It was the biggest day of testimony yet before the Senate Special Committee investigating Social Security. The man obliquely referred to as 'Saint James,' Glenn Godfrey appeared to testify before the committee. In question was the dispute over $17.5 million in loans to Godfrey Companies that Social Security guaranteed. When Godfrey's companies defaulted, Social Security had to pay and is still owed $1.8 million in payments it made. Well today, Godfrey made it clear that it is not his fault, blame it on Social Security. Here's en extended report on what was revealed in his over two and a half hours of testimony before the committee today.
Jules Vasquez Reporting,
While he was pacing in the corridor, Glenn Godfrey strode into the assembly chamber completely at ease and opened with a lawyerly disclaimer that he reserved his rights:
Glenn Godfrey, Former DFC Chairman
"My appearance here is not a waiver of whatever right I might have to challenge the validity of these proceedings. I have my own view, I've taken legal advice, it is not hostile, I want to assure you I want to work with this committee, but there might come a point where I might have to come and challenge the validity of the committee."
And he didn't duck any questions though he did dance around the meanings of many standard terms. But what no amount of dancing could get around was what happened to the $17.5 million that his companies received with a Social Security guarantee - for projects and properties that were never developed. Chairman Hulse enumerated the projects on which the $17.5 million should have been spent.
Senator Godwin Hulse, Chairman Select Committee
"The property was one three-storey prefabricated building with galvanized zinc roofing used as an apartment complex and situated at Cahal Pech area, San Ignacio Town. And it goes on to list the various coverages. With respect to the Western Caribbean it says one three-storey prefabricated building with galvanized zinc roofing used as a hotel complex situated at San Pablo, Ambergris Caye, Belize District Belize."
Godfrey explained that the money was diverted away from the original projects because developing the projects just got too hard.
Glenn Godfrey,
"So then it was decided here we have this money, it is sitting around, it is costing us a lot of money, let us see if we cannot use it in Intelco which needed funds. Why don't we use the money directly for Intelco, so the purpose of the loan could change? At that time Intelco looked like a very very exciting prospect. The business plan we had was incredible, in fact it was so good that on the basis of the business plan alone I subsequently raised another US$35 million for Intelco. Why? Because everybody could see that if this thing got off the ground it would put a serious hurting on the monopoly and would make a lot of money."
But Intelco ended up losing a lot of money? and Godfrey says that's the government's fault - the same government that gave him a 15 year exclusive contract and the guarantee for tens of millions U.S. dollars in private debt.
Glenn Godfrey,
"They were good loans, the only thing that made them bad loans is government's failure to deliver interconnection; that turned them into bad loans."
Senator Richard "Dickie" Bradley, Senate Select Committee
"Only reason that turned them into bad loans is government's failure to do what?"
Glenn Godfrey,
"To deliver interconnection. With interconnection Intelco would have been successful, we would not have been having this conversation; everybody would have been so happy."
Senator Richard "Dickie" Bradley,
"What was government to do?"
Glenn Godfrey,
"Give Intelco interconnection."
Senator Richard "Dickie" Bradley,
"Who they said that to?"
Glenn Godfrey,
"They certainly said that to me."
Senator Richard "Dickie" Bradley,
"In writing?"
Glenn Godfrey,
"I don't believe (it was) in writing Senator."
But what was in writing was the project proposal contained in a 2,000 page prospectus that was sold on the North American market as the two properties that would be developed. The money was never used for those properties and they were never developed - in Godfrey's view that should not have mattered to investors.
Glenn Godfrey,
"I think what the people who are buying that look at is not really the project, they look at whose going to pay at the end of the day, and the only reason that flew is because it had the sovereign guarantee behind it. The projects are neither here nor there, they're not material, if you put a panades shop there, and you put a sovereign guarantee behind it, it'll sell."
But they didn't put up a panades shop - they put properties which were materially misrepresented in the documents - but Godfrey says Social Security is to blame because that institution never followed up, there was no due diligence and the onus ultimately was on them.
Glenn Godfrey,
"The mistake was that a year to a year and a half after that they did not go back to check, they did not do...it seems clear to me there was no due diligence done."
Senator Richard "Dickie" Bradley,
"Were they required to do that?"
Glenn Godfrey,
"I would think they should have done some due diligence. If they had not done their due diligence to find out that at that point nothing had been built on the land, that is unfortunate and I find that difficult to believe. I cannot believe that Social Security did not know of the change."
Senator Richard "Dickie" Bradley,
"Did not know what?"
Glenn Godfrey,
"Of the change, the purpose, because all it would have taken was a trip to the site."
Senator Richard "Dickie" Bradley,
"That trip to the site would have revealed what?"
Glenn Godfrey,
"That in fact the purpose had changed because no building had been built. If after a year you have a loan disbursed and no building is built, your first question is what happened."
What happened is that this went to the North American market under a suspect claim for properties that did not exist.
Glenn Godfrey,
"But in their presentations to North America I found out later, I did not know, they kept the same presentation going as though the loan had not changed, when in fact the loan had changed."
Senator Godwin Hulse,
"But nevertheless they were sold as though they were intact, there was no indication in the records that the purpose had changed."
Glenn Godfrey,
"Oh because they were using old records."
Reconciling those so called "old records" and the new realities took up much of the morning's exchange between Godfrey and Chairman Godwin Hulse. According to Hulse, the placement document is riddled with misrepresentations in 22 of the 43 warranties - Godfrey says he never even read it.
Glenn Godfrey,
"The placement document is which one? The one that was put out there?"
Senator Godwin Hulse,
"Right."
Glenn Godfrey,
"I've seen earlier incarnations but I got bored by that thing because to me it wasn't going to happen."
Senator Godwin Hulse,
"But it happened."
Glenn Godfrey,
"It happened."
Senator Godwin Hulse,
"But those warranties, if you read them..."
Glenn Godfrey,
"Which one are you talking about in particular?"
Senator Godwin Hulse,
"Well the whole idea here of the various warranties are that these are existing up and running mortgages, the properties are built, that the appraisal has been done on the properties etc. which in the case of..."
Glenn Godfrey,
"Can you show me that?"
Senator Godwin Hulse,
"Could you look at for example 35."
[Glenn Godfrey Pausing to read document]
Senator Godwin Hulse,
"32?"
Glenn Godfrey,
"For 35 there must have been some qualified appraisal, I don't know. 32? Is that page 8? Let me read it: 'the property is matured free of damage and waste and there is no proceeding pending for the...' That's innocuous."
Senator Godwin Hulse,
"But there is no property."
Glenn Godfrey,
"Well let's see how property is defined, 'the underlining encumbered by the mortgage,' that could be any kind of property. I have not found anything here that would appear inconsistent. Certainly the ones you referred me to, I don't see anything inconsistent with that, these are standard warranties and there's not anything unusual about it."
Senator Godwin Hulse,
"Except that we don't have any properties."
Glenn Godfrey,
"Okay those two, those were proper functioning mortgages."
Senator Godwin Hulse,
"But there was no property to support the values."
Glenn Godfrey,
"There was property."
Senator Godwin Hulse,
"There was land, yes which is property, but the value could not be supported."
Glenn Godfrey,
"Does it say that the property supports the value?"
Senator Godwin Hulse,
"Well clearly because they are values given here which does not exist. The values that have been given with respect to the insurance, let me show what values have been given."
Glenn Godfrey,
"Did anybody sign these?"
Senator Godwin Hulse,
"Yes the entire package was signed and under the various warranties were all signed."
Glenn Godfrey,
"But this document?"
Senator Godwin Hulse,
"Yes that's part of the package. The placement memorandum was signed by the DFC, was sold to the BMC."
Glenn Godfrey,
"Was this document signed?"
Senator Godwin Hulse,
"Yes that document was signed."
Glenn Godfrey,
"I don't see a signature."
Senator Godwin Hulse,
"There are a bunch of documents in that package and various of them have different signatures. The DFC has received a copy of the private placement memorandum dated April 22nd 2002 and has reviewed the information therein relating to loans, relating to and furnished by the DFC under the caption, 'the service origination of mortgage loans, Development Finance Corporation and therein and such information relating to and furnished by the DFC is true and correct in material respects. The placement memorandum does not contain any untrue statement of a material face or omit to state a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading. The DFC has complied with all agreements and satisfied all conditions on its part to be performed or satisfied under the purchase agreement and the servicing agreement as at or prior to closing date.' And it is signed by yourself and two other directors and the general managers. The question is that with those statements in that document, which you said were changed, but still represented in there which went up North and would have indicated that these were the mortgages, but now changed, that this closing statement would not have been totally correct?"
Glenn Godfrey,
"There was no way I could have read that entire thing front to back. I was relying on their due diligence to tell me that I could sign that. Everybody does that."
Senator Godwin Hulse,
"There is also a section in which they do a bunch of numbers and they..."
Glenn Godfrey,
"If you notice it said to the best of my knowledge, so if you didn't read it...."
Senator Godwin Hulse,
"But one would ask."
Glenn Godfrey,
"But if you didn't read it."
Senator Godwin Hulse,
"But would you not have thought that perhaps since these were the two major projects on the list, the two most major projects..."
Glenn Godfrey,
"That's not true."
Senator Godwin Hulse,
"...Apart from border management, the major ones that they would have been an attempt to ensure that those were actually accurate?"
Glenn Godfrey,
"But they were accurate. From what I can see there they were right, maybe not description of the building and all that, but the part you read me was accurate."
Senator Godwin Hulse,
"But we did not sell a property developed with apartment buildings."
Glenn Godfrey,
"Does it say that that is what it will do?"
Senator Godwin Hulse,
"It says that is what the loan was for."
Glenn Godfrey,
"Then it is old information."
Old information and wrong information but Godfrey would never have to pay for this mistake - taxpayers or in this case contributors to Social Security will because while there is a letter waiving that guarantee with Godfrey's signature, he says he doesn't think it's legitimate.
Glenn Godfrey,
"Senator let me tell you the truth, I really feel that in their mind they did not realize that they had guarantee that thing because it was like months afterwards that they came and they said that we didn't realize we had guaranteed this thing. It is so much paper to go through and certainly that was never the intention, that Social Security would guarantee the whole thing. I even offered to try to talk to the Board to see if there was some way we could go back to what was the original intention but we took legal advice and it couldn't be done, which is basically what I told them that it would be difficult to do because they did come to me and try to get the change and I told them I'll try my best because really I didn't see that Social Security had to guarantee this thing, I think that was done because that was the only way they were going to get it sold on the international market."
Senator Godwin Hulse,
"But on June 3rd of 2002 you did write a letter to Mrs. Garcia..."
Glenn Godfrey,
"I've heard of that letter, let me see it. The letter has been shown to me. I'll be honest with you I have no recollection of it."
Senator Godwin Hulse,
"Is it your signature?"
Glenn Godfrey,
"It appears to be my signature but you don't have an original?"
Senator Godwin Hulse,
"No that was supplied to me by Social Security."
Glenn Godfrey,
"There are many things that can be done with photocopies. I am not charging anybody but I'm saying I don't recall this letter and I've asked them to check with the DFC, and there's no record of this letter in the DFC. I really can't recall that letter."
Senator Rene Gomez,
"That is a serious allegation that would put us back on the drawing board."
Glenn Godfrey,
"I am not saying that it is a forgery, I just can't recall it. I know that we had discussions on our own but when I checked back with DFC to see if they had any record of it. Since I didn't recall it, what I usually do is go back in the files and see and they have no record of it so that's make me very suspicious."
That's a $17.5 million suspicion and now BTL is paying for the default of those Godfrey loans.
Glenn Godfrey,
"BTL agreed to also buy the underlining assets which would be the three parcels of land at the face value of the mortgage."
Senator Richard "Dickie" Bradley,
"Who is to meet the monthly payments for those mortgages?"
Glenn Godfrey,
"The BTL. The board of directors that was appointed by Prosser, and the subsequent one appointed by government, both undertook to accept the liability on those mortgages and pay off the debt."
And while that will come back to phone users in higher rates - and may get SSB off the hook - if BTL's ownership is ever settled - it still doesn't clear Social Security which got into the mess by - Godfrey says -looking for it.
Glenn Godfrey,
"Social Security was asking around generally."
Senator Godwin Hulse,
"So Social Security was the one who was initiating this?"
Glenn Godfrey,
"To everybody, to everybody. This was not a special deal to anyone."
Senator Godwin Hulse,
"Because they said to us in fact that the files and the whole projects came from the DFC."
Glenn Godfrey,
"That's nonsense."
Senator Godwin Hulse,
"And I can quote it because also under oath the Chairman of the SSB Mr. Mai said those came from the DFC, so we have been asking the SSB to ask us who in the DFC provided these two..."
Glenn Godfrey,
"That's total nonsense."
Senator Godwin Hulse,
"So it was the Social Security who was looking around?"
Glenn Godfrey,
"Always was. The last time somebody said to go check St. James, I would say go check Social Security."
But while Godfrey would blame it on a clueless SSB - they did check with St. James - and Chairman Hulse said they were lied to.
Senator Godwin Hulse,
"The Social Security people, Mr. Paredes at the time was the officer, wrote to St. James asking for the similar information and St. James responded through a Mr. Herman Contreras. So in May of 2002, after there was a change in the use of the funds, why would Mr. Contreras still suggest to the Social Security, so that they could suggest to the DFC, that both properties were as originally planned?"
Glenn Godfrey,
"Certainly what is true is that it was fully disbursed at that point."
Senator Godwin Hulse,
"According to what you're saying."
Glenn Godfrey,
"Yes it was fully disbursed."
Senator Godwin Hulse,
"But then the value of the collateral obviously wouldn't have been $12 million."
Glenn Godfrey,
"I would concede that that is misleading but again I trust Mr. Contreras, I know him well, I don't think he would deliberately mislead on an issue like that unless he was thinking of what it would be like if the thing had gone in or I don't know, I really don't know."
Because of revelations in Godfrey's testimony today the hearings are expected to continue. The next round is expected to focus on the role of BIMCO, which Godfrey claims solicited his mortgages when General Manager Narda Garcia has claimed that the Godfrey-chaired DFC brought those mortgages to her.
