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Double duty: How an overseer of NYC Ferry became an investor

April 17, 2019 Rosa Goldensohn, THE CITY
An NYC Ferry pulls into DUMBO. Photo: Ben Fractenberg/THE CITY
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This story was originally published on April 17 by THE CITY.

In early 2018, the company that runs the city’s ferry system scored a major investment from a deep-pocketed firm.

Onboard that deal was Mark Patricof, a member of the board of directors that governs the New York City Economic Development Corp. (EDC) — the quasi-public authority that oversees and helps fund the NYC Ferry system, with the help of hundreds of millions of taxpayer dollars.

Private equity firm Crestview Partners acquired a substantial ownership stake in Hornblower in a leveraged buyout, detailed in an analysis from the credit-ratings firm Moody’s. At the time, Patricof served as a senior adviser at Crestview.

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Patricof also joined the board of Hornblower Holdings, according to his biography on Crestview’s website — and picked up an investment stake in the company, EDC records show.

Hornblower runs the NYC Ferry system under an agreement with the EDC made in 2016 – operations that are profitable only because of city subsidies that average $10.73 a ride, according to a recent report.

Under the EDC’s bylaws, board members must disclose their stake in any firm that is the subject of a pending transaction requiring an EDC board of directors vote.

At a February executive board meeting, EDC executive vice-president James Katz announced that Patricof “held an interest in and served as a Board member of Hornblower,” according to EDC minutes.

Ethics rules questioned

EDC officials said that Patricof has not been involved in any Hornblower-related business with the city since joining the company’s board last April.

Still, good-government group Reinvent Albany took issue with his dual board membership — and the rules that allow such an arrangement.

“An EDC Board member should not have a substantial financial stake in any company doing business with EDC, which is a blatant conflict of interest,” senior policy adviser Alex Camarda said in a statement.

Crestview’s major areas of focus are generally media, energy, financial services and industrial manufacturing, according to the firm’s website — which lists Hornblower among its “media” investments, along with the cable companies Charter and WOW!.

Patricof is described on the Crestview site as “assisting the media strategy.” He has a history of investing in media companies, including the teen magazine Tiger Beat.

A Hornblower spokesperson called Patricof “a respected business advisor in the passenger vessel industry,” and noted that his role as a director of Hornblower Cruises “is clearly disclosed in his official bios on both the EDC and Crestview websites.”

Patricof, the son of venture capitalist Alan Patricof, was appointed to EDC’s board by Mayor Bill de Blasio in 2015.

In a statement, EDC said it board of directors is “comprised of upstanding New Yorkers that represent a wide range of industries, government and community organizations. Both EDC and Mr. Patricof are adhering to all necessary ethical guidelines to avoid even the appearance of conflict.”

Patricof was not immediately reachable for comment.

Ferry deal scrutinized

THE CITY previously reported that EDC has agreed to purchase $232 million of boats and could be on the hook for as much as $369 million under the terms of its contract with Hornblower. It chose the operator even though another bidder offered to include the use of boats in its operating costs.

Comptroller Scott Stringer has twice sent the contract for the sale of the first batch of vessels back to the EDC and, following THE CITY’s reporting, called for the Department of Transportation to take over the ferry system.

The EDC runs programs, doles out city land for projects and allocates city capital funds like a city agency, under two government contracts that total $2 billion for the year that ends June 30.

But because it is a city-created nonprofit organization, rather than an official city agency, the EDC’s board is not subject to the same rules as the city government.

The city Conflicts of Interest Board says that EDC board members are not subject to its rules. The EDC has its own code of ethics for board members. The rules do not prohibit board members’ involvement with companies doing business with EDC — requiring only that they declare their interests and abstain from related deliberations, transactions and votes.

The same rules require that confidential information obtained by an EDC director in the course of board work “not be used as a basis for personal gain.”

Camarda questioned the EDC’s exclusion from city government ethics rules. He argued the public authority should be required to follow strict conflict of interest guidelines under the City Charter that generally bar public servants from having an ownership interest in a firm with which the city has business dealings.

“Disclosure is not sufficient,” Camarda said. “It makes little sense that community board members and unpaid members of advisory boards have to follow city ethics laws, but EDC board members who make major decisions regarding business subsidies are somehow exempt.”

This story was originally published by THE CITY, an independent, nonprofit news organization dedicated to hard-hitting reporting that serves the people of New York.

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