WAS CONVICTED SMOG-CREDIT SWINDLER ANNE SHOLTZ PART OF SHADY INTERNATIONAL ‘MONEY REPATRIATION’ SCHEMES?
August 20, 2009
By Chip Jacobs for the Pasadena Weekly
The demise of Anne Sholtz’s once-grand life is evident in the smaller things. It’s there in the GPS-tracking bracelet — standard issue for felons in home detention — that looped around her ankle for a year, and in her near-dormant passport. It’s traceable in her pillow, which rests today in leased home miles from the $5 million hillside estate that had broadcast her transformation from Caltech economist to business phenom.
Yes, the wreckage from that existence — the economizing, the isolation from connected friends who now shun her — is graspable.
Where the picture turns as murky as whisky-brown Southern California smog is how Sholtz, as a then-thirtysomething go-getter, was able to deceive the very air-pollution market she helped conceive, and the lessons that holds for keeping financial crooks out of the trillion-dollar, greenhouse-gas trading system that President Obama has trumpeted as a key to curbing global warming.
Unless you’re in the arcane field of emissions trading, chances are you’ve probably never heard of Sholtz before. Last April, the former Pasadena emissions broker was convicted in federal court of fraud relating to a multimillion-dollar deal for credits in Southern California’s novel smog-exchange. Despite pleas that she sock Sholtz with years behind bars, US Central District Court Judge Audrey Collins gave her just a year in home confinement.
Fortunate with a light sentence in that downtown LA courtroom, Sholtz nonetheless sustained heavy losses outside of it, squandering, among other things, her chance to build a unique and lucrative pollution-trading business, with access to Obama or Gov. Arnold Schwarzenegger as an industry confidante. Those opportunities gone, she now drives her mother’s car, not the Mercedes or SUV she once did. Rather than expanding her ideas into climate change, she checks in with her parole officer.
Blown prosperity for Sholtz, it’s been no bonanza for others, either.
Between criticism over its secretive, mixed-bag prosecution of her and evidence of Sholtz’s role in a scheme to extract millions in overseas US aid with men purporting to be American intelligence and military operatives, the Department of Justice’s LA office probably wishes she would just fade away. Local smog regulators at the South Coast Air Quality Management District (AQMD), whose market-based regulation proved vulnerable to her deceptions, can relate.
Trouble is some events are just too big to disappear. And the Sholtz case, no matter its relative obscurity or connection to complex regulations, is important because it underscores the need for vigorous oversight of emissions markets against seemingly inevitable Wall Street-style chicanery.
Saying that she hopes to reconcile the events that dragged her from eco-visionary to convicted felon, Sholtz, 44, gave the Pasadena Weekly her first public comments in seven years. These days, she’s a freelance auditor examining white-collar fraud (ironically, for the federal court system that processed her case) and proclaims herself “happy” and “debt-free.”
Just don’t mistake that resilience for satisfaction, or expect to hear weepy remorse from her. Channeling other emotions, Sholtz said she’s “disappointed” in how prosecutors and bankruptcy officials treated her and is perplexed over why the whistleblower tips she furnished them about bank money laundering and environmental corruption seem not to have been pursued.
“Years ago I was depressed I’d made bad decisions, which led to one disastrous deal and my companies unraveling,” Sholtz said over lunch at a location she asked go undisclosed, fearing former associates she claims have threatened her. “I’ve never said anything about this whole experience until now. The only reason I’m speaking is because I’m tired of the misperceptions.”
Bound to happen
If two Republican congressmen skeptical about Obama’s carbon-cutting plan have their way, Sholtz’s story may yet capture national attention. This spring, US Rep. Joe Barton of Texas, the ranking member of the House’s powerful Energy and Commerce Committee, and Greg Walden of Oregon, ranking member of the House’s Oversight and Investigations Subcommittee, demanded the US Environmental Protection Agency provide a mass of information about the Sholtz case to them, based partly on the Pasadena Weekly’s coverage of her.
“We believe this case has great relevance in the context of the pending legislation on climate change,” Barton and Walden wrote in a May statement, citing doubts that federal authorities have the money and legal punch to adequately police a national greenhouse-gas market.
It appears those doubts will be tested. An Obama-backed bill requiring industry and public utilities nationwide to buy and sell federally auctioned permits to emit carbon dioxide and other greenhouse gases under a so-called “cap-and-trade” regimen narrowly passed the House in June. Formally titled “The American Clean Energy and Security Act of 2009,” the legislation, which includes numerous new energy-efficiency standards and initiatives, represents the most seminal change in US environmental policy since passage of 1970’s Clean Air Act.
The 1,300-page bill, co-written by House Democrats Henry Waxman of Los Angeles and Edward Markey of Massachusetts, next goes to the Senate. The overriding objective is to reduce US greenhouse gases from 2005-baseline levels so that by 2020 aggregate levels are down 17 percent and by 2050 they’ve shrunk a colossal 83 percent.
(Global warming is caused by the atmospheric buildup of carbon dioxide and other gases that reflect some of the Earth’s heat back towards the planet instead of being dispersed into space. Many scientists contend the phenomenon is imperiling the Arctic, biodiversity, food production and weather patterns.)
Hopeful as the the White House is about cap-and-trade as a lever to reign in heat-trapping emissions, even enthusiasts acknowledge that the complexities are jaw-dropping, if not for the sheer mechanics of it, then the geographic lines, industrial sectors and differing populations it will transect. Roughly six billion tons of emissions could be traded yearly at first, estimated David Kreutzer, an economist at the conservative Heritage Foundation in Washington, DC. Entities discharging more than 25,000 tons of greenhouse gases annually — non-nuclear power makers, oil refiners, natural gas producers, coal-fired steel plants, among others — will participate.
Detractors believe with the money at stake, white-collar cheating is a certainty. Between now and 2035, greenhouse-gas permits may reach $5.7 trillion in value, Kreutzer said. Some investment houses are already gearing up to act as trade middlemen.
Oddly, the watchdog angle was barely touched on during congressional deliberations. Attention mainly focused on provisions allowing companies to soften emission damage offsite, even overseas, if it’s cheaper, and the initial giveaway of 85 percent of credits to carbon-heavy businesses and regions facing sharply higher energy prices.
As the bill stands, market oversight will be spread out among the Federal Energy Regulatory Commission, the EPA and several unspecified agencies. “Most of the people I talk to think [the market] will be set up for fraud,” said policy analyst Joel Kotkin. “There’s scamming and then there’s scamming.”
Simultaneously, seven Western states and parts of western Canada are considering launching their own regional cap-and-trade under a Schwarzenegger administration plan. It’s aimed at rolling back carbon dioxide emissions to 1990 levels by 2020. The Western Climate Initiative may be dissolved or modified if a national market is approved.
Until then, West Coast officials are studying how to ward off cheaters in areas such as insider-trading, excessive speculation and market manipulation.
Sometimes the threat hides in the open.
LA’s implacable smog problem stood to make the Sholtz rich and maybe more influential. A dark-haired woman with wide-set eyes and a slight Midwestern twang, she grew up the brainy daughter of an aeronautical engineer. Schooled in Minnesota and elsewhere, Sholtz said her aptitude in math and science won her countless honors and early interest from NASA. It was a job offer teaching economics at Caltech that pulled her from Washington University in St. Louis, where she was in a doctoral program, to Southern California. Her timing was superb.
The Cold War had just ended and California’s recession was buzz-sawing thousands of jobs. Bigwigs weren’t debating carbon footprints. They were hollering about regulatory overkill in the fight against chronic smog. Legislators, lobbyists and boosters, convinced that costly rules were suffocating manufacturers, saw their chance to emasculate AQMD’s power. To neutralize the threat, the air district offered something chancy.
The AQMD hadn’t invented the concept of injecting market principles to detoxify the environment and allow industry leeway in deciding how and when to run its smokestacks, towers, generators and other machinery cleaner and greener. That originated with academics decades earlier and then was embraced by the first Bush’s administration to address “acid rain,” the result of harmful sulfur dioxide emissions from Midwestern plants that drifted over Northeastern states. Most consider the congressionally adopted program a success. Whether it will translate well for a prodigiously larger national greenhouse-gas market is anyone’s guess.
It’s for this reason that LA’s experience also is instructive. Instead of continuing to use fine-print dictates to regulate individual machinery at power stations, oil refiners, cement companies, defense plants and other manufacturers, the AQMD in 1994 gambled on economics. Some tactic was needed to chop overall emissions by 70 percent to meet national clean air standards.
Environmental groups fretted that the smog cap-and-trade concept was a recipe for stalling progress, but regulatory chic was in trader’s garb. The spectacle of LA’s notorious air pollution being traded like a blue-chip stock sounded exotic and the world press flocked to the district’s eco-conscious Diamond Bar headquarters to hear the details.
Under the now 15-year-old market, 332 of the area’s heaviest polluters are allotted credits based on their aggregate emissions of two harmful chemicals: oxides of nitrogen and sulfur. These credits, calculated from baseline production levels, essentially are permits to pollute by the pound. If an entity reduces more of its discharges than required under its cap set by regulators — usually by installing high-tech, gunk-trapping equipment — it can sell the differential between what it’s allowed to emit and what it actually released into the skies (or expects to) to others in the form of credits. (A company can choose not to trade, just as long as its emissions fall below its limits.) Every year, firms’ emission allotments shrink by a certain percentage so pollution dips regionally. Each credit is assigned a period for its one-year use, the date it was issued and one of two geographic zones it can be used in.
To date, there have been 5,170 trades worth $980 million in the “Regional Clean Air Incentives Market” (RECLAIM). District officials assert that it’s achieved it goals, shrinking nitrogen oxides 73 percent and sulfur oxides 59 percent. Trades are made company to company, or through broker-type middleman.
Here’s where symmetry enters. During the RECLAIM design phase, the district solicited technical expertise from lawyers, academics and others, bidding out consulting contracts to some of them. The Pacific Stock Exchange and Caltech received work doing market analyses and Sholtz was on the team. It was there she hobnobbed with AQMD staff and there she promoted two concepts of her own: a plan to stabilize prices and planning by setting up two staggered cycles for RECLAIM credits expiring in a given year, and to deter fraud by assigning credits identifying numbers, somewhat akin to a bar code, so officials could track their movements. Only the staggering portion of the plan was approved.
Jack Broadbent administered RECLAIM for the district back then and remembered Sholtz. “She came across in a very professional manner, pretty slick, part advertising, part substance,” said Broadbent, now executive officer of the Bay Area AQMD. “Anne did a good job of ticking a number of us off. She asked what air pollution regulators know about these … ideas.”
Arrogant or merely self-assured, few seemed as poised to capitalize on RECLAIM as the ever-hustling Midwesterner. While still working out of her apartment and teaching at Caltech, as well as at USC as an environmental law scholar, she founded a smog-credit exchange allowing buyers and sellers to arrange favorable deals. Every RECLAIM transaction in this eBay-like auction made her a 3 to 6 percent commission.
Her company, Automated Credit Exchange, touted itself as the first-ever electronic trading system for pollution credits. Unlike traditional brokerages such as Cantor Fitzgerald, Sholtz’s system relied on analytical, NASA space-exploration software licensed through Caltech to create optimal trades from a mishmash of data. Industrial heavyweights like Disney, Northrop-Grumman, Chevron and the LA Department of Water and Power signed up as clients; the Pacific Stock Exchange, Bank of America and US Trust served as trade clearinghouses.
In February 1996, Sholtz celebrated her company auctioning a record 2.4 million RECLAIM credits in a single week. A Los Angeles Times story the next year exalted Sholtz’s ingenuity, quoting one client who called it “absolutely wonderful.” She’d later set up shop with an office on South Raymond Avenue in trendy Old Pasadena.
With money and publicity flowing, and nibbles about selling her analytical software to advertisers and officials auctioning federal airwaves, Sholtz appeared destined for the cover of Forbes. There were trips to the United Nations, meetings with Al Gore, that 7,000-square-foot estate with koi ponds in gated Bradbury a few miles east of Pasadena, exhilaration for what lay ahead.
It was a Horatio-Alger-meets-green-entrepreneur fairytale.
Unfortunately, some fairytales end miserably and in 2002 nine of Sholtz’s clients complained to the AQMD that the fast-riser known for her wonkish lingo and oft-clingy outfits had defrauded them in what would become a convoluted bankruptcy of her firms, with claims in the $80 million range. The EPA was summoned. Soon, investigators zeroed in on one particular transaction.
Beginning in fall 1999, Sholtz informed one of her clients, a New York-based energy trading firm called A.G. Clean Air., that then-Mobil Corp (now Exxon-Mobil) needed to purchase about $17.5-million in RECLAIM credits to operate in the LA Basin. Mobil indeed had an option contract with her to acquire those credits, and if A.G. sold them to the oil titan through her, it could make a bundle, perhaps $5 million, depending on credit prices. But when A.G. couldn’t buy enough credits to complete the Mobil transaction itself, Sholtz discovered that credits from her own company that she needed to use had been committed elsewhere by an employee while she was out ill. She had a dilemma.
To trick A.G. into believing she could still consummate the deal, Sholtz staged an act, court records show. From November 2000 to April 2002, she emailed and faxed fraudulent sales documents to A.G., including phony invoices showing Mobil owed her about $16 million when in fact it did not under the option contract. In more artifice, she emailed A.G. officials “falsified” correspondence between her and a Mobil executive that she was impersonating. The fakery was intended to stall for time until she could unload A.G.’s credits to someone else besides Mobil and pay A.G. what it could’ve made with the oil company if the original deal could’ve been completed. Eventually, A.G. caught on to the stonewalling, technically known as “lulling,” and demanded to be paid in full. By then, authorities were onto her.
A.G. and Mobil declined comment for this story.
An easy fix
Sholtz argues, as she has in court documents, that the initial charges against her were overblown, and in one regard she has a point. Contrary to early media accounts and government reports about her, she never trafficked in counterfeit credits because there weren’t any.
Her downfall, she insisted in interviews and in her plea agreement, came from her entanglements with a smooth-talking Texas financier named Jimmy Keller. He was on Sholtz’s payroll from 1998 to 2000 before she fired him, and Sholtz said she last spoke with Keller in 2002. One of her ex-associates said he died several years ago.
Sholtz said it was Keller who committed the credits that could’ve stopped her prosecution by encumbering them in a phony, high-yield investment scheme involving bank notes. She said it took her about eight months to reconstruct what had happened. By then, RECLAIM credit prices had plunged, diminishing the money she had to throw at the problem.
“I wasn’t panicked — I was angry,” Sholtz said. “I should have just said, ‘I will find a way out,’ and admit I messed up. I could’ve sold my part of the company and learned a big lesson. But I thought nobody would’ve traded with us anymore or that A.G. might’ve forced us to sell the company to them and fire our employees. I didn’t have the courage or maturity to ask for help.”
Because AQMD regulators were blind originally to what had transpired, Sholtz continued barreling forward. Among other actions, she solicited money from new investors to pay off existing ones in a “Ponzi-type” scheme, Howard Grobstein, the court-appointed bankruptcy trustee, said in filed documents. In another instance, she blamed the destruction of the World Trade Centers during the 9/11 attacks for missing deal paperwork.
Sholtz disputes she misled as many people as some have charged, and said she felt demonized. “There’s been so much misinformation, it’s astounding,” she said. “Some people really didn’t want to know the truth. They just wanted to blame me without looking at themselves or their associates.”
Nonetheless, in February 2001, while still misleading A.G., Sholtz assisted the Netherlands test its own nitrogen-oxide emissions-trading program. Months later, she tried playing white knight when RECLAIM credit prices soared during the California electricity crisis by offering to stabilize trading through a centralized auction similar to hers. Gov. Gray Davis had ordered power plants statewide to generate electricity however they could, even from high-polluting machinery. Traders and speculators from Texas to New York seized the opportunity, hoarding credits to sell to utilities frantically buying more than their allotment. With RECLAIM nearing meltdown, district brass temporarily pulled utilities from the market. They also spurned Sholtz’s rescue plan.
The next year, her two promising companies flopped into bankruptcy. What she hoped would be a reorganization plan became dissolution. It got messier. Investors claimed losing retirement accounts, college funds and nest eggs in the collapse. Multimillion-dollar settlements were cut with two large energy entities, Calpine and Intergen. The Bradbury mansion was sold. Where she was once hailed as brilliant, foresighted and charming, she was now portrayed as dishonest and, according to one official, “manipulative.”
Just as that was occurring, questions arose about her PhD cited in stories, the Netherlands and elsewhere. In actuality, she had no doctorate because she hadn’t completed her dissertation at Washington University. Sholtz said that a colleague had introduced her at a public function as “Dr. Anne Sholtz” and since she was close to earning her advanced degree, she let the lie stand. “That would have been so easy to fix,” she said, “but, again, it required a level of maturity that I didn’t have.”
Gaming the system
EPA agents arrested her at a Monrovia gym in 2004. The theatrics of it, Sholtz suspected, were meant to intimidate her. “I was handcuffed and outside there were guys with big guns,” she recalled. “They wanted to embarrass me. Did they think I was going to flee in my Spandex?”
The incarceration of a niche celebrity chummy with AQMD brass at the Metropolitan Detention Center rattled others, too. Inside local environmental and regulatory circles, feelings of betrayal, fury and anguish swirled.
She’d eventually be indicted on six federal counts stemming from the A.G.-Mobil deal. One knowledgeable source said Sholtz lucked out, because federal investigators had turned over to the Justice Department enough evidence for more than 80 counts.
Charges filed, the white-collar case seemed to turn invisible, as if the region’s murky air — still the unhealthiest in the nation for ozone and particulate matter — had swallowed it. Four years lapsed from her 2004 arrest to her 2008 sentencing, and even then her punishment warranted no Justice Department press release.
The two prosecutors handling the case, Assistant US Attorneys Joseph Johns and Dorothy Kim, have steadfastly refused comment beyond Johns saying last year it was a calculated gamble to have Sholtz plead guilty to a single count. Adding to the mystery in United States v. Anne Sholtz, many of the key court documents, the transcript of her sentencing hearing among them, remain quarantined by judicial order. Justice Department spokesman Thom Mrozek said one reason is that her case involves “under seal filings” that might signal ongoing investigations into other areas.
Wayne Nastri, the EPA’s West Coast administrator, was practically the only significant suit to speak up. In a January 2008 letter to Judge Collins, Nastri recommended she hand Sholtz a message-sending sentence. “Environmental regulatory programs which utilize market mechanisms,” Nastri wrote, “will fail if the integrity of such programs can be seriously compromised.”
At the April 2008 sentencing hearing, which caught many off guard because of the case’s frequent delays, Sholtz wept and foretold of family harm if she were given hard time. But what mattered to Collins, according to numerous people present that day, was that Sholtz’s companies had paid A.G. so it actually turned a profit in its trade-dealings with her over time, in spite of her misleading actions. (Sholtz estimates that amount at $28 million.) Citing that and other factors, Collins stunned the Justice Department, EPA and others by giving Sholtz a skimpy sentence: one year of home detention as part of her five years of probation, plus a conditional ban on AQMD emissions trading.
In a surreal end to one of the bigger cases of cap-and-trade criminality, Collins chided prosecutors for their strategy while praising Sholtz’s defense attorney, Richard Callahan of Pasadena.
Even so, environmentalists and others say it’s incumbent on regulators to learn from Sholtz’s gaming so it’s not repeated on the bigger carbon stage.
“We definitely see [this] fraud as a cautionary tale for the state and the country as we move toward greenhouse gas regulations and potential market mechanisms,” said Bill Magavern, director of Sierra Club California. “In discussions about it, I’ve brought up the fact that there has been outright criminal fraud and I find that most people don’t know about it.”
Operation Bald Headed Eagle
Thumb through the government paperwork against Sholtz and you’d think she’d confined her ambitions to smoggy Southern California. The felony that torpedoed her career, after all, involved Torrance refiner ExxonMobil Corp.
What you’d never glean from the prosecution documents is Sholtz’s involvement in a spectacular and alarming international venture — one intersecting the worlds of espionage, foreign policy, environmental markets and con-artistry — in the years before authorities were chasing her.
All of that has been buried until now.
A months-long Pasadena Weekly investigation, based on business records, operational memos, wire transfers, invoices, resumes and other documents scooped up by federal and bankruptcy officials and obtained by the paper, coupled with Sholtz’s own rendition of events, tells part of this bizarre story of cap-and-trade money gone sideways.
Time warp back to 1998. After losing about $1.7 million in soured deals in the AQMD’s smog-cap-and-trade program when a credit’s buyers’ check bounced, Sholtz said that Keller, the well-connected financier-dealmaker she’d hired that year, convinced her there were opportunities to recoup the losses while serving her country.
Keller, she said, told her the US government farmed out contracts to private firms for an extraordinary purpose: returning to federal coffers some of the government bonds, gold, cash and other valuable items distributed to America’s allies, in some cases decades back. Whether they were first allocated as foreign aid, secret payments or other forms of US funding was not evident.
According to Sholtz, Keller said that once the items were returned to the US, they could be converted into high-yield securities able to generate revenue. Contractors involved in this so-called “repatriation” or “extraction” effort could use the interest from the securities for their own business and charitable purposes before delivering the items back to the US Treasury.
Sholtz said Keller introduced her in Las Vegas to a group of men supposedly able to pull off these overseas extractions. Many of them had CIA and military special-forces backgrounds, and she said Keller told her it was “normal business” to employ them. “He said, ‘You’re special, the government has been watching you.’ I fell for it hook, line and sinker.”
Sholtz wasn’t exactly suspicious of the older Keller in those days. In fact, she was in a romantic relationship with him, impressed by his smarts, interests and charms. “He swept me off my feet,” Sholtz said. “He had that Southern air about him.”
So, during the same summer the Monica Lewinsky scandal erupted, Sholtz, then 33, launched a money-retrieval mission dubbed “Operation Bald Headed Eagle.” Its target was a pallet of boxes stashed near the Philippine capital of Manila allegedly containing $20 million in mid-1930s US Federal Reserve notes, plus German bonds, platinum bars and other commodities of mysterious origin and undisclosed value. Based on her operational memos, the former Caltech professor seemed spellbound by it all.
With the money she expected to rake in, Sholtz said she hoped to pave over the financial hole she claimed Keller dug for her, re-capitalize her companies and support local charities.
To accomplish this trifecta, she founded a “charitable trust” supposedly blessed by the United Nations to take initial possession of the goods, memos show. Sholtz said one of the lawyers assisting her set up “Gold Ray Ltd,” which was chartered in the British West Indies. Technically, her companies, Automated Credit Exchange and its parent, EonXchange, were not part of Gold Ray.
Still, mission financing was daring. According to a Sept. 14, 2004, memo by Kathy Phelps, the lawyer for the court-appointed trustee overseeing Sholtz’s bankruptcy proceedings, an outwardly normal series of RECLAIM trades actually was Sholtz misappropriating roughly 500,000 credits owned by clients Chevron Corp., Mobil and oil-and-gas producer Aera Energy, which she then sold to power maker Southern California Edison for $1,913,162. In a June 18, 1998, memo from Sholtz to Edison, Sholtz instructed the utility to pay that amount to a Florida attorney assisting her with “Eagle.”
Phelps, approached about her memo titled “EonXchange – analysis of stolen credits,” said she and the bankruptcy trustee turned over evidence about “Eagle” to the government. Phelps said the scheme wasn’t the focus of the bankruptcy proceedings, which are just now winding down, but wonders if the losses incurred were a reason why Sholtz initiated some of the financial improprieties later alleged. “The depth of what [she] was involved in was extensive,” Phelps said.
Sholtz, shown the memo herself, adamantly denied the RECLAIM credits sold to Edison were stolen, though she conceded she lacks the records to pinpoint where they originated. “The money we made from the Edison deal was our money!” Sholtz added. “We just sold [Edison] credits we got stuck with from another transaction. It wasn’t some grand scheme.”
Within days, the windfall from the Edison transaction became the down payment on her Philippine plan, records show. At its core, the mission involved retrieving the booty in a meticulously choreographed transfer from a holding company near Clark International Airport outside of Manila and flying it 7,400 miles to McCarran International Airport in Las Vegas.
An El Segundo aviation outfit calling itself “Air America Holdings, Inc.” agreed to transport the goods on an executive Boeing 707. Sholtz negotiated with the firm’s president and a pilot with his name claimed to have been a CIA pilot for the agency’s Air America charter airline, which was exposed as a CIA paramilitary asset during the Vietnam War. The airline later disbanded.
This pilot, in a missive on a conspiracy-focused Web site, said after the war the CIA formed a new, covert airline under his last name. With the agency’s assistance, he said he flew missions from 1974 to 1988, ferrying arms to Asia, the Middle East, even the Soviet Union. By the late-1980s, he said he shut down the charter because he believed CIA operations were hurting US interests. Two years later, he asserted the Justice Department charged him with wire fraud to “silence and discredit” him. A book also captured his story.
This pilot, whose name and others the Weekly is withholding because none of them were charged for their participation in “Eagle,” did not return phone calls.
Sholtz said this pilot not only told her he was still associated with the CIA; he instructed her on what to write in operational memos. Whether you believe her insistence she was merely the front, and not a ringleader, this was no standard mission. Unspecified members of the “Eagle” team declared holding “diplomatic immunity” and other high-level governmental protections (one called a “rain repellent”) freeing the plane from customs, immigration and security checks, Gold Ray memos signed by Sholtz stressed repeatedly.
The team itself was no less formidable. A retired US Army lieutenant colonel with 14 years in US Special Forces and a Philippine colonel were two of the point men. Another, the overseas lawyer representing the Philippine company maintaining the goods, was once connected to Philippine President Ferdinand Marcos’ administration, several knowledgeable sources said. Sholtz recalled meeting this lawyer to discuss “Eagle” in Sri Lanka, where she said he told her the loot was given to Marcos’ people by US authorities who supported them. Marcos was deposed in 1986.
Emails and calls to the Philippines embassy about the colonel and to the Philippine bar association about the lawyer went unreturned.
Sholtz and Air America Holdings settled on a $200,000 fee for the chartered 707 to make the three-leg trip that would take it from Los Angeles International Airport to the Philippines and then to Las Vegas, invoices show. On June 29, 1998, the pilot wrote to Sholtz certifying that “traditional formalities” for personnel and cargo “will not be observed” under a “safe passage” understanding in Las Vegas, implying Nevada airport personnel were aiding him.
Asked why she believed Washington would condone such actions when the Air Force could dispatch a C-130 to collect the pallets, Sholtz responded: “I wasn’t looking at the mechanics. We were meeting real people who were supposedly working with the US government. We needed to help our country. I was starry-eyed, thinking this is going to be fantastic! You don’t think something this big could not be true.”
Guy Bailey, a Miami attorney who represented Sholtz on “Eagle” before a falling out, remembered her recounting the same story as the documents paint. “She said she was in some sort of contractual arrangement with the CIA and the Treasury Department to go retrieve currency, gold or something from the Philippines,” said Bailey. He said that as far as he knew, the 707 arrived in the Philippines, waited a week to collect the goods and left with an empty cargo hold for unexplained reasons.
Sholtz said she’s heard that version and another one where the booty was returned to the US, and everybody profited but her because she’d been swindled. By mid-summer 1998, Sholtz said “Eagle” team members wouldn’t answer her questions, then her calls. It was as if they’d vanished. “I don’t know what happened. Sometimes it depends on the day,” she said. “I thought they’d chosen us to do this great work, and it was so flattering and if you have any narcissism, it’s ‘Oh boy.’ Nobody said it was illegal. Now I’m thinking there has to be a conspiracy.”
While it seems likely “Eagle” was little more than a Nigerian-type scam on Sholtz, the fact that RECLAIM money was alleged to have helped finance it infuses it with relevance in analyzing how well authorities have policed cap-and-trades heretofore. There’s also the issue of Washington’s awareness of former — or phony — spies and soldiers portraying themselves as agents on government-sanctioned missions.
For its part, the CIA denied involvement with “Eagle” and its participants. “These individuals, to my knowledge, neither have, nor have had, any affiliation with the agency,” said agency spokesman Paul Gimigliano. “We’re not part of this tale.”
State Department spokeswoman Laura Tischler said diplomatic officials knew nothing about “Eagle,” either. She did note it’s illegal to claim diplomatic immunity if it’s not officially conferred. The Treasury Department never answered the Weekly’s inquiries. In New York, the UN office of legal affairs found no evidence after searching its records that the organization was affiliated with Sholtz or Gold Ray. A UN official said the organization doesn’t typically approve private charities, and says it’s illegal to misuse the UN’s name.
Meanwhile, back in Los Angeles, the silence over “Eagle” today is crushing. All three companies allegedly fleeced of their RECLAIM credits to help finance the scheme — Chevron, Mobil and Aera — either refused comment or never returned calls. Edison spokesman Steve Conroy would only say the utility was reviewing the matter after the Weekly’s inquiries.
Despite an ample paper trail and a four-year investigation, the US Attorney’s Office never charged Sholtz, Keller or her other associates with a potential array of felonies stemming from alleged misuse of smog-credit money or the extraction scheme. One natural question that arises is whether the US intelligence community or other federal officials pressed the Justice Department not to prosecute “Eagle” for unstated reasons, and whether that prompted the record-sealing and prosecutorial silence.
Justice Department spokesman Thom Mrozek rejected the notion of external arm-twisting. In fact, his only elaboration on the entire Sholtz matter was that his office “has never been influenced by political pressure” from outside.
EPA officials were disappointed “Eagle” wasn’t prosecuted or fleshed out by the FBI and others. In a statement for this story, the EPA said: “[We] investigated this fraudulent scheme because companies and individuals must legally and accurately trade air pollution credits if cap-and-trade programs are to succeed and air emissions are to be actually reduced.”
The agency had known about the offshore ventures for years. In 2004, Ronald Modjeski, the EPA criminal investigative agent assigned the case, filed an affidavit confirming Sholtz’s deal-making for federal-reserve notes, currency, gold and other financial instruments for “large amounts of money.” The EPA refused to allow Modjeski, who spent nearly 4,000 man-hours investigating Sholtz, to be interviewed.
In hindsight, Sholtz said she believes Keller and his associates targeted her all along. She thinks they probably researched that her maternal grandfather, David Sholtz, had been governor of Florida during the 1930s, and decided to appeal to her public-service instinct.
Soon after she fired Keller in 2000, Sholtz said he began placing threatening phone calls describing what she was wearing, her location and how he didn’t plan on any jail time to scare her from testifying about him. In Pasadena in 2002, Sholtz said another “Eagle” participant tried intimidating her, warning, “You know people disappear all the time.” She refused to identify him.
“I told the US attorney during my prosecution that there’s this whole world where people are roped into thinking they are working with the CIA and military personnel or [the National Security Agency] and they didn’t seem interested. I got scammed, but so do a lot of people and they’re too embarrassed to talk about it.”
After “Eagle” fizzled, Sholtz didn’t lose her appetite for currency repatriation. Just months later in February 1999, she set her sights on the western coast of Africa, documents and interviews indicate.
This time, Sholtz hired Dale Toler, a former combat pilot who is now CEO of a Virginia electronics-technology company, to haul back $35 million in US currency supposedly squirreled away in Ghana. The trip began with Toler meeting a man who claimed to be the nation’s security chief at the Golden Tulip hotel in Accra, the capital. The African, it turned out, did not hold the position he boasted, but he knew plenty about the money, and Toler followed him to a fortified compound to inspect it. There, Toler quickly determined it was counterfeit bills or just scraps of paper in shrunk-wrap packages. Toler had to flee afterwards when the Africans driving him back to his hotel turned the wrong direction.
Sholtz estimates she lost more than $125,000 of her own money on the Ghana mission. There’s no indication RECLAIM credits were involved.
Toler in an interview confirmed without giving details that he traveled to Ghana as Sholtz’s agent. He said one of the reasons he agreed to go, despite suspecting beforehand the $35 million was bogus, was that Sholtz herself was planning to make the trip, and that she likely would’ve been either kidnapped for ransom or killed. (Sholtz acknowledged she had intended to go.)
Toler, overall, blamed Keller for whipping up Sholtz, who he described as dishonest and gullible.
“Much of this [currency repatriation] is fantasy,” Toler said. But Sholtz “believed there was money in the Philippines and Ghana, even though she’d been advised by me it didn’t exist. It was her greed. People made a lot of money off her. I’ve seen over the years folks who think the world revolves around a deal.”
Toler said that Keller died in the Bahamas a few years ago; this may explain why the feds have had trouble saying whether they ever charged him.
About five years earlier, in October 1992, a congressional probe into international bank fraud suggested that Toler’s firm, a now-defunct Virginia machine-tool company called RD&D, was part of an alleged clandestine CIA-run effort to arm the Iraqi military and curry favor with Saddam Hussein’s government. A federal prosecutor appearing before a Senate intelligence committee testified that Toler’s company was not a CIA front, but wouldn’t respond when asked if Toler had worked for the US National Security Administration, which conducts global eavesdropping operations.
Whatever his background, Sholtz said she was stunned at Toler’s negative comments about her. Sholtz said that Toler in 2002 tried to locate money she contends that Keller had “stolen” from her. “Toler said we were the victims, and now he’s changing his story,” Sholtz added. “I’m speechless.”
Also involved in the Ghana operation, records and interviews show, was the Jedburgh Group, a Lake Mary, Florida-based firm that provides intelligence, security and financial-services to industry and governments worldwide. Former US intelligence and military officers work for Jedburgh. The best known is probably retired US Major General John Singlaub, a decorated military officer involved with the CIA’s predecessor agency, the Korean War and American counterinsurgency efforts. In the late-1980s, he was connected to the Iran-Contra scandal and anti-communist, ultra-right-wing groups in Central America.
Jedburgh executive David Keith Freeman confirmed his company was a client of Sholtz’s “for a short time a very long time ago,” and said it helped evaluate the mission’s “potential for recovery.” He refused further comment about Ghana and other work the firm provided for Sholtz, citing client-confidentiality rules. Freeman did say the practice of people posing as former or current US intelligence officers in financial scams is fairly widespread and known in the industry as “hooky spooky.”
It comes in and it goes
So why weren’t these activities in the Justice Department’s crosshairs if they wanted to send a message about tainting cap-and-trades as the environmental regulatory shifts toward them? And even if there are legitimate ex-spies and soldiers traveling around the globe on behalf of someone like Sholtz, shouldn’t there be some transparency?
USC law school professor Rebecca Lonergan, who worked in the US Attorney’s Office in Los Angeles for 16 years, said prosecutors probably made a judgment call based on what they could prove in court, what evidence they could gather overseas, the intricacies of her different schemes and other factors.
“When you have a person like [Sholtz] one of the difficulties is sifting through the mass of seemingly culpatory evidence,” Lonegran said. “You have a person who would make a great movie living as a con artist but you have to find out the individual schemes. Criminal prosecutors simply can’t charge a person with being a fraudster.”
True as that may be, there’s still interest. Larry Neal, deputy Republican staff director for the House Energy and Commerce Committee, said Congressmen Barton and Walden believe it’s important to remove the secrecy from the Sholtz matter to follow where it leads. “We haven’t seen allegations on currency-repatriation scams, but it is our aim to gather all facts surrounding the Sholtz case, regardless of what they entail,” Neal wrote via email. “… It has been more than a year since the sentencing and there’s still no public justification for all the judicial cloak and dagger. After all, the case was an about an Anne Sholtz cap-and-trade scam, not an al Qaeda terrorism cell.”
For his part, AQMD Executive Director Barry Wallerstein not only refused an interview about Sholtz’s activities, he forbade anyone at the agency from commenting for this story. (His feelings about Sholtz aside, Wallerstein is said to be upset about a book on the iconic Los Angeles smog crisis this writer co-authored with a former AQMD staffer.) But that doesn’t mean he’s not talking.
In a seven-page letter to US Rep. Henry Waxman, the Los Angeles Democrat who chairs the House’s Energy and Commerce Committee, Wallerstein portrayed the district’s smog cap-and-trade as virtually bulletproof to criminality. In this letter, prompted by congressional interest in Sholtz, Wallerstein ticked off the district’s “robust” computer database that checks the availability and ownership of credits, well-scrutinized trade registration forms and a three-person trade-approval team. “The safeguards … have been successful in preventing any fraudulent trades from ever being registered,” Wallerstein concluded.
Yet considering the breadth of Sholtz’s activities, questions about whether RECLAIM bankrolled attempted asset-repatriation ventures, and speculators’ profiteering of the market during the 2001-02 electricity crisis, there are obviously some cracks in the machine. Would stamping the credits with identification numbers and developing ways to police their ownership history in real time have helped?
“What this points up is that there had to have been a failure in the design,” said EPA Senior Counsel Allan Zabel. “It’s ridiculous if people can get away with this sort of stuff. The system must be sufficiently designed so that somebody trying to do it would trigger a red flag that brings in investigative interest.”
In answering some of Barton and Walden’s questions about cap-and-trade fraud, the EPA said its criminal investigative agents meet with AQMD officials weekly. As of June, the EPA reported it had no criminal cases with filed charges involving emissions-trading crimes —anywhere.
The story doesn’t end there, though. Between the time of her arrest and the date of her sentencing, Sholtz tried softening her punishment. In 2005, she testified in the trial of a con man who stole about $4.5 million from an Idaho businessman in a wire fraud case that she was aware of from her financial dealings.
More explosively, she offered to spill about what she knew about more sensitive subjects closer to home.
On April 9, 2005, her lawyer, Richard Callahan, emailed the US Attorney’s Office a two-page letter entitled “Areas of Possible Cooperation for Anne Sholtz.” Callahan wrote that his client would share “credible firsthand information” on four different subjects if it would help Sholtz’s plea agreement. Sholtz, Callahan wrote, knew about a “major US bank” that was engaged in money-laundering, check kiting, manipulation of subpoenaed documents, and even murder. In a direct reference to the “Eagle” scheme and others, Callahan said Sholtz had details about “fraud, money laundering [and] wire fraud by people claiming to work for the US government … in the ‘extraction of assets’ overseas …”
The last tipoff was a humdinger. Callahan said that Sholtz had knowledge of “repeated and flagrant violations” inside the air district’s RECLAIM program that resulted in retribution — and threats of more of it — against potential whistleblowers, and the release of over one million excess pounds of nitrogen oxide when AQMD personnel knew how to offset it. By 2007, RECLAIM had transacted about 40 million pounds of air pollution credits, reports show, so one million pounds in unauthorized discharges would be no small addition.
Sholtz, Callahan added, also knew about “manipulation of data [or presenting it in a misleading fashion] to choose projects that would lead to personal gain for … (AQMD) Board Members …”
This memo was the only subject in which Sholtz declined comment.
It’s not evident if any of these tips led to any arrests or investigations, because there have been no publicly revealed inquiries into RECLAIM since Sholtz’s arrest. A district spokesperson asked for comment referred back to Wallerstein’s gag order.
If all this seems like a crippling, humiliating and tragic slide for someone who might’ve ascended to eco-legend, Sholtz said she’s largely put it behind her as she moves towards new horizons that she intends to keep private. She’s not sure if she’ll re-approach the cap-and-trade world again if she’s allowed to broker.
“The RECLAIM business was exciting,” Sholtz said, her eyebrows arching. “Being able to do a transaction, solve a problem, make software do new things, help the environment. The money just comes in and it goes.”
Story link This web version is nearly identical to the one that appeared in the Pasadena Weekly.
A Q&A with Anne Sholtz will appear here later.
LA Weekly News Editor Jill Stewart contributed to this story.