WASHINGTON - A federal grand jury is investigating whether to bring criminal charges in connection with a 1984 tax-exempt bond issue that financed the Syracuse, N.Y., headquarters of a major shopping mall developer.
U.S. attorneys in Syracuse refused to comment on the matter yesterday. But subpoenas sent earlier this month to officials affiliated with the issuer of the bonds and the project indicate that a grand jury is looking at whether there was a violation of the $10 million tax law limit for small-issue industrial development bonds.
Robert Congel, a managing partner of the Pyramid Cos., which has developed shopping malls throughout the Northeast, told The Post-Standard in Syracuse that his subpoena suggested the Internal Revenue Service prompted the inquiry. He could not be reached for further comment.
The focus of the grand jury's investigation is an $8 million conduit bond issue that the Syracuse Industrial Development Agency sold to Chemical Bank in December 1984 to finance the acquisition and renovation of a federal post office and courthouse building on Clinton Square.
The bonds were privately placed with Chemical Bank, which lent the proceeds to Suzanne Congel, Mr. Congel's wife, to use in overseeing renovation of the building into offices for Pyramid, an accounting firm, an architectural firm and other tenants.
Demolition of the building began in 1984, before the bonds were issued and most of the renovation work was completed in 1985, according to the architect, Alfred Dal Pos, and Donald Hayner, president of Clinton Contractors, which did the renovation work. The new building was rechristened the Clinton Exchange.
Under tax laws enacted years ago to ensure that tax-exempt industrial development bonds would only benefit small private projects, such bonds are not tax-exempt unless the face amount of the bonds, together with any project capital expenditures made from other funds for three years before and after bond issuance, is no more than $10 million.
Kevin J. Kelley, a lawyer who was with Krolick and DeGraff, the former law firm that was bond counsel for the Clinton Exchange issue, said the bond documents contained covenants stipulating that the $10 million small-issue industrial development bond limit would not be exceeded for the project.
But a brochure from Mr. Dal Pos's architectural firm, Dal Pos Associates, and features stories about the project in The Post-Standard and elsewhere say its cost exceeded $10 million -- although it is not clear how much of that was capital costs.
Mr. Dal Pos said yesterday that he had also received a subpoena, but only for documents related to improvements he had made to the office space he leases in the Clinton Exchange building. he said he had made some "tenant improvements" to his offices after the renovation was completed.
The subpoena served on Syracuse officials sought information about "whether the capital expenditure limitation requirements or other requirements for the the so-called 'small-issue exemption' under the Internal Revenue Code and related regulations and rulings were met as to the Clinton Exchange Industrial Development Bond."
The subpoena had also asked for information about whether expenditures were properly calssified. Generally, all of the records, documents, computer files, and other information on the bond issue and the project were requested.
Syracuse officials turned the documents over to the grand jury on Wednesday. David S. Michel, the commissioner of community development and also secretary for the Syracuse Industrial Development Agency, said the agency cannot be held accountable for any violation of tax laws.
"We have no liability. We were just a pass-through" issuer, he said.
Mr. Michel is the only one of the agency's five-member board who was on the board in 1984 when the bonds were issued.
"To the best of my knowledge, [the bond issue] was legal under the Internal Revenue Service's laws at the time" it was sold, he said.
Peter C. Haley, a managing director of Chemcial Realty Group, would not discuss the bond issue or the project. "We don't make any comments on situations where there is some legal action," he said.