The 'bad apple' of wetlands banking
Held up to Congress as a shining example of the promise of wetland mitigation banking, their business went bellyup.
By CRAIG PITTMAN AND MATTHEW WAITE
Published December 18, 2006
Second of two parts
On a broiling August morning, two would-be developers, D. Miller McCarthy and Alan Fickett, turned themselves in at the Polk County Jail. Deputies took their fingerprints and snapped their mug shots.
The state of Florida had charged the pair and their corporation with seven felonies and nine misdemeanors for allegedly building unauthorized roads that destroyed wetlands at the edge of the Green Swamp, the headwaters of most of the major rivers in Central Florida.
Their arrest made news across the state in 1993: It marked the first time a corporation had been charged with a felony for illegally destroying wetlands. But a judge ruled officers had bungled a search of the company's offices and excluded the evidence. Prosecutors dropped all charges.
McCarthy and Fickett reinvented themselves. They launched a company called Ecobank and became the kings of a fledgling industry called wetland mitigation banking, which makes it easier for developers to wipe out swamps and marshes.
Their biggest customer? You, the taxpayer.
* * *
McCarthy is a 6-foot-6 mountain of a man with an outsized personality to match. Even his friends describe him as abrasive and difficult to deal with.
He made money in the early cell phone boom, dabbled in real estate and ran a sand mine and logging operation. His main asset was his imagination.
He was in the land development business with Fickett, a smooth talker with a doctorate in finance and a strong interest in politics. For years, Fickett had put his folksy charm to work as a lobbyist for the University of Central Florida.
During the investigation of the Polk County wetlands destruction, Fickett blamed everything on a backhoe operator who just got carried away. But investigators found records showing he and McCarthy told their Swedish investors that the new roads were built to enhance the property's development potential.
McCarthy's reports to Sweden also talked of starting a wetland mitigation bank on the Green Swamp property to quiet environmentalists' complaints about the road construction.
"This 'bank' of wetlands would compensate for all the planned improvement activities," McCarthy wrote.
Their arrests spelled the end of their development plans on the Polk County site. The next year, with two other investors, they formed Ecosystems Land Mitigation Bank, Ecobank for short.
Mitigation banking was a relatively new concept back then. It works like this: The banker buys a former wetland and restores it. Regulators grant "credits" that the banker can sell to developers, who are required to make up for destroying wetlands elsewhere.
In the mid 1990s, most mitigation banks were shoestring operations, like Florida Wetlandsbank, whose staff consisted of two partners sharing one desk.
But McCarthy had a grander design. By early 1996. Ecobank had hired 16 employees. One was Denver Stutler, a young engineer from St. Petersburg whom McCarthy and Fickett had met six years before when he was student body president at UCF. Another employee was Kaye Henderson, who had been DOT secretary under former Gov. Bob Martinez. Stutler said Ecobank hired Henderson to help the company sell credits to the DOT.
McCarthy and Fickett believed in boosting their business through political connections. In 1996, Ecobank donated at least $5,000 to the Foundation for Florida's Future, a think tank Jeb Bush created after losing his first bid for the governor's office.
Bush's foundation published a quarterly policy journal, Outside the Lines. In March 1996 it published a lengthy essay by Stutler about mitigation banking that repeatedly mentioned Ecobank and touted its plans for establishing "megabanks" of tens of thousands of acres.
Stutler flew to Washington, D.C., to testify before a Senate committee about the bright future of mitigation banking. Then-Sen. Bob Graham introduced him and called Ecobank "one of the older of those programs and, therefore, we will have the benefit of his extensive experience."
"Ecobank is currently permitting more than 16,000 acres in four separate banks in Florida," Stutler told the senators. "We've invested significant amounts of capital and have dedicated 100 percent of our resources because we think it can work."
At that point, Ecobank had not sold a single credit.
* * *
A month after Stutler told senators that Ecobank had four banks operating in Florida, he wrote U.S. Rep. Bill McCollum asking for his help getting the company its first permit.
The land that McCarthy and Fickett picked to become their first wetland mitigation bank was an odd choice: Most of it wasn't wet.
The Lake Louisa Mitigation Bank mostly consisted of sandy hills covered with orange groves. The land is good habitat for sand skinks, not frogs or fish.
More than 90 percent of the wetland credits that the state granted for the bank are for improving the dry land, not for anything that helps wetlands.
"It really had very little to do with wetland restoration," said Dennis Benbow, a rival banker whose company now markets the credits for Lake Louisa.
Fickett said state regulators steered them toward the Lake Louisa site because it was land the state had been trying in vain to buy. To get it done, the state was willing to make a deal with onetime wetland violators.
"Basically they asked us to work as, in essence, their partner on a private basis, to see if we couldn't acquire those lands that they wanted and put them in conservation," Fickett said.
The company's second bank, the East Central Florida Mitigation Bank in Volusia County, had a similar problem: Nearly half the state credits are for saving dry land.
Getting its state and federal permits for both banks, Ecobank argued that the number of credits should be boosted because it would be a vital link among other conservation lands, including what was to become their third Florida bank.
Ecobank was granted its extra credit - but the bank never happened.
For its third bank, Ecobank promised to convert the Lee Ranch by tearing down levees along the St. Johns River and flooding the property. The only problem: Inundated land belongs to the state, which would mean Ecobank couldn't claim it for selling credits.
In 1997, Fickett and Henry Dean, a friend of McCarthy's and the head of the St. John's River Water Management District, stood before Gov. Lawton Chiles and the Cabinet to try to cut a deal: Let Ecobank make Lee Ranch a mitigation bank, and the state would share in the credit-sale profits. Of course, Ecobank intended to sell most of the credits on the state-owned land to a state agency, the DOT.
Fickett told Chiles and the Cabinet that he was tired of negotiating: "I have to tell you, Governor, this is the gol-darnedest, most frustrating process I have ever been through.
"We're trying to help you. ... You've got a program like this, it doesn't take anybody with an IQ much above room temperature to understand how good it is."
"You're right, maybe, on your argument of the temperature of the brain capacity of most of us up here," said Chiles. "It's pretty cold today, and I'm a little frozen up myself."
Chiles and the Cabinet refused to go along with Ecobank's proposal on Lee Ranch. McCarthy tried for years to revive it. But it remained the deal that got away. Meanwhile the company's overhead costs piled up.
"They hired the best and the brightest team," Benbow said. "The payroll was $100,000 a month. They dug this giant freaking hole."
When it came to filling the hole, Benbow said, "They had a sort of a Ken Lay idea about what you do."
* * *
In an odd twist, Ecobank didn't own the Lake Louisa property. It belonged to a trust fund set up to benefit McCarthy's children.
Looking for an infusion of cash, McCarthy had his children's trust sell it to a New York investment fund called Da Capo al Fine Inc. for nearly $2-million. Da Capo became Ecobank's joint venture partner - a move Da Capo's attorney, Howard Seitz, said the fund came to regret.
"Nothing in this whole transaction is not a mess," Seitz said.
Because mitigation banks are supposed to be preserved as undeveloped forever, Florida law requires bank owners to set up a fund for their long-term maintenance. Ecobank had been putting aside thousands of dollars from each credit sale to build its maintenance fund.
But once Da Capo came on board, McCarthy persuaded Seitz to put up a letter of credit for the full amount, more than $600,000. All the money that Ecobank had set aside was plowed back into paying the bills, McCarthy said, including his annual salary of more than $300,000.
Competing with other banks to make sales, Ecobank sometimes slashed its prices below what would bring a profit.
"Miller and Fickett sold credits for $12,000 when the market was $22,000," Seitz said. "They combined arrogance and," Seitz paused, "it was just mind-boggling."
* * *
Ecobank's original business plan, according to Seitz, made sense: "You pursue small deals to cover the overhead while you were hunting elephants."
But Seitz said McCarthy quit pursuing the small deals and became obsessed with trying to land monster deals with state and local government agencies.
The state became Ecobank's best customer, mostly to make up for road-building projects. Dean's agency spent more than $2-million buying credits from Lake Louisa to make up for the wetlands destroyed to build a new expressway.
But the East Central Florida bank needed help. So Ecobank hired locals with clout: the chairman of the Seminole County Commission, Randy Morris, and the head of the local GOP, Jim Stelling.
Sure enough, four days after signing the contract, Morris and Stelling persuaded the chairman of the Sanford Airport Authority to renege on a deal with a competitor and steer the airport's business to the East Central Florida bank. After that deal, the airport authority chairman, Ken Wright, became a paid salesman as well.
Seitz said McCarthy was "a big target" for all the politicians who had their hands out to collect commissions from Ecobank. McCarthy said he did feel a little victimized, "but no more than I do for all those who sell Girl Scout cookies."
Meanwhile, Morris and Stelling hunted elephants for Ecobank. To aid Ecobank, Stelling testified, "we traveled to Tallahassee. ...We met with the assistant secretary of transportation. We met with the chairman in Tallahassee of the Transportation Committee. We met with the chairman - no, the counsel - of the (Orange-Orlando) Expressway Authority. ...We met with a lot of people and a lot of developers, which we both came in contact with on a daily basis."
In two years, Ecobank paid Morris and Stelling more than $48,000 for helping its East Central Florida sales - but it wasn't enough. Thanks to a tip from Wright, the two politicos discovered they had not been paid for some sales they believed they helped land.
Furious, they sued. Five years later, they settled. The payout: $92,000.
* * *
The company's one big success was a bank started in North Carolina by George Howard, a former U.S. Senate aide. Its one deep-pocketed customer: the North Carolina DOT.
But Howard soon quit because he could see Ecobank was going into the red. "I could see the beginning of the end."
By 2003, credit sales in Florida had slowed to the point that Ecobank stopped sending Da Capo its share of the take. The checks would be signed but not mailed.
Meanwhile, McCarthy had a disagreement with the people who owned the land under the East Central Florida bank, and they sued. He and Da Capo, which owned Lake Louisa, got into a legal wrangle. Ecobank was now feuding with both of its landowners.
The last straw came when McCarthy failed to pass on to Da Capo a $175,000 check from the North Carolina DOT.
"He took that dough and he paid 50 grand to his bankruptcy counsel," Seitz said. "The rest, I guess they used it for operations, paid the rent and so forth. And then he filed for bankruptcy."
On June 25, 2004, Ecobank filed for Chapter 11. McCarthy followed suit in October, listing among his assets a $2.8-million home, a $200,000 villa, a 20-foot Regal Destiny boat, a 2001 Chevrolet Tahoe and a Jet Ski. McCarthy reported loaning Ecobank $956,000 and said he was owed $116,000 in back salary.
Though Ecobank's Chapter 11 filing jeopardized the operation of both mitigation banks, no one notified state and federal regulators. The state figured it out after two months, but federal regulators failed to notice anything amiss for more than a year.
The Chapter 11 proceedings were heated. Da Capo lawyers called Ecobank's plans to get out of debt a "fantasy" that only a child at Disney World might buy. During McCarthy's deposition, he swore at an attorney and threatened to walk out.
When the case settled last January, Da Capo took possession of everything Ecobank once owned, including the two Florida mitigation banks and the name of the company.
East Central Florida Mitigation Bank has since been sold to the state for preservation. Lake Louisa still hasn't been completely restored after 10 years. Da Capo hired Ecobank's archrival, Benbow, to help sell its credits.
These days other mitigation bankers are reluctant to talk about Ecobank. Its failure shows everything that can go wrong with mitigation banks, including financial mismanagement, lax regulatory oversight and relying on political influence rather than providing environmental benefits.
"They are the real bad apple of the bunch," said Sheri Lewin of the National Mitigation Banking Association.
To Stutler, who now heads the Florida DOT, Ecobank was simply ahead of its time. "When you're really changing the way people view mitigation and you're shifting the paradigm, you have to give it time to shift."
McCarthy says Ecobank was the best mitigation banker ever in Florida, with environmental results he called "unequaled." Now he and Fickett are mulling their next big project.
"We're still looking at other mitigation options here in the state of Florida," Fickett said. Asked if that included starting another mitigation bank, he replied, "You never can tell."