SEC Joins Manhattan DA to Probe Christie’s Diversion of Port Authority Funds
By Lisa Brennan | April 25, 2022 11:46 am

The Securities and Exchange Commission has joined with the Manhattan District Attorney’s office to investigate possible misuse of Port Authority of New York and New Jersey funds by Gov. Chris Christie and his allies, people close to the matter said.

Two SEC Enforcement Division lawyers in the New York regional office are examining the manner by which the Christie administration apparently steamrolled the agency’s top in-house counsel into creating a legal justification in 2011 allowing the New Jersey governor to grab $1.8 billion of Port Authority tax-exempt bonds to fix the aging Pulaski Skyway bridge and other neglected state roadways.

By re-routing the Port Authority funds to local New Jersey roadway repairs, Christie, who took office in 2010, was able to keep a campaign promise not to raise taxes. The diversion of funds allowed him to avoid raising gasoline taxes to refill the depleted coffers of the state’s transportation trust fund.

New Jersey Gov. Chris Christie

But the justification for the diversion may have constituted fraud. The SEC’s rule 10b-5, issued pursuant to the Securities Exchange Act, authorizes the agency to investigate fraud in the securities markets, including in the offering of tax-exempt bonds. Similar laws apply in New York state.

With the federal securities regulator now involved in the probe, the tally of known investigations into the Christie administration is five.

Lincoln and Holland Tunnel Switcheroos

Under the Port Authority’s 1921 charter, the bi-state agency is not legally authorized to build or repair access roads to the Holland Tunnel - one of two tunnels that connect northern New Jersey to Manhattan under the Hudson River. The Holland Tunnel was constructed before the Port Authority was created and thus isn’t eligible to benefit from its funds.

It is the Lincoln Tunnel for which the Port Authority is legally authorized to maintain access roads. But the Pulaski Skyway - a four-lane causeway opened in 1932 that is currently undergoing a $1 billion Port Authority-funded repair - feeds into the Holland Tunnel.

For that reason, the Port Authority’s assistant general counsel, in a 2011 memo obtained by The Record, a northern New Jersey newspaper, found that the Pulaski Skyway did not statutorily qualify as an access route under the agency’s jurisdiction. But at the Christie administration’s insistence, and with the state’s transportation trust fund about to collapse, the New Jersey governor’s Port Authority point men pressed top agency lawyers to do an about-face: Re-brand the skyway an access road to the Lincoln Tunnel.

Port Authority Chairman David Samson, his assistant Patrick O’Reilly and Port Authority deputy executive director Bill Baroni pressed the in-house Port Authority lawyers to come up with a workable solution. O’Reilly joined the bi-state agency from Samson’s law firm, Wolff & Samson PC, and met daily with Baroni to carry out Samson’s orders and report back to him.

Manhattan D.A. Cyrus Vance Jr.’s previously reported subpoena to the Port Authority indicated he possessed particular knowledge of Samson’s instructions to O’Reilly. Vance is believed to be probing potential conflicts of interest between Samson’s role as Port Authority chairman and his law firm’s clients.

O’Reilly was a liaison between Baroni and Samson. It was Baroni who communicated directly with top Port Authority lawyers about the funds diversion.

Baroni prodded the top Port Authority lawyers in group e-mails to find a way to make the funds diversion happen. “It’s evident to say, but we gotta figure this out,” Baroni wrote at one point, according to The Record. Days later, Port Authority General Counsel Darrell Buchbinder finally agreed — after five months of resistance — to fund repairs to the Pulaski and other roadways.

Still, Port Authority lawyers continued to worry. One warned that they’d opened the door to bondholder and investor lawsuits.

Pulaski Skyway

“The looser the statutory construction means the greater the risk of a successful challenge by the bondholders and the investors,” assistant general counsel Carlene McIntyre wrote, according to The Record. She noted the projects were not authorized by legislation in both New Jersey and New York, as required. Christie never sought bi-state legislative approval.

But the Port Authority’s Board of Commissioners unanimously voted anyway, without public discussion, to provide the $1.8 billion to New Jersey’s transportation trust fund. Samson, who resigned March 28 in the thick of investigations into his various potential conflicts of interest involving clients of his law firm, said the road repair projects were “vital to ensure access to ports, airports and tunnels.”

The Pulaski project’s Lincoln Tunnel designation was memorialized in a May 2012 Port Authority-Department of Transportation pact, signed by in-house Port Authority lawyers and then-New Jersey Attorney General Jeff Chiesa, currently at Wolff & Samson after stints as Christie’s chief counsel, state AG and interim successor to U.S. Sen. Frank Lautenberg (D-NJ), who died in June.

Until the SEC and the Manhattan D.A. began scrutinizing the use of Port Authority bonds to fund repairs to the Pulaski and other roadways, Chiesa had managed to keep his head under investigators’ radar. He has been at Christie’s side since 1988, when they both worked as associates at the Cranford, N.J., law firm Dughi, Hewit & Palatucci. He followed Christie into the U.S. Attorney’s Office in 2002, and into the governor’s office as chief counsel in 2010, and as state AG two years later.

The Lincoln Tunnel designation has been added to the official statements the Port Authority issues to bondholders, as it appears to generate proceeds that help repay the bonds. A $1 billion bond issue in January refers to the Pulaski repair and other road projects as Lincoln Tunnel investments; yet the New Jersey road repair projects generate no direct revenue of their own.

SEC’s New York office opened the probe

People familiar with the SEC and Manhattan D.A.’s probes say investigators are focused on Pulaski funding as well as the Regional Bank Projects the Port Authority has proposed in its new capital budget.

Celeste Chase, assistant director of the SEC’s New York office, and Osman Nawaz, litigation chief in the New York office, are handling the SEC’s side of the joint probe. Nawaz declined to confirm or deny the investigation in a telephone call Thursday.

The agency, as an issuer of debt securities, is subject to the anti-fraud provisions of securities rule 10b-5, as well as the requirements of the Municipal Securities Rulemaking Board.

If the SEC finds the Port Authority’s statements saying the road repairs are “legally authorized as a Lincoln Tunnel project” to be untrue, the agency’s in-house lawyers will have made misstatements of material fact in their Bond Offering documents.

The same issues would arise in Regional Bank projects that have no direct connection to the agency’s authorizing legislation.

The SEC’s investigation is right up the enforcement division’s alley as it ramps up investigations into materially misleading information and fraud in tax-exempt securities markets. And because such conduct violates N.Y. securities laws, it made sense for two offices to combine forces.

If SEC investigators find the state road repairs were mischaracterized in bond offering documents as “Lincoln Tunnel Access Improvements” to make the projects appear as though they’re legally permitted, it would constitute a knowing, intentional, material misstatement in violation of federal state and securities laws and constitute fraud.

Such fraud would also mean that the bonds issued and outstanding for fixing state roads would no longer be tax exempt, opening another whole can of illegal worms, according to a source familiar with such investigations.

‘Devastating blow’ to commuters

The money for repairing the Pulaski originally had been set aside for a new commuter train tunnel under the Hudson River, known as Access to the Region’s Core, or ARC.  But soon after Christie became governor, he killed the $8.7 billion public works project to free up money to fix the Pulaski Skyway.

Transportation Secretary Ray LaHood pleaded with Christie not to abandon the state-federal-Port Authority project, which had been in the works for a decade and would have cut at least 45 minutes each way off of workers’ daily commutes. When Christie refused to reconsider, LaHood called his decision a “devastating blow to thousands of workers, millions of commuters and the state’s economic future.”

In January 2011, Christie publicly announced that the Pulaski Skyway repairs were a done deal; the Port Authority, he said, would fill the state transportation coffers with enough money to fix the Pulaski and related roadways.

In fact, the Port Authority lawyers were still balking, and did not give in until March 30, 2011.

Investigations swirling

The SEC, which has civil law enforcement authority, has worked jointly with the Manhattan D.A.’s office on hundreds of probes, including the high-profile prosecution of executives at the bankrupt law firm Dewey & LeBoeuf.

In an April 3 letter, New Jersey Democratic state Sen. Raymond Lesniak called for an investigation of the use of the Port Authority’s tax-exempt bonds to fund state road projects. His letter to officials at the SEC and Internal Revenue Service questioned whether the agency made misstatements or misled bondholders and investors who may not have known bonds were funneled into state projects. Lesniak said Christie must “obey the law regardless” of his reasons for trying to circumvent it. In this case, he said, it appears the Port Authority “misused the securities marketplace.”

In addition to the SEC and Manhattan D.A., the New Jersey U.S. Attorney’s office is taking a broad look at possible public corruption in the Christie administration, sparked by the outcry over the closing of four access lanes to the George Washington Bridge at Fort Lee, N.J,  in September. New Jersey U.S. Attorney Paul Fishman recently invited the Port Authority commissioners to meet with prosecutors to share information.

The Public Corruption Unit of the Southern District of New York U.S. Attorney’s office is assisting its New Jersey counterparts in examining potential conflicts of interest involving Samson, the former Port Authority chairman.

Finally, the state legislature is conducting its own investigation of Bridgegate and other matters of controversy involving the governor; on Monday, the legislature subpoenaed four witnesses to testify. Ordered to appear: longtime Christie spokesman Michael Drewniak; Port Authority Executive Director Patrick Foye; Port Authority Commissioner William Schuber; and Christina Renna, a former liaison with the now-defunct Office of Legislative and Intergovernmental Affairs and assistant to  the governor’s former deputy chief of staff Bridget Kelly. Schuber and Renna are to appear on May 6; Foye and Drewniak on May 13.

Fishman has also subpoenaed the state legislative committee for its documents related to Bridgegate, The Wall Street Journal reported.


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