Just who owns NEO Consulting Inc. doing business as Affordable Housing Solutions Group, a company that enjoyed an exclusive seven-year franchise to manage Hercules’ affordable housing program and other redevelopment projects – collecting $4.2 million in the process – has become the subject of a debate that will have its first airing in court later this month.
The issue: Did Walter C. McKinney, an NEO employee who served as the city’s de facto affordable housing manager for almost four years, actually buy the company from former city manager Nelson Oliva’s family or not?
McKinney told the city council last year he had purchased the company, but in a recent court filing connected to the city’s $3 million lawsuit against NEO, Oliva and his three daughters alleging conflict of interest and fraud, McKinney says he did not actually buy the company because no stock was ever transferred.
McKinney’s attorney said her client thinks he was duped by the Olivas and believes the sale was invalid and the purchase agreement is worthless.
Eva Plaza, a Los Angeles lawyer representing McKinney, told Patch in an interview last month that NEO had few assets at the time McKinney agreed to buy the company and it became virtually worthless after the city cancelled nearly $1million in contract renewals last November. NEO received its last payments from the city on Feb. 11.
“He [McKinney] thought he was buying something of value and in fact the only value was the supposed good will that ended up having no value because NEO had no goodwill after a few months,” said Plaza. That goodwill evaporated, she said, when the city and the press “went all ballistic on NEO” a few months after he bought the company.
That furor erupted last December when Interim City Manager Charlie Long informed the city council that Hercules was going broke and recommended of many lucrative city contracts, NEO’s among them. Long had already $600,000 from NEO’s 2010-2011 contract, and now recommended terminating the company entirely, a move that would substantially reduced NEO’s value.
“NEO purported to have assets when the only asset it had was a piece of land that is probably worth less than $10,000, somewhere in the middle of the desert and that was it,” Plaza said. “There was nothing of value; there was an old laptop and an old computer.”
In fact, according to Plaza, when McKinney agreed to buy the company last July, he failed to notice the sales contract had been back-dated to 2009. That was the year Oliva’s three daughters, McKinney and a city employee first showed up in official documents as the company’s officers and directors.
Plaza declined to reveal how much McKinney agreed to pay for the company, but said he was supposed to pay “the seller, Mr. Oliva’s daughter, something like $22,000 a month, a portion, I guess of what he [McKinney] was being paid by the city and the RDA. I think he ended up paying for about four months.”
Plaza said her client believes he’s a “fifth wheel in this whole thing.” McKinney is not a friend of Oliva’s,” she said. “He [McKinney] knew Oliva from way back when they worked together for another city.” McKinney asked Oliva for work a few years ago and Oliva told him to “come on up. In the middle of 2010 he [Oliva] asked him [McKinney] if he would buy the company….”
According to Plaza, McKinney claims he was unaware of many things alleged by the city in its complaint. “This came as a major surprise to him. He didn’t know until he actually received the complaint,” she said. “He thought he had bought a company that, in fact, three or four months later there was no company.”
A Convoluted Corporate Trail
California and other official documents present a confusing patchwork of NEO ownership and control that raise questions about how much research was conducted by then-city officials when Affordable Housing Solutions Group was awarded its original contract in November 2003, and again when NEO Consulting Inc. received a second contract in 2005.
At the time city council members approved the AHSG contract in 2003 the firm did not legally exist. It was 10 days after the contract was awarded that Oliva, as sole proprietor, registered AHSG as a fictitious business name. Although Oliva and AHSG began work for Hercules in December 2003, the contract wasn’t officially signed until February of 2004, two weeks before AHSG received its first check for $10,000.
In February of 2005 the city council expanded Oliva’s original contract to include oversight and administration of some redevelopment activities. But this time the city was contracting not with AHSG, but with NEO Consulting, Inc. doing business as AHSG, a company that didn’t yet exist.
Why the city council would approve a contract with a legally non-existent company is unknown. Council members at the time have not responded to Patch requests for comment.
NEO had an inauspicious start. The company’s incorporation papers weren’t filed until almost two weeks after the contract was approved, a registration quickly cancelled by the California Secretary of State when a check for the $125 filing fee bounced. It wasn’t until five months later, on July 20, that a second NEO incorporation was filed and in September Oliva filed a statement identifying himself as the company’s sole officer and director.
Those incorporation papers were signed July 8, 2005 and filed July 20, 2005 by James L. Rather, a Los Angeles attorney identified in documents submitted to the city in 2004 as AHSG’s legal counsel. In June 2005 Rather was ruled ineligible to practice law in California and was disbarred in October 2006 after the State Bar determined he had committed 12 acts of alleged misconduct, some dating back to 2002, including the misappropriation of several thousand dollars in client fees. Earlier Rather had been publicly censured by the Tennessee Bar for misconduct in connection with the sale of a living trust to an elderly woman with Alzheimer’s disease.
Over the next six years NEO’s management structure would change several times:
April 2007 – Less than two weeks before Oliva became city manager his daughter Taylor Oliva, a student at UC Davis, became the company’s sole officer and director, according to documents filed with the state.
July 2009 – Documents filed with the California Secretary of State identified Taylor Oliva as CEO, and Oliva’s two teenage daughters, Gabrielle and Adrianna, as NEO’s corporate secretary and chief financial officer. The filings also indentified McKinney and Eguzki Olano, a city employee who worked as Oliva’s assistant, as corporate directors.
February 2010 – McKinney is identified in corporate filings as the sole officer of NEO and McKinney and Olano are identified as the company’s two directors.
July 2010 – Corporate filings show McKinney as NEO’s sole officer and director. The company’s address is listed in Valencia where McKinney and his wife operate The McKinney Group LLC, a consulting firm. McKinney, a licensed private investigator, is also CEO of Casino Investigations Network LLC and Managing Principal in Clean Waste Technologies LLC, a company established the month after NEO creased work for Hercules. McKinney is also the author of Protecting the Legacy, a book on preventing fraud in the gambling industry.
Ownership Claims Hard to Believe
Although state corporation filings do not identify stockholders, the city disclosed in its Fiscal Year 2007-2008 financial statements that two of Oliva’s “adult children” owned all the company stock. Since state filings do not require the identities of stockholders or details of stock transfers, it’s impossible to determine who the actual stockholders were and when NEO stock may have been transferred.
However, a 2010 confidential report to the city council on Oliva’s performance concluded that council members and the city attorney may not have been aware the company had been sold to Oliva’s daughters, “…. both of whom were under age 21 at the time of the sale, and a Walter McKinney, who is a former colleague. Oliva’s statement that his daughters were emancipated, true or not, stretched credulity…”
The report found the daughters’ “… ages, college commitments and lack of direct experience as a Chief Executive Officer and a Chief Financial Officer simply did not appear possible. Over $1 million in contractual services were committed to Hercules at the time and the emancipation claim seemed contrived.”
Oliva and his daughters have failed to respond to Patch requests for comment. Former city attorney Alfred “Mick: Cabral, declined to answer questions concerning his knowledge of any continuing involvement in NEO by Oliva after he became city manager, saying in an e-mail that attorney-client privilege prevented him from commenting.
But NEO was not the only company Rather established for Oliva. In February of 2004, the month NEO’s first contract with Hercules was approved, Rather incorporated California Housing & Community Development, Inc., a not-for-profit company formed to engage in affordable housing development.
That company remained dormant until June of 2009 when it was reactivated and its corporate officers were as Oliva, McKinney and Mike Sakamoto, former Hercules city manager. At the time Sakamoto was managing the Hercules Municipal Utility under contract and reporting to Oliva. It is unknown what, if anything, CHCD actually did. City disbursement records show no payments were made to the company and it is impossible to determine whether the corporation may have been an NEO subcontractor because the company’s internal records are not available.
The involvement of Oliva, McKinney and Sakamoto in CHCD was never formally disclosed because state law does not require public officials to disclose corporate connections to not-for-profit companies in their annual economic interest statements.
Plaza said she had no information about CHCD because McKinney has not discussed the company with her.
A hearing on NEO’s request for a change of venue and other matters has been scheduled in Contra Costa County Superior Court on Nov. 23.