief political consultant for Cape Cod businessman Christy Mihos said Tuesday his client lost the 2006 gubernatorial race solely because he ran as an independent.

Conservative commentator and author Dick Morris also predicted that Mihos will beat fellow Republican Charles Baker in the 2010 GOP primary and Gov. Deval Patrick, a Democrat, in the general election because of his opposition to Big Dig spending and the “considerable financial advantage” the multimillionaire brings to the campaign.

“I don’t think Baker is going to be a serious problem,” Morris told The Associated Press in an interview. “I think he’s subject to many of the same negatives that Patrick is. Patrick raised our taxes; Baker raised our tolls.”

The criticism harkened back to Baker’s work in the Weld and Cellucci administrations, when he served as the top finance official in the Cabinet from 1994 to 1998. During that time, the state sought to finance the $15 billion Central Artery tunnel project, which has triggered toll increases.

More recently, Patrick signed a 25-percent sales tax hike into law.

Yet Morris didn’t limit his attack there. He criticized Baker, who went on to become president of Harvard Pilgrim Health Care, for helping negotiate a state receivership for the troubled insurer and then taking a $1.5 million salary package from the now-profitable company until he resigned in July to run for governor.

“I wonder how popular health insurance companies are,” Morris said. “Let’s put it this way: I’d rather run a hedge fund.”

A Baker spokesman dismissed the complaints.

“Looks like Christy Mihos is back negatively attacking Republicans again,” Baker spokesman Andrew Goodrich said. “Christy’s negative campaign is one reason elected Republican officials from across the state are flocking to support Charlie Baker and see Charlie as our only hope to defeat Deval Patrick.”

Mihos garnered only 7 percent of the vote in 2006, when he squared off against Patrick and Republican Lt. Gov. Kerry Healey. The Christy’s convenience store magnate is running as a Republican this time around.

Mihos has hired Morris to develop strategy. He is a newspaper columnist and Fox News analyst who once served as Democrat Bill Clinton’s political adviser.

His work with Mihos is not the New Yorker’s first venture into Massachusetts politics. He previously ran Ed King’s successful campaign against Democrat Michael Dukakis, and also worked on state campaigns to limit property tax increases and elect William F. Weld as governor in 1990 and 1994.

Morris said Mihos’s candidacy will resonate with voters because he fought against cost escalation in the Big Dig project while a member of the Massachusetts Turnpike board of directors. The consultant also said Mihos knows how to cut government spending but won’t be afraid to spend his own money promoting his candidacy — perhaps as early as this fall.

He said Mihos lost 2 1/2 years ago only because he ran as an independent.

“It was a basic mistake to think that as an independent in a highly polarized, partisan year,” Morris said. “I think that people were not in the mood for a third choice.”

Article URL: http://www.bostonherald.com/news/politics/view.bg?articleid=1191857

U.S. payment-card industry grapples with security

By Ross Kerber

BOSTON (Reuters) – Fresh details of large-scale cyber attacks against data processor Heartland Payment Systems Inc and supermarket chain Hannaford Brothers show the challenges facing the efforts of the U.S. credit-card industry to upgrade security measures.

While both companies say their computer networks met the tough new standards meant to prevent data breaches, Visa Inc said Heartland at least may have let its guard down.

The positions reflect broader disagreements in the industry, as squabbling between merchants and financial firms over technology and the cost of systems upgrades continues to impede progress, said Robert Vamosi, an analyst for California consulting firm Javelin Strategy & Research.

“They both need to fight fraud and they are fighting each other,” he said.

The financial stakes are getting higher. Fraud involving credit and debit cards reached $22 billion last year, up from $19 billion in 2007, according to California consulting firm Javelin Strategy & Research.

The security of consumer information came under renewed scrutiny on August 17 when a 28-year-old Florida man, Albert Gonzalez, was indicted along with two other unnamed hackers for breaching the computer networks of Heartland and Hannaford, both of which said they were in compliance with security requirements.

Those standards were set by a council that includes the world’s two largest credit card networks, Visa and MasterCard Inc; fast-food leader McDonald’s Corp; oil major Exxon Mobil Corp; and big banks Bank of America Corp and Royal Bank of Scotland Plc.

All these companies face rising costs linked to fraud and its prevention. Of the 275,284 complaints received last year by the government’s Internet Crime Complaint Center, 24,775 were tied to credit or debit card fraud, up from 13,033 in 2007 and 9,960 in 2006.

Yet some 5 percent of the largest retailers and restaurants still have not met compliance deadlines set in 2007, according to Visa.

Even companies that meet the standards could be vulnerable should they lower their guard, Visa security executive Ellen Richey said last spring in a speech critical of Heartland.

“It was the lack of ongoing vigilance in maintaining compliance that left the company vulnerable to attack,” she said in March.

Merchants, for their part, complain via trade groups like the National Retail Federation that Visa and MasterCard are asking them to pay more than their fair share for security upgrades.

Some retail executives also say Visa and MasterCard have been slow to adopt better encryption technology and cards with high-security computer chips because of the associated costs.

“I can’t even tell you how many sour, disgruntled calls I get from retailers,” said Gartner Inc technology consultant Avivah Litan, who also works with banks.

GOVERNMENT REGULATION?

At Heartland, Gonzalez was charged with stealing more than 130 million payment card numbers, a record. Previously the biggest such hacking case was at TJX Cos Inc, where federal prosecutors last year accused Gonzalez and others of conducting an electronic break-in starting in 2005 that companies said compromised as many as 100 million card numbers.

Gonzalez, who is awaiting trial, has pleaded not guilty to the charges related to TJX, which had not met security standards at the time of the data breach.

This time, prosecutors say Gonzalez and his co-conspirators penetrated Hannaford and Heartland’s systems in late 2007 with code known as “structured query language,” which the security standards require companies to protect themselves against.

They also charged the ring breached systems at convenience store operator 7-Eleven Inc, roughly in August 2007. The company said the breach only affected transactions at automated teller machines owned by a third party at some of its stores, and wouldn’t comment further.

A spokesman for Hannaford, a unit of Belgium’s Delhaize Group, said an audit unit of Verizon Communications Inc showed it met the security standards.

Heartland said through a spokesman that its systems had been checked by audit firm Trustwave of Chicago as recently as April 2008 — about four months after prosecutors say the hackers began their theft.

The security standards represent “the lowest common denominator and the bad guys have figured out how to get around some of the weaknesses,” the spokesman said.

A Verizon spokesman confirmed it had audited Hannaford and found it to meet the standards, but declined to elaborate. A Trustwave spokeswoman said the firm wouldn’t comment.

Security is critical to Heartland because it processes card payments for merchants, and its stock dropped sharply in the two months after the attack was discovered.

In response, Chief Executive Robert Carr has tried to reassure customers and stepped up calls for better data encryption.

Ultimately, should the payment card industry fail to get its act together, it could face more government regulation, said Cynthia Larose, an attorney at Mintz Levin in Boston.

“If the stakeholders cooperate, we would see much better security,” she said.

(Editing by Matthew Bigg and Gerald E. McCormick)

Kennedy’s Death Opens Up Succession Debate

A Privileged World Begins to Give Up Its Secrets

About 10 years ago, when I was working in Frankfurt, Germany’s banking capital, I was invited to the top floor of the glittering skyscraper headquarters of one of the country’s most venerable banks. There, I was treated to something that, it was made clear to me, few eyes usually had the privilege of seeing — a tour of its private art collection, an impressive spattering of modern and ancient European and American masters.

The point was, those pictures reflected the bank’s wealth. And the fact the secretive treasures were kept forever behind closed doors for the enjoyment of the privileged few reflected its power.

If that seems like a different era, it is. Banks around the world are reeling, as we know; the European banks’ losses are among the most ruinous. And their prestige and putative secrecy and independence received a further blow last week, when the government of Switzerland agreed to release to the United States the names of 4,450 American citizens suspected of using secret Swiss accounts at UBS, the country’s biggest bank, for tax evasion.

The victory for the United States was made possible by evidence from an American-born whistleblower — code name Tarantula — a disgruntled former UBS employee from the Boston area who was working in Switzerland. Until he left the bank, he was part of a UBS team that made frequent trips across the Atlantic to aggressively market investment strategies to rich Americans to elude the scrutiny of the Internal Revenue Service.

But it would be wrong to see the settlement as a one-off strike against just one bank by a single government. It is in fact the result of a broader political moment created in the wake of the global financial crisis when disenchantment with financial globalization is causing governments to repatriate wealth back to within national borders, especially at a time when countries badly need to balance their books.

Just a few years ago, in the pre-crisis era, the shadowy workings of cross-border banking — and what may or may not have been happening there — were generally overlooked.

And, while some of the alleged tax evaders may be the war criminals, gunrunners or despots usually linked with secret foreign bank accounts, the target of the latest efforts are much more likely to include rich businessmen and high-net-worth individuals. “There is a political movement because of the financial debacle,” said one veteran European banker who insisted on speaking anonymously because he has retired. “They are turning toward the so-called rich and want to hurt them.”

Of course, the United States looks at it a bit differently. Prosecutors have contended that in the UBS case alone, wealthy Americans hid billions of dollars, thereby evading taxes of hundreds of millions of dollars a year.

While Switzerland is arguably the largest off-shore center, it is not the only one. Supporters of its banking secrecy code point out that the code is wrapped up in the country’s claims to neutrality and being above the global political fray. But secrecy has also turned out to be immensely lucrative; according to some estimates one-quarter of the world’s offshore money now resides in Switzerland.

Other countries or territories have copied the model — Liechtenstein, Bermuda, the Cayman Islands, Macao and Hong Kong among them. And while Switzerland is probably seen as the most conservative, blue chip, upstanding offshore haven, the others are measured by a sliding scale of probity and association with dubious business practices, if not crime. The European banker said that in the early 1990s, following the fall of the Soviet Union, he worked in Switzerland where he said agents of Russian expats would show up with “boxes of cash” from Cyprus, a popular haven for capital fleeing the Russian authorities and the country’s post-collapse chaos.

The backlash against this illicit world has not been confined to the United States; it is apparent across Europe, too.

France will become of one of the first European countries to put in place a new tax treaty with Switzerland to improve transparency and access to banking information. Germany is in discussions with Liechtenstein over issues related to tax evasion by German companies and individuals. Liechtenstein has also struck a disclosure agreement with Britain, encouraging British clients of Liechtenstein banks to volunteer information to British tax authorities in return for reduced penalties. In Italy, tax officials have started an investigation into whether the estate of the late Gianni Agnelli, the former chairman of Fiat, has money hidden away in Switzerland. In Britain, the government has become particularly exercised by tax competition — the offering of low tax rates and other advantages like tax secrecy to lure capital away.

In the Swiss settlement last week, the American authorities got the information they needed after they saw an opportunity in the weakness of UBS, a bank that once enjoyed a sterling global reputation but has suffered billions of dollars in losses linked to United States subprime securities and had to be saved by a big government bailout last October. For the Swiss government, the deal lifts the immediate threat of heftier legal action and frees the bank — one of the mainstays of the Swiss economy — to concentrate on recovery.

But will anything really change? Although the United States is supposed to learn the identities of a few thousand tax evaders, those names will go first to an intermediate tax administration in Switzerland for review. The actual process of recovering the names may become lost in bureaucracy and foot-dragging.

Moreover, as The Times reported last week, smaller Swiss banks say they are confident that they can continue to profit by finding new, more elaborate ways to protect the privacy of their clients. Those banks continue to help clients hide billions of dollars through complex structures in offshore havens.

But the I.R.S. commissioner, Doug Schulman, said the agreement with UBS was a “major step forward” in the government’s efforts to pierce bank secrecy, and he warned that “wealthy Americans who have hidden their money offshore will find themselves in a jam.”

In the new political climate, expect to see a few rich Americans shifting uncomfortably.

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Apartments, museum lead race for Greenway site

BRA says proposals most consistent with its plans for parcel

Young investors wary of jumping into market lows

By Erin Kutz

BOSTON (Reuters) – Young investors may accept the argument that those who begin investing when stocks are cheap end up with more retirement money, but after the turmoil of the past year, some find it hard to put their money in the market.

Asset managers and analysts say that those who invest in rock-bottom stocks of a bear market will see share values rise for decades.

But many in their 20s and early 30s are not buying rosy projections, due to immediate financial pressures and exposure to the longest recession since the 1930s Great Depression.

“I would keep all my money in cash,” said Alex Corbacho, a senior at Boston University.

The trend has some worrisome long-term implications. Stock brokers may find themselves largely shut out of a big customer base, and demand for equities will likely be crimped as investors favor safer havens, hurting the stock market’s prospects. It’s also unclear whether these young investors will have accumulated enough to fund their retirements when the time comes.

Corbacho is no stranger to markets. At age 13 he invested his birthday money and a matching donation from his father, $1,000 in total, in tech stocks only to feel the sting when the Internet bubble burst.

He carried the lesson with him in early 2008, after seeing signs of economic trouble as an intern at a Boston investment bank. He put the majority of his stock investments, which had reached about $5,000, into a certificate of deposit instead.

Corbacho doesn’t plan returning to stocks for a few years after graduation and is instead focusing on saving.

The recent market collapse has made holding cash for immediate expenses far more attractive to young people than investing, said Rodger Smith, managing director of Connecticut consulting firm Greenwich Associates.

“They are taken aback by how much they lost and how quickly they lost it,” Smith said.

The early exposure to such dramatic declines could restrain many from investing aggressively when they are older and have accumulated more money to put into the market, some say.

Asset managers, financial advisers and investors agree that young people will emerge from the financial crisis more educated, and more cautious, about managing their money.

“I do think they are taking a more practical and slightly more conservative view of the world,” said Michael Doshier, vice president of Fidelity’s Workplace Investing Group.

Corbacho said his generation should not expect to accumulate sudden wealth like some in the past.

“We might be a little smarter and a little wiser moving forward. We will have been more conservative and more observant and won’t have 65 percent of our life savings invested in equities,” he said.

Assets in U.S. retirement plans fell 22 percent in 2008 or nearly $4 trillion, with almost 75 percent of the drop in the second half of 2008, the Investment Company Institute found.

“These folks need to be resold on the idea that a 401k is a long-term investment,” said Smith, who oversees a profit-sharing plan for his firm and advises younger investors.

LONG-TERM CONCERNS

Financial advisers have long suggested that those further from retirement invest more heavily in equities, then switch to less risky assets as they near their golden years.

But the portfolios of those in their early 20s don’t reflect that advice. At Fidelity Investments, those 20-24 years old invest 31 percent of their 401ks in equities, compared to those 50-59 years old with 35 percent equities investments.

Overall, those saving for retirement have pulled back from stocks. In June, 48 percent of all Fidelity 401k participants were in equities, down from 53 percent a year ago.

Those in the investment industry say young investors should buy stock early and often.

“The key message is that it’s not a bad time for everybody,” said Christine Fahlund, senior financial planner at T. Rowe Price.

Ita Mirianashvili, a 35-year-old fellow at Massachusetts Institute of Technology’s Sloan School of Management, has confidence in long-term stock market prospects.

“I know the downturn cycle we are in will continue for some time but it will come back,” she said outside a MIT class that simulates a stock trading room.

But concerns about inflation, heavy government spending and rising bankruptcies has left many young investors uncertain.

“It’s still difficult to be bullish … for the long-run,” said Ashan Walpita, a 2009 Boston University graduate and former president of the school’s finance club.

Other short-term obstacles may hold young investors back. Employer-sponsored retirement plans often give people their first market exposure but with many graduates not finding work, they are yet to get started on making investments.

(Editing by Mark Egan and Cynthia Osterman)