By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
By New Times
The district promptly hired Interwest to put the deal together and manage the project. All the players who would get the district up and running--bond underwriters, engineers, construction managers who would oversee bids and deal with the subcontractors, and attorneys--were selected by Carr. Everyone Carr invited in on the deal agreed to work on a contingency basis--they would get paid only if the bond sale went through.
Next, Interwest began a campaign to get property owners within the district, which covered roughly a third of Apache Junction, to agree to hook up to the sewer system. This was crucial, because unless enough people pledged to hook up, the deal couldn't advance.
Another of Carr's hand-picked companies, Mesirow Financial of Chicago, was charged with finding the money to make the deal fly. In its limited offering memos--paperwork shown to potential investors in which the risks of a municipal bond issue are outlined--Mesirow signed off on the project. In fact, everyone enlisted by Carr--well-known firms with seemingly impeccable credentials--signed off.
In December 1994, Mesirow sold Allstate Insurance Company the sewer district's first bond issue of $21.9 million. The next year, the insurance giant snapped up a second offering for $10.2 million.
With the infusion of cash from the bond sales, construction proceeded at a breakneck pace. Apache Junction streets soon resembled war zones as contractors dug trenches to install the sewer lines. Overseeing the trench work for Interwest was Cecil Ross, whose resume listed extensive background in construction.
But there was more than construction in Ross' background. During the war in the Persian Gulf, he was jailed for his role in a foiled plot to bomb chemical-storage tanks near a U.S. naval base. Ross served three years of a five-year sentence for his role in the 1991 bombing plot in Norfolk, Virginia, to which he pleaded no contest. The plot was actually a scam to collect insurance money using the guise of terrorism. At the time he was hired by Carr, Ross had been out on parole for less than three months.
Carr later admitted to reporters that he hadn't delved deeply into Ross' history. Ross said he hadn't told Carr about his conviction because Carr had never asked.
The Ross revelations made Apache Junction city officials nervous. Already, the project was plagued by cost overruns and allegations of fraud and forgery.
In April 1996, Apache Junction police seized records from four offices, including Interwest's, after a man complained that his mother's signature had been forged on a form certifying that her empty septic tank had been filled in. Police found at least 20 other suspected forgeries on the certification forms, which were required by the state and the city. The forgery investigation continues, a police spokesman says.
One of the contractors hired by Interwest to fill in the old septic pits, and to dig trenches for new sewer lines, was Lee's Backhoe of Chandler.
According to sewer district officials, Lee's was awarded a $3.5 million contract to do some of the work. But the district wound up paying Lee's Backhoe about $6.5 million.
In a lawsuit it has filed against Interwest and other firms involved in the Apache Junction project, Allstate alleges negligent misrepresentation, consumer fraud and both state and federal securities fraud.
The suit also claims that Ross, the Interwest project manager, received a $20,000 pickup truck from John Lee, the owner of Lee's Backhoe.
Claudio Ianitelli, an attorney representing Lee's Backhoe, calls the pickup-truck allegation "chicken shit."
As for the $3 million in additional work, Ianitelli says Lee's was merely performing work it was under contract to do He says Lee's is still owed $1 million by the district, and that all payments to Lee's were approved by Interwest, the district board and the district's attorney, Jeffrey Zimmerman.
Zimmerman stepped down as the district's attorney after disclosing he had entered into a business venture with Lee's Backhoe, officials say. Also going to work with Lee's Backhoe were Ross, the project manager, and Kay Deakman, the Interwest employee responsible for collecting signatures from property owners certifying their septic tanks had been filled in.
Zimmerman did not return a call seeking comment. Neither Ross nor Deakman could be reached for comment.
Deakman also was responsible for gathering signatures certifying that property owners would hook up to the new system. Allstate's lawsuit claims that at least one third of the 3,100 people who signed the forms did not own property within the district's boundaries.
The Allstate lawsuit also alleges that Interwest factored into its user projections housing developments that had not been built and might never be built.
And, finally, the lawsuit alleges that the plant cannot process the amount of sewage that Interwest claimed it would in the business plan it presented to Allstate.
When Charles Lotzar was hired as the district's new attorney, he disclosed that the district's books had never been audited, and he recommended that the board delay paying the $1 million claim from Lee's Backhoe.
Lotzar also convinced the board to sue Interwest and Mesirow. The district's suit makes the same allegations as Allstate's.
It still is not known how many of those old septic tanks were actually pumped and filled, or where all of the money from the bond sale actually went.