Drugwar.com: The Solari Story

Drug War: Covert Money, Power & Policy: The Solari Story

My name is Catherine Austin Fitts. I live in Hickory Valley, Tennessee. I am an entrepreneur starting a new company--Solari. Solari's mission is to help communities start local software tool and database developer/knowledge management operations called solaris. Think of it as a local "resource compass" for a neighborhood that helps communities continuously reengineer their resource use to support local prosperity in a global environment. My goal is to start Hickory Valley Solari this year and use our website to teach others how to do the same. I am a former Managing Director and member of the Board of Directors of Dillon Read & Co, Inc. and Assistant Secretary of Housing-FHA Commissioner in the Bush Administration. For my complete resume, see: http://www.solari.com/about/ca_fitts.html

After leaving the Bush Administration in 1990, I started The Hamilton Securities Company in Washington, DC. I declined an offer from the Administration to be nominated as a governor of the Federal Reserve Board. My tour of duty in the Administration had persuaded me that new software, networking and telecommunication tools made it possible to build a new kind of collaborative economy based on knowledge as the principal wealth creating resource. If you have read Peter Drucker, the Solari model is geared towards the practical integration of these ideas and new technology into new forms of high performance organizations and communities. Eighteen months at HUD persuaded me that communities needed to take the lead in reengineering government and essential services investment locally. This reengineering---despite common notions---could not be done from Washington. If anything we needed to get Washington out of our communities.

We started in a little brownstone off of 14th street in Washington. It did not take long to figure with the right computer set up and a satellite dish on the roof, that it did not matter if we were in a bad part of town. Our mission statement was "to liquefy and make accessible". We believed that new technology and tools could so increase learning speeds in both organizations and communities that private entrepreneurs could end poverty with education and small business creation. After several years, we found a loft space on DuPont circle and created the first open office in DC over looking the circle and the fountain on the second floor over CVS Pharmacy, with integrated phone and computers, which was to win an award from the American Institute of Architects: http://www.e-architect.com/conted/advntech/projcts/proj10.asp

The first phase of Hamilton's business was to build the "know how" of prototyping the new tools sufficient to understand how to invent a new form of collaboartive organization and community venture capital. We sought any financial advisory assignment that would permit us to prototype reengineering and venture transactions and business starts up that would inform how to finance a small business network and a community with private equity controlled within the community that promoted substantially high learning speeds and knowledge. Overview information about clients, assignments, finances and software development can be found at: http://www.solari.com/gideon/about/index.html

To say that Hamilton's culture was unique, does not begin to touch on how magical it was to start, to build, to grow. We started on the premise that knowledge and learning can solve the most intractable problems by building a alignment and moving out of a combative model and into collaborative learning models that used software tools and development techniques to simply and make accessible things that had once seemed hopeless complicated or uncertain. Our work force was remarkably diverse in a very wonderful way. The amazing thing was how financially successful our model was. We were a huge hit. The market for our tools and skills was very strong. We got things done. We were fun to work with. Everyone wanted to come over to our place. The food was great.

In late 1993, we were hired through a competitive process to help the Department of Housing and Urban Development (HUD) determine if they wanted to do with their $12 billion portfolio of defaulted mortgages. We understood the risks the working with government. At the same time, HUD had the richest databases on how the money worked in communities. We helped HUD determine that they wanted to do loan sales, and then proceeded to serve as their lead financial advisor, with a twist. We took a software developers approach, developing a variety of tools to design, implement and bid the transaction that enabled HUD to manage the transactions with a small group of people with little experience, and quickly bring on lots of other contractors to do it. We became, in short, the brain and the tool shop, helping support the loan sales process with knowledge management that gave HUD near complete control of what was happening. For example, all transactions were designed out ahead of time in writing in Design Books, that were eventually posted on the Web so that all parties to a bid could understand what could happen and why. For an example of such a design book see:
http://www.solari.com/gideon/legal/background/DesidnBk/Home.htm

As a result of this approach, the loan sales program was far more successful than anyone believed possible. Between 1994 and 1997, HUD sold $10 billion of mortgages, bringing their recovery rates from 35 cents on the dollar to 70-90 cents on the dollar, and generating $2.2 billion of budget profits used to fund the deficit and HUD programs. The improved performance also enabled HUD to dramatically drop the price of new insurance, as loan sales had cut the cost of expected defaults in half. Transaction costs were substantially lower than other government agencies. The response in the media and the market was one of substantial praise. The loan sales were considered a real triumph of government reengineering. The most glowing reports came from the HUD Inspector General office audit team, who had helped design the sales and support and whose criticisms had inspired doing them in the first place.

Not everyone was happy. There is a large number of people who make money on neighborhoods not working. Traditional HUD landlords were losing control of properties where they had defaulted on debt to more aggressive competitors. HUD contractors losing servicing business were unhappy. The HUD and Department of Justice (DOJ) partnership in enforcement operations in the HUD Inspector General Office and General Counsel's office and DC US Attorney and DOJ Civil Division depended on the defaulted portfolio to make money on civil money penalties and seizures and were unhappy. In addition we suspect that the various interests profiting from drug trafficking in neighborhoods were concerned with our efforts to encourage HUD to integrate on line computer learning centers in subsidized housing and to make available through the internet all the data on federal investment by place. In fact, we were building a tool for web based roll out called Community Wizard which would assist any neighborhood in America in accessing much of the publicly available data about how resources were managed in their neighborhood. Finally, the loan sales leaders within HUD were ---with our help---implementing numerous internal controls and disclosure process which were making fraud and patronage more and more difficult to do.

In early 1996, as the campaign fundraising was clearly on its way to be an intense cycle, I was told by the HUD Assistant Secretary in charge of our contract that he had been ordered by the White House to not let us win a new contract and hence to phase us out. He chose to ignore that order, as it was illegal. I assumed at that time that the order was inspired by then Assistant Secretary Cuomo who had promised the HUD IG earlier that year that he had plans to get rid of Hamilton and me. The politics that year became very intense, with traditional HUD constituents who were supporters of the President and Congress lobbying for a return to insider 35 cents on the dollar deals, even while they were enjoying the new low costs of new financing that had resulted from getting the recovery rates up to 70-90 cents on the dollar.

During this period, I was taken aside by one of the partners of one of the largest HUD landlords, NHP, and was told "Well, we tried to have you fired through the White House, and that did not work. So now the big boys have gotten together and you are going to jail." There was a history of executives of NHP and their lead investor, Harvard Endowment, expressing disatisfaction with our helping HUD promote greater competition in HUD programs. They had just finished a public stock offering and were very concerned about doing everything possible to get their stock up so they could get their money out of the company. I remember saying in response to that comment that a "fix" of me would never happen. Hamilton had been designed with substantial internal controls and internal and external disclosure. I was convinced the company could withstand the type of targeting I had seen done to other companies. I was wrong.

In the summer of 1996, we were targeted by the Department of Justice, working with the HUD IG's office and a private "snitch" who was a HUD contractor who was losing business as a result of the loan sale program and who had been fired by HUD for a failure to perform. Since then Hamilton and I have survived eighteen audits, investigations and inquires, and a wide variety of litigation, both offensive and defensives, some of which are continuing. To date, no wrong doing by Hamilton or me has been found....not even a parking ticket, despite being gone over by scads of auditors and investigators.

Hamilton and I have now been wiped out of approximately $6MM of cash, $250MM of equity and all my personal assets, including house, furniture, family land and heirlooms, art, books, etc. It was one of those horrible periods, when the bank and numerous other organizations and people decide to help the bad guys or to simply dump the good guys because it is too dangerous to do the right thing.

A summary of these events, including physical harassment and surveillance that we experienced, through March 2000 with a May 2000 can be found at: http://www.solari.com/gideon/legal/index.html

I am now preparing an update of all events through January 2001. Much has transpired since we moved all of our legal documents and data on the DOJ targeting of us in early 2000. If you are interested in receiving this package, e-mail me an address at: catherine@solari.com

My take on what has happened is that it is a miracle that I am alive and proven innocent. I have no other explanation for my survival other than spiritual and the seen and unseen help of countless family, friends and individuals who demonstrated extraordinary courage and generosity. My church has an extraordinary bible institute, including curriculum in Spiritual Wafare. This teaching, combined with watching others be targeted and learning from them, has made an important contribution to our understanding of the day-to-day techniques of surviving such an operation.

My partners, Carolyn Betts, Ozzie Blake, and I, and our attorneys, Drinker Biddle & Reath, have been able to document some of the DOJ wrongdoing. We now have documents (court transcripts and affidavits) which can prove DOJ and their investigator (a former DOJ prosecutor who had become General Counsel to the Inspector General at HUD)

(i)lying in court on numerous occasions and counts (ii) implying that they arranged to have the disgruntled contractor files suits against the government, that they have now negotiated settlements on (iii) falsifying evidence, (iv) trying to force an auditor to change their audit findings when they found allegations to be false, and (v) withholding evidence.

We also have evidence and circumstantial evidence of abuse of process and intentional leaks and smear campaigns. From what we can tell, most of the DOJ attorneys involved were reporting to---through April 1999-- Frank Hunger, head of the civil division, Al Gore's brother in law. Hunger was described by the Washington Post as Al Gore's closest confident. The majority of the HUD attorneys were reporting to Cuomo, with the exception of the counsel leading the investigation who was apparently reporting to DOJ.

My goal today is to try to get HUD to pay us the money they owe us for work done---approximately $2.5MM. They refuse to do so. Our understanding from private efforts to intercede on our behalf is that it appears that Secretary Cuomo was concerned about his private liability if we had sufficient funds to pursue discovery in court. (Under the law, a government official who violates the law can be sued personally in a Bivens action.) This goal includes getting the investigation ended, as well as the private suit that the disgruntled contractor has brought against us with the funds provided by HUD in a recent civil settlement. I am hoping that our efforts will be helped by recent headlines that HUD's financial statements can not be certified and that HUD reports missing $59 billion in Fiscal 1999. It would appear that DOJ and Cuomo's efforts to destroy internal financial controls were highly profitable.

What is the moral of the story? While DOJ did a good job of trying to make this thing hopelessly complex, I think the story is simple. Software entrepreneurs believe that we live in a democracy with free markets and that we can introduce new software tools that will bring sunshine to how things work and then make it possible for ordinary people to do things better and simpler and in more efficient ways.

The problem is that the reality is that our markets are often controlled, whether though government intervention, or dirty tricks, or secret societies, or organized crime. Where something does not work, there is often someone making money on it not working who have strong opinions on young people or new people or dot.com people coming along and helping it to work. A perfect description is to be found in the new movie Anti-Trust.

Unfortunately, the "law" in the form of the Department of Justice exists to protect the monopolists, not the rule of law, and not free markets. Just look at the incentives of the people who work there. They make money on doing enforcement and seizures, but do not make money as a result of increasing performance for taxapayers. So they will pay a "snitch" 15-30 % of doing a seizure of loan sales, although Hamilton could earn no % of the $2.2 billion we generated for taxpayers. Indeed, when the effort failed, they gave their informant $2MM dollars although all his allegations had proved false. This means that the DOJ arranged for someone to sue the government, and then turned around and negotiated a $2MM settlent. In the court transcripts they refer to him as their "bounty hunter."

What that means is that to the extent we protect the cash flows from governments subsidies and from drug trafficking to help finance our deficit or fuel our stock market today, we stomp out the very sunshine, innovation and liquidity that we need to build high learning speeds in companies, communities, and in personal networks. We centralize more resources with powerful tools, rather than decentralize power and money for new innovation and greater wealth creation. We chose non-performance based central control, rather than using the marketplace to decide what is productive. This moves us away from optimizing all our resouces on a sustainable basis. It is in decentralization that the opportunity to build a healthier environment and culture exists.

New tools and technology are powerful. We can use them for good or for evil. To increase access to knowledge or to "dumb down" and enforce with sophisticated tools of brainwashing and controlled media. Which will it be?

My pastor is a brilliant and wise man. He says "If we can face it, God can fix it". That is the question. Can we face it? My faith says we can. My faith says to start again and build Solari to teach thousands of neighborhoods how to create new jobs and safety for themselves and their families despite the increased presence of organized crime and the commitment on the part of our leadership to "dumping down".

I have a few wonderful partners who have stuck with me through all of this. Our mission statement is the same as Hamilton's "to liquefy and make accessible." Our motto is "a penny saved is a penny earned." Our story is a story that proves out many things mathematically. Financial transactions and software illuminate reality in suprising ways. The most powerful people in our society do not believe in the power and potential of the common man, of free markets, and of democratic process. We do. We believe markets with open access to knowledge work. We believe that freedom is worth living and fighting for. We believe that knowledge and learning holds a key to that door to freedom.

For the stories we have published about our experiences being targeted, see the three stories on Edgewood Technology Services at http://www.solari.com/gideon/articles/index.html

Blessings,

Catherine Austin Fitts
Solari
catherine@solari.com
http://www.solari.com