"Without getting too far in-depth, we believe there was a significant financial fraud that drove this," Andrew Arena told the Senate Appropriations Subcommittee on General Government on Thursday, speaking about the 2014 switch in the city's water supply that exposed residents to lead-contaminated water.
"I believe greed drove this," said Arena, a former director of the FBI's Detroit office who has led the Flint criminal investigation for Attorney General Bill Schuette for a little more than two years.
"We believe what caused the series of bad decisions (was) a pretty substantial financial fraud," with a number of people driven by greed and personal profit, Arena told the committee.
Floating in and out of the news about the disaster has been that new $285 million pipeline and the quasi-public entity in charge of building it, the Karegnondi Water Authority.
Flint was broke. That's no secret. The city's dire financial situation is the reason the state came in and took control in 2011.
The city of nearly 100,000 people had a $13 million deficit and no credit rating.
So, when the decision was made to join the Karegnondi project, the question became: Where will the city constrained by state-imposed debt limits and no interest from bond sellers come up with $85 million needed to pay for its share of the costs to build a pipeline from Lake Huron to Genesee County?
Two attempts to obtain the loan through conventional methods had already failed to gain The Michigan Department of Treasury's approval. The answer was to engage in what prosecutors have alleged was a classic "bait and switch" scam to get around the city's debt limits.
In December, the Michigan Attorney General's Office brought felony charges against two former state-appointed emergency managers and two former city officials, alleging they used "false pretenses" to borrow $87 million by claiming it was needed to address an environmental calamity involving a lime sludge lagoon at the Flint water treatment plant.
According to the warrant request filed by prosecutors, the "lime sludge disposal facility was used as a premise for obtaining the funds needed to finance the City of Flint's contribution to the KWA pipeline. Factually, this was a sham transaction designed under false pretenses to obtain money for the KWA."
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