DALLAS -- A Pecos County, Tex., grand jury has indicted the developers of a for-profit jail -- one of six identical bond-financed projects in the state -- on charges of criminal antitrust violations.
The grand jury returned on Oct. 29 separate five-count indictments against N-Group Securities Inc. of Houston and two of its principals, Patrick and Michael Graham, alleging that they had violated state laws in building the $12.25 million project.
Also, Pecos County District Attorney Richard Barajas said he will ask prosecutors in Austin and Houston to review evidence gathered by his grand jury that he believes shows N-Group made illegal corporate campaign contributions to top political figures.
A lawyer for the Grahams said his clients acted legally and that the indictments resulted because the West Texas county's 500-bed jail has not been used six months after its completion. Five of the six N-Group projects remain empty and could default next year.
"Had the detention center been used by the state, there would be no indictments," said Dan Cogdell, the Houston lawyer representing the developers. "They are looking for a scapegoat, and the Grahams are it."
Patrick Graham, president of N-Group, previously had accused Mr. Barajas of carrying out a vendetta against the project by conducting the 10-month grand jury investigation. Responding to this allegation, the prosecutor said, "I always have vendettas against people who break the law."
But Mr. Cogdell said his clients conferred extensively with legal counsel about how to proceed with the project in Pecos and five other Texas counties.
"It's very disconcerting," he said. "They spent no small amount of money, time, and effort on advice about how they should proceed .... They absolutely feel their action was legal."
Mr. Barajas said the Pecos County Jail Facilities Financing Corp., a nonprofit corporation created by county commissioners to sell tax-exempt bonds for the project, should have sought competitive bids to build the 500-bed jail because they were acting as a conduit for the county, which must comply with competitive bidding laws.
"The corporation was, in effect, an instrument of the county government," he said. "The bylaws make it clear that the [financing corporation] can only act if the county tells them to. They had no independent authority of their own."
Later, he added, "When [N-Group] came in here, their team was already set up. In effect, they monopolized the private prison business in Pecos County."
All six projects were built by H.A. Lott Inc., a Houston contractor, and no competitive bids apparently were taken, he said. The contractor and now-bankrupt Drexel Burnham Lambert Inc. -- which underwrote $74 million of tax-exempt junk bonds for the projects -- are among seven unindicted coconspirators named in court papers.
In Texas, criminal antitrust violations are felonies punishable by up to three years of confinement, a fine of $5,000, or both. A corporation may be fined up to $20,000 or double any amount that a court finds the company may have earned illegally in profits, Mr. Barajas said.
N-Group was paid a 3% fee, or nearly $2.5 million, for acting as developer on all six projects.
Mr. Barajas said the grand jury is continuing its investigation. This week, it directed that evidence about N-Group contributions to two political action committees be sent to Houston and Austin, where prosecutors have venue to investigate.
He said bank records subpoenaed by the grand jury show that N-Group made corporate contributions through the committees to the failed gubernatorial campaigns of former Gov. Mark White and then-Texas Attorney General Jim Mattox.
Political contributions by corporations are forbidden by state law.
"These people gave money to every candidate," Mr. Barajas said, noting there was no evidence the candidates acted improperly. "They were trying to buy public policy."
Mr. Cogdell said he was not familiar with an inquiry into his client's political activity. Concerning the prosecutor's belief that illegal contributions were made, he said, "Barajas can believe the cow jumped over the moon, but that doesn't mean it's so."
