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Noir You See It, Noir You Don't 

Naming one of the masterminds of the SFO Enterprises scandal as a "watchdog" over billions in public investment: city government or pulp fiction?

Wednesday, Aug 10 2005
If San Francisco were 1930s Hollywood, I were playing a fedora-wearing newsman, and Gavin Newsom's mess of a city government were a Burbank back lot turned body-strewn alleyway, I'd be sprinting to the crime scene, skidding on my heels, and yelling at everyone and nobody in particular: "Who's in charge here?"

Come to think of it, a pulp-noir holler is the only reasonable response to an absurd breach of the public trust in which the accounting mastermind behind a sleazy fund-diversion scheme at San Francisco International Airport has been reappointed as a "watchdog" over the city's $10 billion or so in annual receipts.

Let's open this picture with a close-up of Leo Fermin, SFO deputy director for business and finance and, for the next four years, a member of the commission that oversees billions of dollars in city investments.

He's pretty much the last person in the world I would want within a mile of taxpayers' money.

Fermin, you see, is the accounting cover-up artist behind a shady scheme begun six years ago to illegally divert some $1 million in taxpayer funds into a private company, SFO Enterprises LLC, that managed airports in, of all places, Honduras. Why were city bureaucrats flushing S.F. taxpayer money into Central America, you ask? It's a good question, and one that has yet to be fully answered.

Following a years-long inquiry that involved interviews and document collection in Tegucigalpa, countless public information requests in San Francisco, and the review of thousands of internal San Francisco International Airport documents, I have come to one firm conclusion: The SFO Enterprises scandal is absolutely bizarre.

During the late 1990s, a group of top airport officials, including Fermin, got the idea that they could make money off the good name of San Francisco International Airport by offering themselves as "consultants" to foreign airports and competing in auctions for the rights to manage and profit from privatized airports overseas. To do this they set up SFO Enterprises, a supposedly private company that was to receive just $10,000 in start-up funds from the public till, and subsequently repatriate profits to the city. Almost immediately, however, Fermin et al. began using city money on trips to France and Italy, Oman, Australia, Central America, and beyond, all based on the idea that it was a good investment for the city, because they were going to ultimately make a killing as airport consultants.

After numerous failed bids on foreign airport privatization schemes, SFO Enterprises finally won one in 2000, in Honduras. During a four-year-long series of bungles related to the Honduras project, SFO Enterprises managed to flush at least $1 million in San Francisco tax dollars into the developing world. Fermin played a key role. He was chief financial officer of SFO Enterprises, and simultaneously director of the airport's "International Services Division," the name airport Director John Martin gave the budget line used to siphon taxpayer money from the airport into the private corporation.

Two years ago, the Board of Supervisors got wise to this highly suspicious-looking boondoggle and ordered it shut down, with an audit to follow. (City Controller Ed Harrington has stalled for two years, producing no real audit and no word on when he'll finish.)

The inclusion of a significant figure from the SFO Enterprises affair in the oversight process for city funds may be as strange as the original scandal.

Leo Fermin was first appointed to the San Francisco Treasury Oversight Committee in 1997, during the tenure of Treasurer Mary Callanan. He was reappointed in 2002 by then-Treasurer Susan Leal. It was odd that Leal renamed Fermin to the post, but perhaps, in a perverse way, understandable: Leal was one of three members of the board of directors of SFO Enterprises. If she couldn't see anything wrong in the apparently illegal operations of SFOE, why would she have a problem with using the entity's accounting mastermind to watch over city investments?

Now city Treasurer José Cisneros, who was appointed by Mayor Gavin Newsom last September, has nominated Fermin to a seat -- supposedly reserved for a "member of the public" -- on the oversight committee, extending his service as a fiscal "watchdog" until 2009.

This isn't just another bureaucratic snafu. Though this committee has been all but invisible in the city's public life, its five members have the potential to preserve, or undermine, the fiscal stability of San Francisco government. That Leo Fermin could be one of those members is cinematically absurd.

To wit: Cisneros is required by law to nominate the five members of the Treasury Oversight Committee; the Board of Supervisors then accepts or declines the nominations. (In practical terms, board confirmation of such nominations is all but certain.) Cisneros says he only recently noticed that the terms for several members of the oversight committee were about to expire. Fermin was reappointed as a stopgap measure, Cisneros says, while a suitable replacement is considered. Strangely, Cisneros seems to believe that he nominated Fermin to a nonexistent "airport representative" position on the committee -- even though official documents from the Treasurer's Office state Cisneros nominated Fermin for a seat representing the "public at large."

"The airport went through, as everybody knows, a large expansion project, and because of that project, the airport was a large source of funds that were invested by the Treasurer's Office. I think it was, for many years, the largest depositor in the Treasury Department's pooled fund. Now that that project has been over for some time, and the funding for that level is different, we're looking to replace the airport representative, and replace it with someone from another department," Cisneros says.

When I asked Cisneros whether he had read the two-paragraph legislation at the Board of Supervisors calling for approval of Fermin's nomination to the "public at large" committee seat, he said, "I don't have it right in front of me."

"There's a lot I've been doing. I've been treasurer less than a year. We've been working hard. I've been doing a lot of things in the Treasurer's Office," Cisneros added.

About The Author

Matt Smith


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