Golf courses. Clubhouses. Swimming pools. "Active adults" enjoying the good life in their golden years.

This is the vision the developers have for 2,200-acre PebbleCreek Golf Resort, a new planned retirement community in Goodyear. The developers, SunCor Development Company and various companies operated by the Robson family, are proud of this palm-studded golf mecca for oldsters, just as they are of other Robson communities in the state.

But the lenders that made PebbleCreek a reality do not want the public to know how it was financed.

That's because PebbleCreek Golf Resort is funded by a $10 million loan from the retirement trust funds of Arizona's firefighters, police officers, judges, elected officials and prison guards.

"The Retirement System requests that there be a complete blackout on any form of publicity concerning their involvement in the PebbleCreek transaction. They should not be mentioned in any press release, and any inquiries regarding financing should be deflected," PebbleCreek executive Karl Polen wrote in 1992, after the loan was approved. Polen will not comment on the letter, which was addressed to another developer associated with the project.

"I don't think I used the words 'news blackout,'" says Jack Cross, the administrator for the three public retirement funds. But Cross admits he asked PebbleCreek developers to keep the $10 million loan quiet, because he doesn't have time to field phone calls from potential borrowers. It has nothing to do with keeping the information from retirees who are the beneficiaries of the fund, he says. "Do we want a big sign out saying we funded this project and helped the economy? No. If we put signs out, we'd get eight million phone calls. Everybody and their brother would call asking for a good deal," Cross says.

Even the retirees would have difficulty discovering the loan in the three funds' annual reports. All real estate loans made by the funds are listed in "bond portfolio" sections--right along with references to investments in national concerns like Pacific Telephone and Telegraph, Revlon and the Tennessee Valley Authority. "We're not trying to hide anything," says Cross, who answers to a five-member board appointed by the governor and the Legislature to oversee the three trusts--the Public Safety Personnel Trust Fund, the Elected Officials' Retirement Plan and the Corrections Officer Retirement Plan. Together, the funds total about $2.3 billion.

All real estate deals are listed on meeting agendas for the board, Cross says, and those agendas are posted at the State Capitol. Anyone who reads the minutes of those meetings can know what loans have been made, he says.

But unlike the massive Arizona State Retirement System--the $13 billion "Big Fund" that handles the retirement money of most state and county employees--the three "Little Funds" operate in relative obscurity.

The Big Fund is often scrutinized by activist retirees and news reporters. The "little" funds have escaped such attention. And that's the way Cross and the board like it.

They were quiet in the early 1990s, when the board decided the funds should begin investing in real estate ventures, real estate loans and venture capital partnerships. And they've been quietly lending a lot of money ever since.

So far, the funds have funneled about $59 million into "non-stock and bond" enterprises. And more deals are in the making. The board will allow up to 5 percent of its assets, or $115 million, to be invested in real estate and venture capital. The three funds have lent money for convenience markets in Nevada and apartment buildings in the East Valley. They have provided loans to developers of medical suites, office buildings, shopping centers, even a planned community with artificial lakes in Avondale. The gatekeepers to this pool of retirement dollars say they are very careful about who gets access to the money. Mortgage brokers, borrowers and investors have to be very qualified, they say.

Also, it seems, the borrowers must be very connected.
Real estate documents and other public records obtained by New Times reveal that in all but one of these "non-stock and bond" investments, friends or professional associates of state insiders benefited financially in some way:

* A close business associate of one board member reeled in a $1.8 million loan from the funds to purchase a building. The associate sold the building three months later for a six-figure profit.

* Developer John Stiteler, a business partner and employer of State Treasurer Tony West, has made money off retirement-fund deals twice. In one case, West and Stiteler persuaded the funds to purchase notes held by Emerald Homes, a company that at the time was embroiled in the Keating savings and loan scandal. Stiteler also got a six-figure fee for introducing another developer friend to the board. The funds lent the developer $13.7 million for a venture that was profitable--until it got tied up in the bankruptcy of UDC Homes.

* The funds' real estate deals funneled $688,000 to school chums and friends of state insiders. The money was paid as brokerage commissions and lawyers fees. * And two large loans for planned communities--PebbleCreek and Crystal Gardens in Avondale--target the far west side, where West, Stiteler and board member Michael Geddes own undeveloped land. West and Geddes say they did not influence the board to fund these developments. But if the developments succeed, they could increase the value of the land owned by the three men. "I see no pattern here," Geddes says, noting that the funds' largest loan went to a project in the southeast Valley. "Frankly, the comments you are making are so far-fetched I find it very troublesome."

"I think," says board member William Moroney, a Maricopa County Superior Court judge, "that it would be inappropriate to turn down something just because there is a disclosed relationship between friends on one side or another. . . . I don't see anything wrong in dealing with friends, as long as you don't shut the door on someone who's not." State Treasurer Tony West has a lot of friends. He made friends during his eight years as a state legislator and more friends during his four years in the state Senate, where, incidentally, he chaired the committee that oversees the state retirement funds.

Among the men Tony West says he counts as friends is real estate investor Michael Geddes, who sits on the board overseeing the Little Funds. Another friend is board member William Moroney, the Superior Court judge. Still another is developer Francis Najafi. And yet another is developer John Stiteler.

West has business connections with some of these friends.
In 1983, West bought into a limited partnership for land in west Phoenix offered by Geddes, who was the venture's general partner. That partnership still exists today.

West has also purchased pieces of three of Stiteler's "Exeter" real estate limited partnerships. In fact, the state treasurer works for Stiteler as a salesman. (He took the job after the state attorney general ruled West could sell for Stiteler and legally remain in office.)

And when it comes to the state pension systems, friendship and business seem to get all mixed up an awful lot of the time.

In 1988, when West was still a state senator, he tried to persuade the Big Fund to purchase a Stiteler real estate "opportunity" involving raw land on the east side. The land would soon be sold to the Department of Transportation because it was in the path of the freeway.

The large pension system didn't buy into the deal.
In 1990, though, West went to the Little Funds. There, he introduced his friends on the board to his friend Stiteler. West and Stiteler persuaded the fund to buy $600,000 worth of UDC Homes notes from Emerald Homes. Stiteler's company, Exeter Financial Corporation, earned a $5,847 commission for brokering the sale. West won't say how much he got.

It was a deal with unusual undertones.
Shortly after Emerald Homes sold the notes to the funds, the company was accused by the federal government of engaging in sham real estate transactions with Charles Keating's Lincoln Savings and Loan. Emerald eventually admitted that it violated federal campaign laws when company directors reimbursed employees for contributing money to Senator Dennis DeConcini, a member of the Keating Five, a group of U.S. senators whom Keating pressured to get federal regulators off his back. Emerald Homes later settled with the feds for $10 million.

Later, Stiteler introduced another of his and West's friends, developer Francis Najafi, to the board. Najafi says his company paid Stiteler $137,000 for the introduction. Najafi and associated interests subsequently obtained millions of dollars in financing from the funds to purchase UDC Homes notes that are now tied up in bankruptcy court.

West will not say how much money he got from Stiteler for his part in the deals. Stiteler is on vacation and unavailable for comment.

Questions about Stiteler, West and pension-system activity are not limited to the Little Funds.

In 1993, Governor Fife Symington appointed Stiteler to the investment board of the Big Fund, the Arizona State Retirement System. Stiteler resigned after other board members complained Stiteler wanted the fund to invest in risky real estate ventures. The resignation also followed news reports that linked Stiteler to six real-estate-related bankruptcies, six-figure tax liens and a still-pending federal lawsuit charging him with failure of fiduciary responsibility as a director of a failed Phoenix bank. While on the board, Stiteler borrowed but did not repay more than $500,000 from the bank, the government says. He seeks dismissal of the suit on a statute of limitations technicality.

During the Stiteler/Big Fund publicity, the director of the Big Fund accused West of trying to gain control of the retirement systems.

It is an allegation he denied then and still denies today. West says he saw no conflict in presenting Stiteler's deals to the Little Funds even though he counted board members as friends and was a limited partner in a Geddes real estate venture. "This is scandalous--that's tongue in cheek," says Tony West about his friendship and business relationships with Geddes and Stiteler.

"If John Dillinger comes through the door, you don't do business with him. You do business with people you know and respect," says West.

"This fund should get a gold medal for being run so well," he adds.
Geddes says he felt no conflict of interest in voting to approve the Stiteler deals because he had never done business with Stiteler.

As for his business relationship with West--Geddes terms it "remote." He says West owns less than 5 percent of a limited partnership that purchased 33 acres of land in Avondale, near the intersection of 99th Avenue and McDowell Road. The partnership, formed in 1983, still exists.

Geddes disclosed this land ownership when the retirement system lent $6 million to the developers of Crystal Gardens, an as-yet-unbuilt planned community just a few miles down the road from the land owned by the partnership.

Today, both Geddes and Stiteler serve on West's Treasury Advisory Board. Stiteler is chairman of that board, which provides the treasurer with policy advice on the $400 million to $600 million in state money that he is responsible for investing.

Jack Cross has been administrator of the three Little Funds since 1986. That was the year the funds decided to buy an office building.

From Fife Symington.
Cross says he just happened on then-developer Symington's office complex on Missouri Avenue, known as Ten Mo. He says no one told him about the complex--the discovery was purely coincidence.

The Little Funds paid $634,923 for one of the three office buildings in the complex.

As governor, Symington has been delighted with the Little Funds.
In 1994, Symington sent aide Kit Mehrtens to a Little Funds board meeting, where, the board's minutes say, the aide expressed his "willingness to help the Fund Manager with anything within his power with the exception of money."

Symington likes state agencies that run like businesses.
And for nearly ten years, Cross has run the Little Funds like a private enterprise. That's one of the attractions of his job, he says.

"We are not a state agency," he says. "We are a retirement fund. Our customers are the retirees and employers who pay into the account."

Today, 25,000 workers pay nearly 8 percent of their salaries into the system, and their employers kick in a like amount. About 5,500 retirees receive retirement benefits from the funds.

The funds have grown by 200 percent in the past decade. Cross likes to point out that total administrative costs are about $1 million, far less than 1 percent of the funds' assets. The retirement systems are also fully funded, which means there is enough money for current and future retirees.

The funds grew largely because they made conservative investments--stocks and bonds recommended by a professional adviser. Despite this proven success, the board decided to put up to 5 percent of its investments in real estate ventures in the 1990s. The decision was based in part on the contention that Geddes, a real estate investor, had the expertise necessary to help choose property investments, says Cross.

"I do not want people to think this is some sort of evil conspiracy over here and that we're trying to exclude anybody [from the real estate business]," Cross says.

He points out that the real estate deals are backed by first liens on land that is appraised for more than the loan amount. Which means that if the loans go sour, the retirement funds get the land. And the terms are good--for the retirement system. But he does admit that friends--"people we can trust"--get a lot of business from the funds.

For instance, the broker who brings most of the real estate loans through the funds' door is Bruce Francis, a friend who played basketball with Cross at Coronado High School. Francis is a broker with Kennelly Mortgage and Investment, a Scottsdale firm. Neither Francis nor Cross recalls who first called whom about doing a deal. But Francis and his firm brought one of the very first non-stock-or-bond deals to the board in 1990.

And it proved to be disastrous.
And far-fetched.
Think corn, alfatoxin and the Mexican government.

The deal required a five-year, $195,000 "Venture Capital Investment" in Alfatec, an Arizona company claiming to have machines that could remove the fungus alfatoxin from corn. Alfatoxin is a natural fungus. When animals eat food laced with alfatoxin, it is released into animal by-products--like milk and meat. If alfatoxin levels are high enough, the animal products are not fit for human consumption.

Walker Cottonseed, a Casa Grande company affiliated with Alfatec, was to get another $355,000. The return for both loans was to be five or six times the original investment, the brokers predicted.

The reason: The cotton companies were just on the verge of signing lucrative contracts to clean corn for the Mexican government, Francis and Cross said.

Walker and Alfatec had been checked out by Kennelly, which considered them a good risk.

Board members Geddes and Moroney expressed concern about the deal. It just didn't smell right. At the time, state retirement systems were being pressured by the Legislature and state Representative Mark Killian to invest in risky venture capital. The chairman of the Little Fund board, a business professor named John Cochran, said he was feeling that pressure.

So the board voted that very day to approve the deal.
But the Mexican corn contract never came through. And there was significant confusion over the financial statements submitted by the Walker family and its companies.

By 1992, Alfatec was broke. The Walkers filed for protection under Chapter 11 of the Bankruptcy Code. The retirement funds wrote off the $195,000 Alfatec loan, and the Walkers are slowly paying off the $355,000--without interest. They still owe the funds $259,542.

The deal did not sour the board on Kennelly or Francis. They've brokered $25.5 million worth of loans to the retirement system. Francis says the borrowers paid his firm a maximum of 2 percent for obtaining the loans. Among the Kennelly deals is the $10 million PebbleCreek loan.

The 1991 loan went to PebbleCreek developer and Valley power broker Ed Robson and his family, along with their developing partner SunCor, which is affiliated with Pinnacle West, the parent company of Arizona Public Service Company.

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.

But risky.
Records show the notes paid off handsomely--returning about 25 percent plus principal.

Until UDC filed for Chapter 11 protection this May.
Now, with $6 million still owed to the Little Funds, UDC has stopped paying, Najafi says. And the $45 million in land is bogged down in a bankruptcy plan that's currently under challenge in a Delaware bankruptcy court.

Not to worry, says Najafi. "In the worst-case scenario," he says, "we'll get the land."

Phoenix attorney Mike Tiffany and Pat Cantelme, head of the Phoenix Firefighters' Union, went to St. Mary's High School together. That was a long time ago, but the two guys have kept in touch. They are not close friends, says Cantelme, but they're friends, nevertheless. Tiffany is a guy he trusts.

So a few years back, when Tiffany learned Cantelme was on the board of the Little Funds, he called him up, pitched an idea for a good real estate deal with a Canadian investor.

"I don't care if it's my brother if it's a good investment," says Cantelme.

Cantelme introduced Tiffany to Cross and the board, which approved the Canadian deal. Ultimately, that deal never materialized, but Tiffany had developed an inside track to the board.

Cantelme left the board in 1994. Shortly after he stepped down, Tiffany and a mortgage broker worked out a deal with the Little Funds. The broker, RRH Financial, agreed to participate in loans to third parties with the retirement funds. All the loans are secured with land. The retirement funds kicked in a total of $17 million for seven projects.

Tiffany's law firm received $65,000 in legal fees--from the broker.
And if Tiffany used his high school chum to get in the door, well, what of it?

"We had a relationship of trust," says Tiffany. "Business people will always use their connections because it gives them credibility. . . . It's one thing to use a connection and another to abuse it.

"I don't know how you could get to the retirement system without knowing someone," he says.

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