How did Robson hook up with the retirement system's very quiet lending program?

Karl Polen, a Robson executive, says his company did not use political or insider connections to get the deal; it simply told Kennelly it needed to fund PebbleCreek. The borrowers insist they did not know Kennelly was affiliated with the retirement system at the time they sought financing.

Just this year, Karl Polen was appointed by Governor Fife Symington to the investment advisory board of the Big Fund, the $13 billion Arizona State Retirement System.

So what does the law say about a state board that doles out deals that benefit political insiders, chums and business associates?

Not much.
Arizona laws say a member of a state board must disclose his interest in businesses that seek deals with the same board. In addition, to avoid violating conflict-of-interest statutes, a board member must not vote on deals involving his business, or profit personally from such deals.

Michael Geddes says he followed the law when the matter of the Perini Office Building was brought before the board in late 1994. In that deal, the retirement funds lent $1.8 million for three months to Geddes' close business associate, Dan Wilhelm, a principal of Eagle Western Investment, a brokerage firm in which Geddes also has an interest.

But, Geddes says, "I had absolutely no involvement in this."
Wilhelm formed another company, 360 LLC, to obtain the $1.8 million loan from the retirement system. Wilhelm sold the building three months later, reaping a $131,769 profit for himself.

The retirement fund got its money back, plus $197,013 in interest and profit.

Although Geddes says he was not involved in the deal, records show that two of his businesses--Geddes and Company and Eagle Western--were involved, and early on. In a November 30 letter, Wilhelm wrote to Cross: "Mike Geddes is aware of the construction and sales price per square foot numbers. I have asked him to call you to discuss his thoughts on this point and real estate in general." The letter, on Eagle Western stationery, was copied to Geddes.

On December 12, Gregory Berg, a vice president of Geddes and Company, sent Cross materials on the Perini Corporation, which was offering the building for sale. His letter was on Geddes and Company stationery.

"Jack," the letter said, "I hope the enclosed is helpful to you in your review of the real estate opportunity. I look forward to speaking with you again in the near future."

In April 1995, when Wilhelm sold the building, he wrote a letter to Cross requesting a $7,500 commission for Eagle Western salesmen Mike Jett and Joe Beer.

Cross says he refused to pay the commission because Geddes served on the board and the payment might be construed as a conflict of interest.

The seller, Wilhelm, says neither Eagle Western nor Geddes made a penny. Wilhelm claims he paid his brokers a commission--about $7,500--from his own pocket.

"The sellers made out like bandits on this deal," says Chip Diamond, an independent broker who introduced the new buyers to Wilhelm.

Even though the deal made money for both the fund and Wilhelm, it raises not insignificant ethical questions.

Is the board, aided by the relative obscurity of the funds, treating the real estate pool like a private fund that can be accessed--sometimes very quickly, almost exclusively--by a coterie of friends and associates?

Did Geddes, who claims he had "absolutely nothing" to do with the deal, really have no involvement, given the references to his businesses in correspondence about the deal?

And what about the efficacy of state conflict-of-interest laws? Do they really keep business associates and pals from milking their relationships with state board members?

Geddes appears to be offended that his integrity should even be called into question.

"From my standpoint," Geddes says, "my integrity is the most important thing I have. I would never do anything to jeopardize it, particularly in something of this nature, where you have the public trust.

"It's just not worth it to me."

A lot of Phoenix real estate investors say Francis Najafi is a bottom feeder.

A very shrewd and rich bottom feeder.
Najafi and his brother, Jahm, have invested in companies that buy land at rock-bottom prices--at foreclosure sales and from the Resolution Trust Corporation, the government clearinghouse for property held by failed savings and loans. The Najafis bought vacant land at the Camelback Esplanade for $6.5 million last year. By the time they and their partners, Opus Southwest, construct office buildings on the land, they figure the project will be worth $100 million. The Najafis have interests in Continental Ranch, a Tucson planned community started by Charles Keating. They are connected to a couple of shopping centers and the IRS building in downtown Phoenix.

These days, everybody knows about the Najafis.
But it took John Stiteler to open the door to the Little Funds. Francis Najafi says he paid his friend Stiteler $137,000 for the favor.

"John made the initial introduction, and he is a good friend of mine. He knew I was in the market for financing," says Najafi.

In 1993, the board gave the Najafi brothers $13.7 million for a joint venture with Transoccidental LLC, a Najafi company. The company purchased discounted UDC Homes notes from the RTC. The notes were secured with first liens on land in a UDC Homes community in the southeast Valley. Cross says board members knew at the time that UDC was in financial hot water, but the southeast Valley land that secured the notes was appraised at $45 million--far more than the $13.6 million the system decided to invest. A Najafi deal. Profitable. Complicated. Shrewd.

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