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Pepe Lepew On October - 12 - 2010


And why isn’t there more of it?

SueinCa’s post about being a fraud investigator inspired me to write this post, and a bit of nagging from a very, very persistent friend. This is part 1. Trust me, part 2 is a real humdinger.

About 100 million years ago, I was a cop reporter at a community newspaper in a small town in Washington state. Now, being a cop reporter at a community newspaper also means you have to wear a buttload of other hats, because the newspaper you’re working on generally has a staff of about four or five people. In addition to being the cop reporter, I was also a sports editor and I covered the local port and environmental news. Go ahead, ask me anything about orcas. Anything. I can answer it. Anyway, when you’re running around covering that many beats, there’s really no opportunity for real journalism. You don’t have time. You’ve got too many fingers in too many dikes. It’s a lot of what we called “meatgrinder” journalism. Just some facts, let people sort out for themselves what to think. It’s pretty much endemic to all community papers. I actually think it serves its purpose.

The pay was crap and the hours even crappier. A lot of 55-hour weeks with no overtime, but I loved it. I especially loved being a sports editor, watching kids grow as shy freshmen to leaders as seniors, and watching a few of them move on to college sports. I was also fascinated by cop reporting, though I had a bit of a love/hate relationship with it. You got a genuinely intriguing glimpse into the human condition, which managed to be both and depressing and mesmerizing. Covering child molestation cases were the worst. Covering bizarre con schemes gone wrong was the best. I knew the cop stories, right or wrong, were the most read stories in the paper.

This is my favourite series of stories I ever wrote at that paper. I won awards from the WNPA and the Society of Professional Journalists for my work for investigative reporting. Truth be told, I wasn’t particularly brilliant or anything. I just stayed curious, about something that simply refused to add up, about something I couldn’t stop being bugged about.

Don’t get me wrong. I wasn’t a particularly dogged reporter. I really wasn’t. I honestly don’t think I was that good at it. There were plenty of scandals and dirt I knew about in the community, but I always asked myself was it really in the public interest to expose it? Did people really care if a public official was having an affair, or if a friend of a public official mysteriously got a contract for a county sewage treatment plant even though they had never built a municipal sewage treatment facility in their lives (OK, that was fishy, but I didn’t have an ounce of proof of any wrongdoing and couldn’t prove a thing, so I had to drop it, suffice to say, the contract fell through when the facts came out about this guy’s lack of credentials.). I was perfectly content in covering the harmless high school local sports.

However, I stumbled into two huge stories without ever intending to. Stories that got a huge amount of regional and even national coverage. This is the first of the two.

I liked covering the port. It was a pretty bland beat, with very nice, and for government officials, remarkably naive people. They kept stumbling into massive controversies without a clue of what they were stepping into. I could see it coming, but they always seemed oblivious. Most of the coverage was people yelling and screaming about dock fees or neighbors wanking about proposed airport expansion projects, which always got dropped because they were too controversial. It was a friendly board, fairly responsible, and we used to go out for beers after meetings. I was too chummy with them, I knew. But, it was a small town. It happens. It was like the old-fashioned days of three-martini lunch journalism; the days that the real stories weren’t written about. The biggest story on this beat was when the port quietly agreed to a slip contract with a crazy Canadian named Paul Watson, who had a massive ship that he used to sink whaling vessels. Some right-wing locals went berserk over this guy, calling him a terrorist, but the port just saw a $75,000 annual contract, plus a port board member was dating Watson’s pretty first mate. Many years later, Watson went on to star in a TV show called “Whaling Wars.”

Anyway, I digress.

It was a small town, but the port ran an airport that was the eighth busiest in the entire state of Washington because air travel was the most convenient way to get there. The town was served by three or four regional airlines.

At a couple of meetings, the port got reports from their manager that the biggest airline serving the community was behind in their fees. No big deal. Didn’t raise any red flags. Finally, the president of the airline, which was based in Tacoma, showed up at a port meeting to discuss their delinquent fees. This was a relatively big regional airline. They flew to small towns all over the Pacific Northwest. Their route from Sea-Tac to our town was their biggest source of revenue.

This guy actually asked the port for a loan of $500,000. Now, the port did have the authority to loan money, but it was a damned strange request, I thought. Any time the port loaned money, it was usually for a start-up business. He said they had just bought some new planes and had a short-term cash flow problem. The board took it under advisement. I did a quick interview with him afterward. He was nervous; struck me as being jittery, and he and his assistant rushed out of the building afterward. Nothing really registered as being wrong. It was the one and only time I ever talked to him in person.

The next morning, a local hotel owner called me. I didn’t like nor trust this person. She was quite crooked and had the local City Council in the palm of her hand, but she loved spreading gossip. She told me EXTREMELY off the record that this airline president asked HER for a loan of $250,000 the day before. The guy had run out the door from the port meeting directly to a meeting with this hotel owner.

And a little red flag went up. This guy from Tacoma was asking for loans from a port board and from a local hotel owner? Weren’t there banks or savings and loans that handled business loans? Why wasn’t he going to them?

I filed this away under the category of “hmmmm.”

Then, the story started blowing up. A few days later, on the cover of the Metro section of the Seattle Times, there was a banner story that Sea-Tac had shut this airline’s gate because they owed more than $100,000 in delinquent gate fees. The airline president was quoted as saying Sea-Tac was screwing them over; it was all a big misunderstanding that was soon to be resolved, etc. It affected our community because now people would have to fly to Boeing Field, then take a shuttle to Sea-Tac. It was a pain in the ass for the locals. I talked to the guy on the phone. He insisted Sea-Tac was wrong, Sea-Tac was playing hardball. It was all a big misunderstanding, yada, yada.

The next port meeting, they actually drafted a loan agreement for review. They were planning to issue the loan two weeks later. I was aghast, frankly. Over beers, I asked them, “what are you doing?” “Oh, these guys are great, we’ve been doing business with them for years,” was the response.

I talked to my editor. I absolutely loved this editor, but like me, she wasn’t really a hard-bitten journalist. She was an extremely talented writer, loved covering theatre and the arts and was good at it. But, she had limited interest in hard news. We got along great, thought alike; and she really appreciated how hard I worked on the sports section. She went ballistic over this $500,000 loan of TAXPAYER’S money. Something wasn’t right. Something HAD to be flaky about this airline. Sea-Tac wouldn’t just take their gate away over a “misunderstanding.”

And for one of the few times in my unremarkable newspaper career, I actually had a brainstorm.

Years earlier, this really slimy president of our company had heard that a competing paper was having financial trouble and wanted me to look into it. I thought it was rotten to go looking for dirt about the competition, but I made some calls. I found out that when the IRS files a tax lien against a business, that filing goes to the county auditor’s office and is public record. Sure enough, I found out that the competing paper hadn’t been turning in its payroll taxes. The publisher of that paper was fired and left town. It wasn’t real journalism; it was just burning someone trying to put them out of business.

Anyway, I called up the county auditor in Pierce County, and they made me file a public records act request. They said they did have liens against the airline and faxed them to me.

The tax liens were for $975,000. They hadn’t turned in their employees’ payroll taxes for five consecutive quarters. That is tax fraud, a felony. You are not allowed to keep your employees’ withholding taxes for yourself, and they had been doing it for 15 months. These guys were in major shit.

I think I swallowed my heart. I hadn’t expected this at all. I thought I might find something, but not $975,000. I left copies of the tax liens on my editor’s desk and when she came back from lunch, she shrieked, “You rock star!”

I had another brainstorm. I also knew of other kinds of tax liens that could be filed. So, I filed more public record requests for unemployment insurance, worker’s comp, sales taxes, property taxes on the planes. Sure enough, more faxes, more liens. They owed $150,000 in sales taxes they collected but never turned in, $75,000 in worker’s comp, another $75,000 in unemployment they collected from their employees but never turned in, then another $100,000 in property taxes. Their liens and unpaid debts at this point totaled $1.5 million. It was all sitting there, filed away deep in filing cabinets in Pierce County, and no one knew about it. These guys hadn’t been paying any of their taxes in two years. This was explosive. And these guys wanted $500,000 of OUR county taxpayer’s money?

I called the company and the president gave me some evasive answers about how they were negotiating with the IRS and it had all been taken care of. Those liens were no longer valid. I called the IRS and got a spokesman saying those liens were active and very valid. The guy was lying.

We printed a top of the front page story, and at this point, the company stopped returning our calls. They did call up the other paper and claimed our story was a pack of lies. The Seattle Times and P-I and Tacoma News-Tribune picked up our story and did their own coverage.

Well, at the next port meeting, needless to say, the loan agreement was torn up. The airline didn’t even bother attending the meeting. We printed a scathing editorial saying the port needed to do their homework better; that red flags should have been going up before they drafted up paperwork. I really believe that without our story, they would’ve loaned these guys the money, and they would’ve been burned.

Then, the calls started coming in. First was a call from Pierce County. It was the same woman I had talked to before. She said, “there’s another lien you didn’t ask about.” I didn’t ask because I didn’t even think to ask. The clerk knew about it, and when she saw the story in the New-Tribune, knew I was the one who blew up the story. It was a lien from a court judgment for unpaid fuel purchases from a company in Portland. I filled out another public records act request. This lien was for $450,000. These guys hadn’t been paying for their fuel in months. The company sued and won.

Then another bombshell. We got a call from a sister paper in another city. The company actually owned a small airport in that town. There was a little legal ad in their paper from a holding company that auctions off foreclosed properties. It turns out the company was auctioning off the airport. The property had been seized because they hadn’t made payments on it for something like two years. More public record requests. It turns out they had fallen $600,000 behind in their payments, the bank seized it, foreclosed, then turned it over to this holding company. All under the radar (no pun intended). What the hell, I made another records request to that county auditor’s office and found out they owed another $400,000 in property taxes on the airport property. We couldn’t believe it. All their outstanding debts and liens added up to more than $3 million. At this point, it was becoming surreal. These guys hadn’t been paying any of their bills for more than a year, and yet they were still flying and moreover, were allowed to fly. We called up the FAA. They weren’t aware of this. Weren’t there concerns that they were paying for maintenance on the planes when they weren’t paying for anything else? Yes, there might be, the FAA answered.

We printed a second story, across the top of the front page. Again, the P-I and Seattle Times and News-Tribune picked it up. Again, we scooped the crap out of our competition.

Where was all this money going? Into the president’s personal bank account … in the Cayman Islands? Why wasn’t this guy in jail for tax fraud? Why was such a badly failing airline allowed to keep flying? Why did he never file for bankruptcy protection? Questions I never did get to the bottom of.

Anyway, literally a week later, the airline shut down. One day, a scheduled flight from Seattle simply never showed up. The employees at the airport weren’t told anything. When they called the main office in Tacoma, they didn’t get an answer. That was the end of the airline. They never got their final cheques.

I called up the airline and I got a guy answering that he was a janitor and no one else was in the building — it was the president of the company. I recognized his voice!

That was my one “rock star” moment in journalism, all it took was some easy digging for public documents, knowing where to find them. I had scooped our local competition, the Seattle and Tacoma papers, everyone. They were all just sitting there in various locales, and no one knew about them, no one had given them a second thought, and a dangerously corrupt and unstable airline was allowed to continue flying as a result. There isn’t enough of this kind of digging in journalism today, especially on TV, because the media has been obsessed with the latest shiny object, “ooo, is Obama a Muslim?”, not actual digging. There is still some good stuff going on out there in print, Rolling Stone does some surprisingly good stuff, but there just isn’t enough. Real journalism is digging, digging, digging some more, in dark, hard to find places, knowing the right questions to ask, knowing who to ask. The legacy of Woodward and Bernstein burns dimly today. Too much “some sources say” crap on Faux and even CNN now.

One final note on the cursed airline. One thing I never really got to figure out, and I’m not sure you ever could, was whether this guy was more of a crook or just a really bad businessman. Was it some kind of con game or was he just really stupid? I have no idea to this day.

Months later, I heard from some Portland Tribune reporter who was doing a piece on this guy’s involvement in a crooked nursing home scheme. He told me all kinds of wild rumours about his involvement in the Mafia. I have no idea if any of it was true. I never saw a Tribune article about it. The guy was just chasing wild rumours, something I’ve seen too many people in the Media waste their time on. It’s a real judgment call to know when to chase a wild rumour and when you just know it’s some nut who can’t confirm a bit of the “truth” he’s telling you. At that point, the airline was long gone and had been replaced by more stable carriers, so my personal interest in the story had waned. My editor was replaced with a new editor I couldn’t stand nor work with. He heard wild rumours that the guy was arrested. I looked into it. Nope. He insisted that I write a story about it. If I couldn’t confirm, how could I write about it? (This same idiot wanted me to write a story about some local drunkard’s boasts in a bar that he had a pet Bengal tiger. When I left town, I posted a note on a local blog about “Keep looking for that Bengal tiger, Richard, I’m sure if anyone can find it, it’s you.”)

Categories: News & Politics

30 Responses so far.

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  1. kesmarn says:

    Pepe, you single-handedly saved that town a huge chunk of cash. They should have given you a medal!

    Like everyone else, I’m eagerly looking forward to Part Deux.

  2. escribacat says:

    Great story, Pepe. Good work. I’m curious about the turnaround time on those public record requests. A day? A week? A month? And can you do that only for publicly traded companies? Anyway, it’s kind of a Bernie Madoff story. They had all the trappings of respectability and nobody questioned it.

    I agree that the 24 hours news cycle doesn’t call for this kind of investigative work…it’s just the mob chasing that shiny thing around. I’d like to think that good investigative journalism will re-emerge on the internet — but investigative journalists have to live too. They should be paid well for their work and the risks they take.

    • PepeLepew says:

      I was literally getting them in minutes. They actually wanted me to have the documents, but they simply wanted documentation to show to their supervisors about why the documents were released. I would fax my public information request and would get a fax back in minutes. This was under the state public records law, not the federal FOIA.

      You can do it for ANY company that doesn’t turn in its taxes; I think publicly traded or not doesn’t matter.

      You want risky? Wait until part II. Spooky stuff.

  3. javaz says:

    Pepe?

    So what are you saying?

    That it’s just too hard to be a real investigative reporter?

    As a writer, that’s still trying to get published, I am so jealous that you are published and work or worked for a newspaper.

    I was hoping that you’d explain why there are no more Bob Woodwards back when he was an investigative reporter and not biased.

    It all boils down to the corporate money, right?

    Small town papers still try, but they are not the main corporate controlled news.

    Where’s the integrity?

    When we lose the news, we’ve lost democracy.

    But local small time news -- that’s where it is at.

    • PepeLepew says:

      I don’t think it’s hard; what I did on this story wasn’t particularly brilliant or anything. I just think the media as a whole has gotten very lazy, especially TV media. I think there’s still some good newspaper digging going on out there, but you have to look hard to find it. Newspapers have cut their staffs way back the last several years.

  4. Haruko Haruhara says:

    My hero!

  5. Khirad says:

    Well, it’s probably not Horizon, and I tried racking my brains and sleuthing it my own, so I give up and hang my head in shame. 😥

    I feel like less of a native… especially if they flew to PDX.

    Great read though!

    I have no idea what the Portland Trib reporter was getting at. I’d be interested if The Oregonian ever did anything on it.

    • PepeLepew says:

      Oh, the guy slinked off to Portland and apparently started up some nursing homes after his airline collapsed.

      It’s an airline that hasn’t existed since 2000!

  6. SueInCa says:

    You forgot Greg Palast………………..

  7. SueInCa says:

    Hey Pepe, you be Carl Woodward and I will be Bernstein. We can dig dig dig to our heart’s content.

    Fabulous work! You did what the MSM never does anymore. And I know what you mean about it “bugging” you. That was my entire life in fraud investigations. That and being nosy LOL.

    Great article.

  8. whatsthatsound says:

    Fascinating read, Pepe! The airline story has shades of “Chinatown” in it, though I hope you (and your nose) didn’t have an encounter with Roman Polanksi on a dark night where you were being “nosy”.
    :)

    It’ll be fun to read more of these. If anyone knows that there truly seems to be no honor among thieves, it must be a crime reporter.

  9. Questinia says:

    Hats off and looking forward to part II!

    Investigative reporting in part ceased to exist when, post-Watergate, the White House et al. invited the press into their domain.

    This was replicated on all levels of government. Making the press part of the system was a way to make the press obey and feel privileged for being “in” at the same time.

  10. PatsyT says:

    Pepe,
    Great reading.
    This man had quite a downfall.
    What would have happened to this company and this man had you not done some digging?
    I feel like this is a great story for a film in the Alfred Hitchcock style.
    With this music, of course,


  11. PepeLepew says:

    PS, I neglected to mention that my brother, who at the time was an IRS agent and is now a water district general manager, was a HUGE help through this story.

  12. PepeLepew says:

    Thank you Adlib.

    Phew! Sphincter … back to normal….

    • AdLib says:

      Heh! I don’t take that lightly when coming from Pepe LePew!

      BTW, I’ve checked and can’t replicate the issue you’re having, could you try clearing your cache, restarting your browser and let me know if that clears up the problem and you can edit your posts successfully?

      Thanks!

  13. PepeLepew says:

    Yikes. It would be nice if I could fix the typo in the headline!

  14. HITO says:

    Rarely my gut lies to me. I trust it, at least initially. I file the info and watch and wait.

    I have found subsequently 9 out of 10 times that my “hunch” was correct after all the evidence has been amassed.

    What’s important to remember is that those hunches have that 10% fail factor, so one should never react until you’ve been assured your assumption has the other 90% and is conclusive.

    Good for you Pepe. I wish my local small town paper strived for the accuracy and accountability you exhibited. Their “slam and dam” bullshit drove and drives me nuts. I only buy it now to support the horoscope writer.

    When’s Part II coming to our theatre?


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