As N-Group scandal emerges in Governor's race, have lessons been learned?

SKay Bailey HutchisonKay Bailey Hutchisonome may say that Gov. Rick Perry is dredging up some pretty old dirt to throw at U.S. Sen. Kay Bailey Hutchinson.  But the N-Group” scandal (Jay Root, "Perry swings back hard during final campaign week," AP, February 23rd) Perry is trying to hang around her neck is actually the playbook from which other private prison development scams appear to have been run – most recently, the infamous, outrageous saga that unfolded last year in Hardin, Montana, where local officials got bilked by a development consortium from Texas that convinced them to build a prison on speculation that a contract would soon follow.  No contract ever materialized, but the developers collected their fees and moved on.

Sen. Hutchison denies any direct involvement, but the record clearly shows that her husband Ray was deeply enmeshed in a private prison development scheme that wreaked financial mayhem across six Texas counties.  “N-Group Securities” was the brainchild of Patrick and Michael Graham, two brothers from Houston.  The enterprising Graham brothers jumped into the private corrections field in the midst of the massive prison population boom in Texas.

The N-Group was launched in 1987, at the start of Texas Governor William Clements’ second term.  The Grahams recruited a stellar set of important and politically influential Texans as business associates, including ex-Governor Mark White and Ray Hutchison, a former state senator and Texas Republican Party chairman.  With these connections to the Texas political elite, the Grahams were able to persuade six county boards to float almost $75 million in revenue bonds to finance construction of the N-Group’s rent-a-cell prisons on speculation.

County officials eagerly signed up for the development schemes after being assured that contracts to house prisoners would be forthcoming from the Texas Department of Criminal Justice.  Hutchison helped the counties establish development corporations to float the bonds, and he served as counsel for the their issuance. Drexel Burnham Lambert, the notorious (now defunct) Wall Street junk-bond house, underwrote the bonds.

By the time the six prisons were constructed, however, Ann Richards had been elected Governor.  After she took office, TDCJ managers decided that the dormitory-style facilities did not to pass muster with agency standards.  They refused to provide contracts to house prisoners.

By 1994 the Grahams were nearly buried in lawsuits filed by angry junk-bondholders, and Patrick Graham was under indictment in one Texas county on charges of criminal anti-trust violations.  Yet the brothers were able to link up with Fred Hofheintz, ex-Mayor of Huston, and extend the reach of their business into Louisiana.  The long version of the story about their failed prison development scheme in Jena, LA remains for telling another day.  But the tangled web in Louisiana snagged another high-placed Texas official, TDCJ director Andy Collins, who Patrick Graham had recruited to join the development scheme as a prospective manager of the Jena prison.   

The Jena development deal quickly unraveled, however.  In January 1996, four days after Collins resigned from his post as head of TDCJ under pressure from the head of the prison board, Patrick Graham was arrested in Houston by the FBI.  The indictment charged that he had agreed to accept $150,000 as a down-payment on a $750,000 fee he had solicited to engineer a prison escape for a former computer executive serving a 75-year sentence in Huntsville for the murder of his wife.   

Graham had claimed he could use his connections with Andy Collins to have the prisoner assigned as a low-security trusty at a prison in Galveston where he could easily escape.  Graham, a pilot, promised to arrange false identification documents for the prisoner, and fly him to Costa Rica, a country with no extradition agreement with the U.S.  Patrick Graham pleaded guilty in 1997 for the foiled prison escape.  He received a prison sentence of ten years.

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