Clinton Firm's Deal Left Pennsylvania Churches in Shambles

By Sam Stein, Huffington Post. Posted April 12, 2008.

There is an old axiom of government: all politics is local.

And while the saying is clich, it can certainly prove true. How else does one explain the connection between former President Clinton, a hot shot Italian real estate speculator, and several Pennsylvania church-buying ventures that went terribly wrong?

It began in 2005, when an aide to Clinton helped a young Italian businessman named Raffaello Follieri connected with the business of the former president and his pal Ron Burkle. Follieri had an idea: to buy and redevelop old Catholic churches that were struggling in the wake of sex-abuse scandals. And Yucaipa Companies, which Burkle ran and on which Clinton served as a senior adviser to two funds, came on board.

But the scheme, while in some cases profitable, was also a house of cards. Using the Yucaipa money, Follieri purchased a Philadelphia church that he subsequently let rot. In a separate purchase in Pittsburgh, he instructed the church to be gutted of all its religious objects, then failed to come up with the money needed to finalize the deal.

Follieri's standing was soon on the rocks. In April 2007, Burkle sued the Italian in a Delaware state court for allegedly misappropriating more than $1.3 million. Follieri, he claimed, was spending the money on a lavish lifestyle, including gifts for his movie-star girlfriend Anne Hathaway (of Devil Wears Prada fame). The suit has since been settled. Last week, however, Follieri was arrested and charged with trying to pass a bad $250,000 check.

By that time, any connection between Clinton and Follieri, however tangential, had been severed. The former president began the process of leaving Yucaipa in December 2007 -- in part, The Huffington Post was told, out of anger over the Follieri mess.

But the episode illustrated some of the unique perils of Clinton's post-presidential career. Indeed, at various points in this primary season, Bill Clinton's activities have put him at contrast with his wife's presidential campaign. Take, for instance, revelations this past week that he had been paid $800,000 for speeches by an organization promoting the Colombia Free Trade Agreement -- a pact Sen. Clinton continues to oppose.

The Follieri story is similarly dicey. As Sen. Clinton campaigns across Pennsylvania, two communities in the state's largest cities have been affected by the spoiled real estate venture overseen by her husband's business. And while Bill Clinton, as his aides point out, was never directly associated with the project -- "President Clinton was not involved with the purchase of Vatican properties," said his spokesperson Jay Carson -- the former president did make out quite well during his time with Yucaipa.

According to recent tax filings, the former president earned $15.4 million from the private investment firm between 2003 and 2006. * * *

In the fall of 2005, Follieri was introduced to Yucaipa through Bill Clinton's aide and gatekeeper Doug Band. The Italian claimed he had close ties to the Vatican that he would use to buy run down churches in need of new ownership. The Wall Street Journal reported that in exchange for Clinton and Burkle's help, Follieri offered to assist Sen. Hillary Clinton with the Catholic vote. The senator was not officially running for president at the time.

Soon after their meeting, Yucaipa invested $100 million in the Follieri Group. With those funds, Follieiri quickly purchased two church properties in Philadelphia. Both structures had long been dormant. And he promised sweeping changes, including environmental restoration and structural repairs.

Virtually none of it panned out.

At the Transfiguration Church, which cost the group more than $1 million, Follieri sought to create a "cultural center" in a working class neighborhood. But within a mater of months, things went south. The group did not provide basic upkeep and security. The site became an eyesore. Burglars broke into the church and its adjoining school. A local paper found the once-stately Roman Catholic parish had become a hangout for boozing teenagers, and eventually a homeless man started camping out under the rectory porch. In April 2006, a three-alarm fire was set to the school, forcing more than 100 firefighters to work three hours to put it out. The damage was immense and neighbors grew worried and angered at Follieri's absenteeism.

Frank Quintero, a spokesman for Yucaipa, said the company "made a good profit on the properties, by putting them in hands of responsible developers." As for Transfiguration, security there was no worse than that under prior owners, he said.

"That same homeless guy was probably milling around that church before we owned it and after we owned it," said Quintero. "It's not like we are miracle workers even though Follieri claimed to be in connection with the Vatican. These things take time."

But it was only after a scathing column in the Philadelphia Daily News that Follieri's representatives agreed to meet with the Transfiguration community. They promised more attention and offered a new proposal, to make the site affordable housing. That idea, however, was met with community opposition and like the cultural center it never materialized. Follieiri eventually bowed out. According to city records, Transfiguration was sold in May 2007 for the price of $1.25 million. Currently, it houses the Boys Latin Charter School.

"They were absentee landlords who didn't keep track of what was happening or care," Chris Brennan, the reporter who broke the story of Follieri's mishandling of the church, told The Huffington Post. "When they received some bad publicity from the Daily News, they got moving."

Another Follieri Pennsylvania venture was equally disastrous. In the fall of 2006, the Follieri Group offered a bid on St. Nicholas Church in Pittsburgh, a 108-year-old building and historic city landmark. The church was a staple of the Croatian community, and in 2005, the newly formed Croatian American Cultural and Economic Alliance tried unsuccessfully to buy the building for $250,000. Their bid, observers say, fell through after Follieri promised more money.

As part of his plan for the property, Follieri had the church undergo massive internal changes. In the spring of 2007, all religious objects including the altar and statues were removed, and the murals were painted over. The community reacted with uproar.

"It is a very touchy subject. It was something that not just Croatians but many people in Pittsburgh had invested in," said Patricia Lowry, a reporter for the Pittsburgh Post Gazette who wrote about St. Nicholas's deconstruction. "People thought that the church should have found a way to sell the building to the Croatians because it was a big part of their heritage."

It was only after the church was gutted that the Follieri Group's financial problems were exposed. In May 2007, Burkle sued and it was revealed just how little cash Follieri had on hand. St. Nicholas held out hope that the deal would still go through. But by March 2008, it became clear that the money simply wasn't there.

Quintero, again, said that Yucaipa had worked to make all of its investments profitable, and that the conditions of the buildings often posed obstacles to their reconstruction.

"Some of the newspaper stuff is inaccurate," he said. "The other thing to keep in mind is that when we bought these properties, they were all dilapidated."

But local officials, at least in Pittsburgh, were nevertheless distraught over the way the transaction was handled. Years after it first bid on the church (the value of the property stayed, according to city records, at $70,200), the Croatian community is once again trying to buy ownership.

"You make all this publicity that Foliieri is buying it and then they don't," said Susan Petrick, secretary of Preserve Croatian Heritage Foundation in Pittsburgh. "They took out the pews that were non-religious. They took out the altars which were marble, they took out the statues and the confessionals…one would hope they would put them all back in, but I don't know about there intention." * * *

By the time that the St. Nicholas deal fell through, Bill Clinton had already begun the process of divesting himself from Yucaipa. Depending on how certain funds perform, he stands in line to make millions of dollars in addition to the $15.4 million he has already earned.

"Regarding the status of President Clinton's relationship with Yucaipa," explained spokesman Jay Carson, "with the Presidential campaign in full swing the President is taking steps to ensure that there is an appropriate transition for his business relationships should Senator Clinton become the Democratic nominee."

The former president was not associated with the business aspects of the Folierri investment. His involvement, to the extent that there was any, was limited to his position as a senior adviser to Yucaipa. And while he and Follieri met on several occasions -- Follieri was individually called on stage and thanked by Clinton after pledging money for a Clinton Global Initiative project in New Orleans -- the former president does meet "hundreds of people every day," as Carson told The Huffington Post. "President Clinton, who meets with many people every day, has met Follieri several times."

Nevertheless, the Follieri episode had its affects on Clinton. A source with knowledge of why he left Yucaipa said the former president was embarrassed when news of the church-buying venture broke the same morning that world and business leaders were convening to discuss Clinton's global foundation.

He was also concerned that this episode and his broader association with Yucaipa had the potential of creating bad publicity for his wife's presidential bid. And as the Pennsylvania primary approaches, it remains to be seen if those concerns were merited.

Requests for comment from Follieri and officials with the Follieri Group went unanswered. Despite having been sued and severed from Burkle's firm, the contact information on the company's website turned out to be the phone number for Yucaipa Companies.

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Sam Stein is a Political Reporter at the Huffington Post, based in Washington, D.C. Previously he has worked for Newsweek magazine, the New York Daily News and the investigative journalism group Center for Public Integrity.

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