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— A cork afloat on the ocean bobs up and down. By contrast, developer Corky McMillin bobs and weaves, to and fro, when discussing finances. It's time to uncork the secrecy behind the Corky McMillin Companies' financial backer -- a Minnesota-based group of hush-hush entities specializing in bottom-fishing, or buying junk debt of troubled or bankrupt companies.

It does some of that fishing from secret offshore tax havens. And disturbingly, through an offshore haven, it has been deeply involved in so-called "death spiral" or "toxic convertible" financing -- a process that scholars say is destroying companies and investor wealth.

The Minnetonka, Minnesota-based operation is EBF & Associates. Under its wing is Merced Partners, which is McMillin's lender at the extremely controversial Naval Training Center (NTC) conversion, now called Liberty Station, and at Otay Ranch. Merced is managed by another EBF operation, Global Capital Management.

Global, in turn, is the general partner of Global Bermuda Limited Partnership, based in the tax haven of Bermuda. In addition, Global Capital is investment manager of Lakeshore International, also sheltered by Bermuda's code of omerta. Lakeshore is called "the Offshore Fund" in official filings. In the late 1990s, Lakeshore was one of the major entities involved in death spiral and toxic convertible financing -- a process that famed La Jolla supply-side economist Arthur Laffer, who has seen the death rattle firsthand, describes as "terrible. It's not just one guy stealing from another. It destroys wealth. It takes real resources and makes them worthless. It destroys the whole company."

I will describe toxics and the death spiral in more detail below, but one thing is certain: you will get nothing out of Minnetonka. EBF does not respond to queries. I left two messages but was told that the company is private and does not talk.

McMillin is no better. I got no response to multiple calls. Several months earlier, when I first started to work on this project, I was officially told that McMillin and the Merced-related entities were both privately held. Ergo, no talkee. In my recent calls, I explained that, private or not, McMillin and Merced are involved in a very public project, spending taxpayer money. After all, McMillin paid $8 for property that is worth $1 billion, and on which the city has spent $11 million to acquire. And people are howling that McMillin has not come close to living up to his initial promises.

Sorry. Silence. Predictably, the city attorney's office isn't talking, either. However, there are public documents that the Minnetonka entities and the sick companies they invest in must file. But it takes time to dig them out online.

Back when the developer was lobbying the city council to get the Naval Training Center conversion contract, Corky McMillin was asked about Merced and its representative, who had earlier addressed the council. Replied Corky, somewhat disjointedly, "He's from Minnesota. Yes, he's a partner of ours at Otay Ranch so we have, uh, he has meetings out here every month -- either he or his financial agent -- and what happens is, uh, it's a lot like, I guess, in a public company. You buy stock in a company, and you own stock in that company. and if the company becomes worth more money, your stock becomes [worth] more money. What he does is loans an entity that my family is responsible for this money, he loans the money to us, and then the money is completely within our control." But, added Corky, "We keep him up to date."

Actually, an expert panel appointed to assess the financial stability of the companies bidding on the conversion job did not recommend McMillin.

In 1993, the Federal Base Closure and Realignment Commission decided to close the Naval Training Center. The city was named local redevelopment authority. In 1997, the city council made the job an official redevelopment project. The city manager appointed a six-person committee, headed by Milton (Mickey) Fredman, to assess bids from five developers.

The committee chose a subsidiary of Miami-based Lennar Corp., generally considered among the best-managed and most solidly financed American developers. The city manager concurred. The committee pointed out that Lennar would take full responsibility for the "historic core," including spending $33.9 million on infrastructure and rehabilitation of historic buildings. And Lennar would spend $14.3 million on similar activities such as rehabilitating the "education core."

Moreover, Lennar could finance the deal internally -- not relying on an outside lender, pointed out the committee. And Lennar had experience on other military conversion projects. McMillin came in second.

The committee asked McMillin about its financing but did not get down to nitty-gritty details, Fredman says. "They [McMillin] probably did show us one of their financing partners. The main thing was several items that Lennar offered that McMillin did not. The only reason we left McMillin as second choice is that it was local."

The committee had specifically asked McMillin whether it would match Lennar on the most important particulars, "and they said they wouldn't do it," says Fredman.

Then, recalls Fredman, Lennar and McMillin made their pitches to the city council. Under the ground rules, neither company was to alter the plan presented to the committee. Lo and behold, "McMillin completely changed it and started matching everything Lennar had offered," says Fredman. After McMillin changed its bid, the contract was created. "But when the contract was drawn up, it was not that way. They changed again," says Fredman.

"They [McMillin] were to come up with $10 million or $15 million for the arts [section], but now it's a loan, changed in their favor. Council permitted it. Most of us were very upset. We wrote a letter telling [city government] we were very upset -- that had not been what they [McMillin] had offered."

Why the favoritism for McMillin? Councilmembers admitted that one reason was that McMillin has donated very generously to local politicians. Also, the company has made civic gestures, supposedly for altruistic reasons. Sums up Fredman: "This guy [McMillin] was going to do so much for the city, and so far he has screwed [it] every way he can."

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