PhillyDeals: Specter helps take AIG problem to another level

Like other politicians who stay in Washington term after term, Sen. Arlen Specter takes constituent service seriously.

Specter showed this last winter when Morgan Properties Inc., of King of Prussia, owned by developer and political donor Mitchell L. Morgan, had a problem collecting millions in promised payments from American International Group, following AIG's multibillion-dollar bailout by the U.S. Treasury and the Federal Reserve.

According to e-mails Specter's office gave me, members of the senator's staff called on Brian J. Gross, who holds the title of "congressional liaison" for the Federal Reserve Board of Governors in Washington for help with Morgan's problem.

Specter's office sent Gross this request on Jan. 28: "We need some assistance on this issue for a constituent. Any help or direction you can provide would be greatly appreciated."

Morgan Properties is part of a joint venture with AIG's real estate subsidiary, AIG Global Real Estate, to run and renovate 86 apartment complexes in New Jersey, Pennsylvania, Delaware, and New York. Morgan runs the apartments; AIG was to pay for the renovating.

But, the request continued, "Due to AIG's current financial difficulties and the government involvement," the company "is not honoring its financial commitments under the joint venture agreement. Morgan Properties' position is at risk."

Two years earlier, Morgan and AIG had bought the buildings in a joint venture, for $1.9 billion, from New Jersey developer Charles Kushner, after Kushner was sent to prison, in part, for illegal donations to New Jersey's former Democratic governor, Jim McGreevey. (The sale is the subject of a pending New Jersey lawsuit between the Morgan and Kushner companies.)

Among other terms, AIG agreed to pay $121 million to renovate the apartments, according to the note. But after the government moved in to prevent AIG from failing, the company fell behind on its payments.

AIG told Morgan "the Federal Reserve needs to approve such transactions." But with renovation payments falling behind, the Morgan-AIG venture was in danger of defaulting on its purchase financing from Wachovia Bank and Fannie Mae. "Money is quickly evaporating," Gross was advised.

Specter's office just wanted to know, the note concluded, "What is holding up the release of funding?" It offered "to help set up a meeting or phone call between the constituent and anyone at Fed" who could explain the problem and attempt to solve it.

"Please advise as to what is an appropriate course of action that will allow me to be responsive to this constituent," Specter's office asked.

After further exchange, Gross wrote back the next day. "Apparently, because of our credit agreement with AIG, we are required to give approval to these kinds of transactions," he wrote.

"This particular transaction was sent to the NY Fed on Monday of this week; we expect that they will complete their consideration very soon - as early as a matter of days. Let me know if you need anything more."

Did Specter press the Fed for favors for a longtime Republican campaign donor?

"This was a routine staff inquiry made to get a status report for a constituent without advocating a position one way or another," said Specter spokeswoman Kate Kelly.

Does Gross, the Fed's "congressional liaison," get asked to solve members' constituent problems like this every day?

"The Federal Reserve Board's congressional liaison office regularly receives inquiries from members of Congress regarding a wide variety of constituents' concerns, including concerns with specific companies. Our liaison office refers the inquiries to the agency or office that can most appropriately address the inquiry," said Fed spokesman David Skidmore.

Did the Fed solve Morgan's problem? Skidmore referred that question to the Fed's New York bank spokesman, Calvin Mitchell, who refused to comment yesterday.

And did the Fed or AIG give Morgan anything it wouldn't have gotten anyway?

Morgan, who has hosted fundraisers for President George W. Bush and GOP presidential candidate John McCain at his Main Line home, hasn't returned calls on the case.

On Feb. 4, the week after Specter's office approached the Fed, Morgan Properties sued AIG in Montgomery County Common Pleas Court, opening another front in the struggle and making it harder to know who did what, and why.

The lawsuit is still pending, but people on both sides of the case tell me privately that AIG has been sending payments to Morgan, and both sides are looking forward to a settlement.