Wednesday, September 26, 2007

How Bill Clinton's Aide Facilitated a Messy Deal

Mr. Band Introduced Italian to Ron Burkle; Lawsuit Over Spending

The Wall Street Journal reports:

For the past six years, the road to Bill Clinton has often run through Douglas Band, a 34-year-old former White House intern who has helped manage Mr. Clinton's time, accompanied him around the world and even fielded some of his calls.

Two years ago, Mr. Band befriended a handsome and charming Italian businessman named Raffaello Follieri. The young Italian, now 29 years old, had moved to New York in 2003 to launch a business buying and redeveloping Roman Catholic Church properties. He claimed close ties with Vatican officials that would smooth the way for deals, according to business associates and material issued by his company, Follieri Group LLC. He also said he could help Mr. Clinton's wife, Sen. Hillary Rodham Clinton, with Catholic voters during her presidential campaign, people in the Clinton camp recall.

As a gatekeeper to the former president's web of business and charitable enterprises, Mr. Band helped Mr. Follieri get into business with Mr. Clinton, according to people involved with the three men. In 2005, Yucaipa Cos., a Los Angeles investment firm where Mr. Clinton has been a partner and a senior adviser, agreed to invest up to $100 million in Mr. Follieri's church-property venture.

Later, Mr. Band helped Mr. Follieri secure several million dollars more from Michael Cooper, a Toronto real-estate executive and supporter of Mr. Clinton's humanitarian initiatives. Mr. Band received $400,000 from Mr. Follieri for arranging that deal. Mr. Band's connection to Mr. Follieri was reported in Il Sole/24 Ore, an Italian newspaper.

These days, the Clinton camp's relations with Mr. Follieri are in tatters. Yucaipa managing partner Ron Burkle, Mr. Clinton's longtime friend, has sued Mr. Follieri in Delaware state court for allegedly misappropriating at least $1.3 million. The lawsuit claims Mr. Follieri used Yucaipa's investment money to fund a lavish lifestyle that included a Manhattan penthouse, five-star meals and private jets for Mr. Follieri and his girlfriend, actress Anne Hathaway. Mr. Follieri has denied any wrongdoing. Mr. Cooper has demanded his money back.

Since leaving the White House, Mr. Clinton has earned more than $40 million giving speeches, has raised billions of dollars for his own charitable foundation and other causes, and has entered into business relationships with Mr. Burkle and others. Today, heads of state, business leaders and other notables will gather in New York for the annual meeting of the Clinton Global Initiative, an organization that obtains charitable pledges from various sources.

Mrs. Clinton's presidential run is likely to draw scrutiny of her husband's recent activities. Jay Carson, Mr. Clinton's spokesman, said in June that while the former president had met Mr. Follieri a few times, "he obviously meets hundreds of people every day, and does not know him well."

His aide Mr. Band referred questions about the Italian businessman to Mr. Carson. In written responses, Mr. Carson said Mr. Band "became friendly" with Mr. Follieri, who "explained to Doug and others his unique business opportunity" for buying Catholic Church properties. "Doug and others made introductions for Raffaello." He added that Mr. Band didn't keep the $400,000 sent him by Mr. Follieri for arranging Mr. Cooper's investment.

Mr. Follieri declined to discuss his dealings with Mr. Band.

Mr. Band, a Florida native, joined the Clinton administration as an intern in 1995 and rose to become the president's personal aide. In 1998, he was interviewed by investigators for independent counsel Kenneth Starr, who were looking into Mr. Clinton's relationship with Monica Lewinsky. Mr. Band told them he got to know Ms. Lewinsky at the White House and, at her request, had accompanied her to the 1995 White House ball, according to an interview memorandum prepared by investigators.

When Mr. Clinton left office in 2001, Mr. Band stayed with him. Without his young aide, Mr. Clinton said in a 2003 speech, "I could not get through the day." Adds one longtime Clinton associate: "When Doug calls up, it's like having the president call up."

As he embarked on his post-presidency life, Mr. Clinton and his wife had relatively few assets and millions of dollars in legal bills. Over the next half decade, he hopscotched the globe, often with Mr. Band at his side, giving speeches at up to $450,000 a pop. He raised large sums for his library and his foundation and snagged nearly $10 billion in commitments through the Clinton Global Initiative.

To help keep Mr. Band from accepting job offers in the private sector, arrangements were made to supplement his income, people familiar with the matter say. Mr. Burkle's Yucaipa operation, for example, paid Mr. Band through a company called SGRD, these people say. In 2001, Mr. Band and a family member set up two entities in Florida using the SGRD name, public records indicate. Mr. Clinton's spokesman didn't respond to questions about Mr. Band's financial relationships, other than the one with Mr. Follieri.

When Mr. Follieri arrived in Manhattan in 2003, he had big ambitions. Citing the changing demographics of many U.S. Catholic dioceses and the litigation costs of the church's sex-abuse scandals, he told potential investors that the church needed to sell lots of property. Buying such properties and redeveloping them could help both the church and urban communities where many of properties were located -- and would produce tidy profits for investors, according to Follieri Group marketing material and presentations.

A résumé posted on the company's Web site says that while Mr. Follieri was attending the University of Rome in the late 1990s, he founded a cosmetics company called Beauty Planet that attained "tremendous success" and licensed a line of products to "an internationally renowned hairstylist." Beauty Planet financial records on file in Italy indicate that the firm was small and had three straight years of losses, although Mr. Follieri has told people the company was ultimately profitable.

Mr. Follieri's résumé also says he worked as executive vice president of EFFE Holdings, "a London based, privately held investment firm" that "purchases large real estate packages from government holdings in Europe and the Middle East" and "is also active in oil trading as well as gold and diamond mining," with "mining operations in Gambia, Senegal and Angola." British public records show an EFFE Holding Ltd., with Mr. Follieri listed as a director, was formed in 2002 and dissolved two years later. (Mr. Follieri has told people there also is an EFFE entity in Luxembourg involved in those activities.)

Mr. Follieri's father, Pasquale, is president of the Follieri Group. In 2005, he was convicted in an Italian court of misappropriating more than $300,000 from a failed resort company whose assets he had been charged with overseeing. He has denied wrongdoing and has appealed the conviction.

By early 2005, Mr. Follieri was cropping up in New York tabloids as the boyfriend of Ms. Hathaway, a rising Hollywood star whose movie credits include "The Princess Diaries," "The Devil Wears Prada" and "Becoming Jane." The 24-year-old actress sits on the board of the Follieri Foundation, a charitable entity that Mr. Follieri started. Although she was mentioned in Mr. Burkle's lawsuit against Mr. Follieri, she isn't a defendant. In a statement earlier this year, Ms. Hathaway's spokesman said she has "faith the court system will sort this out."

Mr. Follieri was introduced to Mr. Band by a mutual acquaintance in the spring of 2005. The two "met and spoke frequently" and socialized, says Mr. Carson, Mr. Clinton's spokesman, adding that Mr. Band had such regular contact with many people.

One of the introductions Mr. Band provided was to Mr. Burkle, and in mid-2005, Mr. Follieri struck his deal with the investor. A Yucaipa partnership where Mr. Clinton served as a senior adviser formed a joint venture with the Follieri Group. Yucaipa agreed to invest as much as $100 million into the venture to buy church properties for redevelopment as mixed-income housing units, community centers and retirement facilities, among other things.

Mr. Follieri moved his business operation into leased office space on Park Avenue. He employed Filipino nuns as receptionists and installed a small altar in one room, according to people who visited the office. He began renting an "extremely costly" penthouse, complete with a staff that included an executive chef, the Yucaipa lawsuit says. Although it was supposed to be for the joint venture, Mr. Follieri moved his personal effects there and appeared to take up residence, the suit says. A spokesman for Mr. Follieri says the Italian's residence in the $40,000-a-month penthouse "has nothing to do with Yucaipa."

The Follieri Foundation pledged $1 million to vaccinate Honduran children against hepatitis. At last year's annual meeting of the Clinton Global Initiative, Mr. Follieri was individually called on stage for a personal thank you from Mr. Clinton.

Mr. Follieri's connection to the Clinton camp opened horizons outside of the U.S. Being honored by the former president "adds credibility" to a person, says a spokeswoman for Bahrain's Economic Development Board, whose chief executive, Sheik Mohammed bin Essa Al-Khalifa, met Mr. Follieri through the Clinton Global Initiative. Mr. Follieri subsequently visited Bahrain seeking investment dollars, but he didn't leave with a deal. His Clinton ties also helped get him a meeting in São Paulo with former Brazilian president Fernando Henrique Cardoso, part of an effort to find additional investors, people familiar with the meeting say.

Mr. Follieri also approached Mexican tycoon Carlos Slim, by some calculations the world's richest man, who has been a major supporter of Clinton humanitarian efforts. In July 2005, Messrs. Follieri, Burkle and Band visited Mr. Slim on his yacht in the Sea of Cortez for an afternoon of chatting and jet skiing, according to people involved in the trip. There were subsequent communications about a possible joint Latin American real-estate venture, but no deal was closed, these people say.

On occasion, Mr. Follieri socialized with the Clintons. In his recently published autobiography, Terry McAuliffe, a Democratic Party leader who is now chairman of Sen. Clinton's presidential campaign, includes a group photo from a January 2006 party in the Dominican Republic resort of Punta Cana. It shows Mr. and Mrs. McAuliffe, Bill and Hillary Clinton, Mikhail Baryshnikov, Ms. Hathaway and Mr. Follieri. The former president has his arm over the young Italian's shoulder. Tracy Sefl, a spokeswoman for Mr. McAuliffe, says the photo was taken at a dinner party at the home of designer Oscar de la Renta. Messrs. McAuliffe and Follieri shook hands and said hello, their first and only conversation, Ms. Sefl says.

In the spring of 2006, Mr. Cooper, the chief executive of Toronto-based Dundee Realty Corp., who this summer accompanied Mr. Clinton through Africa, agreed to put several million dollars into a joint venture with Mr. Follieri to purchase Catholic Church properties in Canada. Mr. Clinton's spokesman, Mr. Carson, says Mr. Band received a $400,000 "finder's fee" from Mr. Follieri for helping introduce the two men. Mr. Carson says Mr. Follieri "offered" the money. Another person familiar with the payment says Mr. Band requested it.

Mr. Band didn't keep the money, Mr. Carson says. He gave half to another person who helped bring the two businessmen together, and half to Mr. Cooper himself, according to Mr. Carson. Mr. Cooper agrees with that account. Mr. Follieri declined to comment on the payment.

Mr. Cooper recently demanded that Mr. Follieri return the millions of dollars he had put into the venture on the grounds that Mr. Follieri hadn't found any suitable properties to buy, according to two people involved in the transaction. Mr. Cooper declines to go into details about his venture with Mr. Follieri, citing "potential litigation."

Mr. Follieri's spokesman says numerous properties were offered to Mr. Cooper's operation, but it failed to act. Mr. Follieri believes he held up his end of the bargain and doesn't owe any money back, the spokesman says.

Mr. Follieri's joint venture with Yucaipa spent about $50 million for about 10 properties, including two former churches in Philadelphia and vacant church land outside of Chicago. But Mr. Burkle came to believe that Mr. Follieri was misusing Yucaipa funds to finance a lavish lifestyle.

In May, Yucaipa filed a lawsuit accusing Mr. Follieri of "systematically misappropriating" at least $1.3 million to fund personal expenses and activities of the Follieri Foundation. In a written response at the time of the suit, Mr. Follieri denied wrongdoing and countered that Mr. Burkle blocked efforts to develop the purchased properties. The two sides are now engaged in settlement talks.

Mr. Follieri's discussions with Mr. Band extended beyond real estate. Two people with ties to the Clintons say Mr. Follieri's offer to help Sen. Clinton win over Catholic voters in the presidential race might have helped the young Italian win support from Mr. Band and others for his real-estate business.

"Follieri spoke to Doug about how he could use his Catholic Church relationships/authorization to help Hillary in her presidential bid," said Mr. Clinton's spokesman, Mr. Carson, in an email. "Similar to Doug's reactions to many of Follieri's other ideas, Doug was polite, may have appeared responsive, but did not pursue it." Mr. Follieri's offer, he added, "had no impact or relation to Doug introducing Raffaello to others."

One person in the Follieri camp says the request for campaign help came from the Clinton side. The Burkle lawsuit closed off those discussions, this person says.

Mr. Follieri's Vatican connections remain something of a puzzle. Andrea Sodano, a consultant to the Follieri Group, is the nephew of Cardinal Angelo Sodano, the Vatican's secretary of state until last year. Cardinal Sodano, Archbishop Celestino Migliore, the Vatican's United Nations representative, and three other "reputable" people contacted Mr. Band to vouch for Mr. Follieri, Mr. Carson says. Cardinal Sodano's personal secretary says the cardinal declines to comment. A spokesman for Archbishop Migliore denies that the U.N. representative ever vouched for Mr. Follieri to the Clinton camp.

Mr. Follieri is now searching for new investors.