By Dan Christensen, BrowardBulldog.org
Sworn testimony in the Broward insider stock-trading case against a top Republican fundraiser is shedding new light on the alleged fraud and how political access is bought and sold.
Fort Lauderdale heart doctor Zachariah P. Zachariah and two other physicians, including his brother, are accused by the Securities and Exchange Commission of using nonpublic information to make more than a half-million dollars in illegal profits from stock trades in 2005.
A federal civil trial scheduled for Nov. 9 was recently called off as a possible deal to settle those charges is worked out. But details emerged in court filings, including the depositions of Zachariah and others.
Zachariah, who has raised millions for the Republican Party and its candidates – including both Presidents Bush, was quizzed under oath for eight hours last March at the SEC’s Miami office.
Zachariah’s testimony is shot through with politics – and a tinge of bitterness. In 2006, he said, President Bush was looking to name him U.S. Surgeon General. But as he was being vetted by the White House counsel the SEC showed up.
“I met with the Secretary of Health and Human Services. I met with the legal counsel of the White House, and I told them that I was under investigation,” said Zachariah, chief of cardiology at Fort Lauderdale’s Holy Cross Hospital.
The Bush loyalist didn’t get the job. If he had, he would have replaced Dr. Richard Carmona. Carmona, who was not reappointed, has since told Congress the White House muzzled him on politically sensitive issues like embryonic stem cell research.
Zachariah is accused of using inside information to buy shares in two unrelated Florida companies. One of those companies, Correctional Services Corp., was acquired by The GEO Group of Boca Raton.
A key line of questioning by the SEC involved “millions of dollars” it alleges Zachariah has made moonlighting as a corporate consultant, service provider and lobbyist for GEO – a giant, contract-hungry prison contractor once known as Wackenhut Corrections.
Zachariah, owner of a $2.3 million home on the Intracoastal Waterway in secluded Sea Ranch Lakes, told SEC attorney Christopher Martin GEO paid him to provide chief executive George Zoley, his former neighbor, access to top federal and state Republican lawmakers.
“I would make a phone call to a governor of a state, someone that I knew. I would say, my friend Zoley wants to come and talk to you. That was the end of my conversation,” Zachariah, 60, said. “Now, Zoley sent me a contract says if I get this, you get paid this. I just signed it. I said, ‘Hey, if I get some money, why not?’”
A meeting with Karl Rove
Zoley talked about those political introductions under oath in February in response to a federal witness subpoena.
He said that in August 2003 Zachariah took him to Waco, Texas to attend a Republican barbecue for President Bush – and a private meeting with Bush political advisor Karl Rove “to discuss privatization options of Homeland Security.”
“I talked to Karl Rove, yes,” Zoley told the SEC lawyer. He did not elaborate.
The meeting occurred about six months after the Department of Homeland Security began operations. The following year, Zoley raised at least $100,000 to help re-elect the president and was named a Bush Pioneer.
GEO had $27.7 million in DHS contracts in 2008, according to Government Security News.
The SEC also questioned Zoley about a June 2005 trip to Washington with Zachariah. He said he met with federal prison officials, Senate Majority leader Bill Frist, R-Tenn., Florida Republican Sen. Mel Martinez, and attended a Senatorial fundraiser for Republicans and a presidential reception and dinner at the White House.
But Zoley had trouble recalling details.
He told the SEC he couldn’t remember why he’d gone to meet the prison bureaucrats or Sen. Martinez. He said he was “fuzzy” about the presidential dinner. And didn’t have a clue as to the identity of the senator he sat next to at the Republican Senatorial Trust fundraiser.
“He was kind of interesting, but not interesting enough to remember his name,” Zoley said.
GEO, which operates approximately 60 detention facilities in the U.S, is a “major political spender” that’s spent an estimated $1.8 million on political candidates and causes since 2002, according to the nonprofit Center for Political Accountability.
Zachariah, who previously told the SEC his net worth was $10 million in 2006, testified he has lost tens of millions of dollars playing the stock market in the past 10 years, including $20 million in the dot.com bust at the turn of the century. He compared stock trading, which he said he did at his Holy Cross office, to gambling.
Zachariah and co-defendants Dr. Mammen Zachariah and Dr. Sheldon Nassberg, are accused of misappropriating inside information to turn $380,000 in quick profits in the stock of Correctional Services Corp. (CSC), the Sarasota company that GEO acquired in 2005.
Zachariah and his brother are likewise accused of making tens of thousands of dollars in forbidden profits by using inside knowledge to trade shares of Miami-based IVAX. Zachariah, an IVAX board member, purchased 35,000 shares for around $21 a share in July 6, 2005. He allegedly bought within minutes of learning that Teva Pharmaceuticals had agreed to pay $26 a share, or $7.4 billion, to acquire IVAX.
Loading up on CSC stock
But it is the load-up on CSC shares by the three physicians in the weeks and days before the July 14, 2005 takeover announcement – and their quick profits of between 80 and 100 percent – that is focus of most of the SEC’s attention.
The SEC contends Zachariah gained advance access to nonpublic information about the takeover through his extensive consulting work for GEO, and from his son, Zachariah P. Zachariah Jr., who is also known as “Reggie.”
The younger Zachariah was a financial analyst in GEO’s mergers and acquisition department. He got the job because of his father’s friendship with Zoley, and worked extensively on the GEO-CSC acquisition.
In his deposition, Reggie denied tipping his father about the deal
The SEC used subpoenas to unearth 14 contracts between GEO and Dr. Zachariah and his companies, which include an aircraft leasing firm. Some of those contracts included bonuses for success, and confidentiality clauses regarding the award of specific government projects.
One of those projects involved the construction and operation of the $27 million, 200-bed South Florida Evaluation and Treatment Center in Miami. GEO built it for the Department of Children and Family Services under a contract it says it won in a competitive bid process. It makes millions more every year running the facility that houses patients from around the state who are declared incompetent to stand trial or found guilty by reason of insanity.
Zachariah, who has consulted for GEO since 1997, testified the company paid him a $100,000 success bonus after GEO won the bid in 2005. He said he was paid that money simply for introducing Zoley to “a couple of important people.” He said he does not discuss contracts with politicians.
“The only two people, to the best of my recollection, that I introduced to him, on the phone most likely, was the Speaker of the House and the President of the Senate,” Zachariah said.
He identified the Senate president as Tom Lee, but did not name the speaker. Allan Bense was the speaker in 2005.
But at another point in the deposition Zachariah indicated he also introduced Zoley to Charlie Crist, another politician he’s raised campaign money for. Gov. Crist was then Florida’s attorney general.
“I called the present governor. I said, present governor, I said, he wants to talk to you. That’s all I said,” Zachariah testified last March. “I was actually surprised when I got this hundred thousand – that’s the only hundred thousand dollars I ever got.”
Neither the SEC nor Zachariah’s defense attorneys would comment.