The New York Daily News by NANCY L. KATZ - July 20, 2008
A top Bronx judge let political cronies reap lucrative fees from dozens of improperly invested inheritances - leaving taxpayers on the hook for $20 million. The mishandling of the money - overseen by Surrogate Judge Lee Holzman and managed by two aides - let politically wired lawyers and accountants rake in $2.1 million in fees, while heirs of the 37 victimized estates couldn't get their money. "They take their fees and the families be damned," said Robert Southern, who has threatened to sue to get his inheritance from his late aunt, Florence Einstein. "Are they waiting for us all to die?" asked Sharon Gentry, whose 97-year-old mother-in-law is still waiting for her inheritance from cousin Alice Babineau, who was killed in a 1995 car accident.
A Daily News investigation found the risky investments were first made in 2005 by ex-Bronx public administrator Esther Rodriguez, who resigned under a cloud in 2006, and continued by her successor, John Raniolo. Public administrators manage the assets of residents who die without wills until the court approves a settlement. They are supposed to invest estate money in conservative financial instruments such as treasury bills. Judge Holzman appointed Rodriguez and Raniolo to the job and was responsible for monitoring all of the estates. He signed off on all fees and was supposed to make sure the cases moved swiftly through the courts. The problem surfaced in April, when city Controller William Thompson discovered the Bronx public administrator had put millions into auction-rate securities, risky investments that were no longer selling.
Thompson determined the city would have to pay the heirs and wait until it could the sell the now-worthless securities. So far the city has had to pay out $900,000 and hopes to be paid back for everything when the securities become liquid again. "I am extremely troubled by the fact that New York City taxpayers are going to have to foot the bill for these ill-considered and financially irresponsible decisions," Thompson said. Auction-rate securities promise slightly higher returns than T-bills and money markets but rely on bidders at regular auctions.
In February, the auction-rate market froze when banks, chastened by the collapse of the home mortgage market, stopped bidding on them. As a result, the heirs could no longer access their money. This compounded existing frustrations for families who'd been trying for years to close the estates and get inheritances from loved ones who'd died as far back as 1990. Some heirs have died waiting for what's rightfully theirs. More infuriating for family members is that while they couldn't get their money, lawyers, accountants and the brokerage that managed the investments could. Topping the insiders list was Michael Lippman, counsel to public administrator Raniolo, who has collected $1.9 million in fees from the 37 estates. He still considers the investments legal. Questions have arisen about Lippman's fees. Though he's required to submit written explanations before receiving fees, Lippman admits he often submitted required affidavits long after he'd collected the money. The judge never required Lippman to submit written explanations about why the cases were repeatedly delayed. After auditors warned the public administrator to stop this practice in 2006, Lippman began submitting timely explanations.
In at least one recent case, Attorney General Andrew Cuomo objected to Lippman's fees as "excessive and unreasonable." Lippman insists he has done nothing wrong, blaming delays on problems locating heirs, difficulties proving kinship and accounting issues. Raniolo's office also has requested tens of thousands of dollars in fees from some estates, records show. A percentage of that money is returned to the city; the rest pays for administrative costs in his office. Raniolo said auditors twice went over his books and "no one indicated to me at any time the investments were improper." The court's disciplinary committee is investigating Raniolo's role in the bad investments. Raniolo plans to resign this week for another job in the courts. He says it's unrelated to the auction-rate investments. Late Friday Raniolo said his office expects this week to be able to redeem a fraction of the $20 million in frozen funds (about $800,000). Judge Holzman is ultimately responsible for the actions of Lippman, Rodriguez and Raniolo. He appointed them and signed off on fees. Lippman helped challenge petitions of Holzman's political rivals in 1987, and aided Holzman's campaign again in 2002. His wife also donated $1,000 to the judge's campaign.
"Did I help the judge [get elected]? Sure I did. Does that mean I got rewarded for it? No," he said. "I worked for everything I had." Holzman insisted he "had no knowledge [about the auction-rate investments] until there was a problem." "No matter what the motive is, if someone doesn't get what they had every right to expect when they expect it, of course it's upsetting," he said. Other entities with ties to the judge have benefitted. Besides Lippman, seven other lawyers demanded $286,050 in fees from the estates, including Harry Amer, who also aided Holzman's 1987 election bid, and the son of disgraced ex-Bronx Democratic boss Stanley Friedman. Accounting firm Hoberman and Miller, which once gave Holzman's lawyer daughter free office space, collected at least $131,227 in fees, records show. The judge said his predecessor brought in Hoberman and that he "knew nothing about it when they made the arrangement [with his daughter] and in no way talked to anyone about it." A brokerage, J.B. Hanauer & Co., collected a modest fee on the investments - about $30,000 a year, said Eric Siber, head of marketing for the firm. "It's an accommodation to a client looking for a greater yield," he said. "No broker made any money on these auction rates." email@example.com