Thursday, March 13, 2008

"Follow the Money": A History of the Marting's Scandal

Now that Portsmouth City Council is once again considering renovating the old Marting’s Department Store Building to house offices for city government, it seems only appropriate that we recall the origins of one of Portsmouth’s greatest scandals.

In April 2006, I wrote the following, “History of the Marting’s Scandal,” for a special election newspaper published by the Concerned Citizens Group of Portsmouth and Scioto County. Slightly revised to bring the piece up-to-date, this essay, from what I’ve been told, helped defeat city council’s first attempt to renovate the Marting’s building.

James A. Mueller's Failed Hostile Takeover of Martings

During the unraveling of the Watergate conspiracy, Woodward and Bernstein’s notorious informant, known as “Deep Throat,” told the Washington Post reporters to “Follow the money.” In the case of Portsmouth’s Marting’s Scandal, which involves the City’s purchase of a downtown department store building for $2 million, such advice also proves helpful. The revelations of secret, illegal meetings and crooked backroom deals designed to bail out a failing business, fund a private real estate development, and prop up the value of downtown properties with city taxpayer money has awakened a municipal reform movement aimed at righting the wrongs that originated in and were revealed by the illegal Marting’s deal.

The story begins in January 1996, when James A. Mueller, the president of the Marting Brothers Company, attempted a hostile takeover of the company with plans to liquidate its assets when he gained a controlling share of the company’s stock. Available records from the Marting’s Company indicate that Mueller’s aggressive stock purchases began in November 1991, when he already owned 666 shares. Over the next year and a half Mueller purchased 596 shares at an average price of $41 each. In February 1994, Mueller stepped up his purchases, buying 400 shares for $48 a share from Suzanne Duis Carico, and the following year, in early May 1995, he bought 926 shares from the Horr family of Portsmouth (which included the shares owned by former Marting’s president David A. Horr). The Horrs apparently drove a hard bargain, for Mueller ended up paying them $92,600 for the holdings, which amounted to $100 a share.

According to one account, Mueller’s hostile take-over was blocked by the aging Richard D. Marting, the largest stock owner, who possessed 26% of the company stock. Marting reportedly refused to sell any of his shares to Mueller. A special, secret meeting of the company’s Board of Directors was called (without notice given to Mueller). At this meeting, it was decided that the Board would fire Mueller and attempt a restructuring of the company to guard against any future attempted hostile takeover and liquidation.

Creation of the Richard D. Marting Foundation

By 1996, the department store’s profits were in serious decline; after overhead and taxes, the company had made a profit of only $7,315 during 1995. Marting’s officials would later claim that “in 1996, it became apparent to the company’s management that a downtown retail department store in a city experiencing economic reverses and population decline could no longer continue to operate at a profit.” Mueller’s liquidation made sense, but the prospects of Marting’s shareholders receiving anything near the $100 a share that Mueller had paid the Horr’s was not a likely prospect. The Marting’s Board hired local attorney C. Clayton Johnson to design a new corporate structure for Marting Brothers. At the suggestion of Johnson, the company moved to buy back all 10,000 shares of outstanding stock, which had been privately sold, traded, and inherited largely within the local Portsmouth community. Once the stock had been purchased, the plan called for the company to transfer all of the stock to a new entity, a non-profit corporation, which would be named the Richard D. Marting Foundation.
The problem for Marting’s directors, however, was that the company did not have the capital to buy back the stock. Mueller had paid the Horrs $100 a share and he would take no less in return. Thus, valued at $100 a share, the company needed $1 million to accomplish the scheme of Clayton Johnson, which would mean more cash to the stockholders than any liquidation could have ever paid out. To raise the buyout money, Marting’s applied for a loan at the local branch of Bank One, where, it turns out, Clayton Johnson also served on the bank’s Board of Directors.

Rittenhouse's Original Appraisal

Before Bank One would loan Marting Brothers the $1 million, however, they needed an appraisal of the company’s properties, which would be used as collateral for the loan. While it is unclear who exactly recommended the appraisal company, records indicate that it was someone at Bank One who suggested the services of a small, new appraisal company in Hillsboro, Ohio, Rittenhouse and Associates, which in late May 1996, valued the property at $2,386,000.

With this appraisal, Bank One then loaned Marting Brothers $1,150,000; the extra $150,000 was obtained to apparently help finance the day-to-day operations of the faltering department store. Richard Marting received the lion’s share of the loan money, some $289,500 for his 2,895 shares; Jim Mueller walked away with $258,800; a Robert G. Matthias, the next largest share owner, who may have been on the verge of selling out to Mueller, sold back his 1,061 shares for $106,100. The remaining 3,456 shares were held by some thirty-three other stockholders, including board members Julia Smith Wisniewski, Gerald R. Jenkins, and Randal Arnett. Although the exact holdings of these officers are not known, their payoffs may have averaged about $10,473 each.

As planned, all of the outstanding stock was transferred to the new Richard D. Marting Foundation in late July 1996, which, it turned out, now had the same board members as the Marting Brothers Company, except now Clayton Johnson had been appointed a regular voting member of the Foundation’s board of directors. The Marting Brothers Company became a wholly owned subsidiary of the Foundation, which existed primarily as a front for Johnson and his associates, who have acknowledged that the Foundation had conducted no financial dealings from the day they took over ownership of the department store in the summer of 1996 until the spring of 2001, when the Foundation began making plans for the sale of the Marting’s property to the city.

By the end of the summer of 1996, the Marting’s board appointed Larry Leiter to serve as company president and oversee the daily operations of the department store. Later that fall, Leiter and Marting Brothers secured another loan of $150,000 from the Southern Ohio Growth Partnership (SOGP), an organization of which Leiter was also a member, along with other Marting’s Board of Directors, including Clayton Johnson. The SOGP loan was used by Marting’s to pay back the $150,000 that Bank One had loaned, on top of the $1 million, back in the summer of 1996.

In March of 1997, when Johnson joined the Board of Directors of Oak Hill Banks, the Marting Brothers Company authorized the refinancing of their Bank One loans with Oak Hill Banks, in Jackson County. When interviewed by the Ohio Bureau of Criminal Identification and Investigation (BCII), Johnson “stated he accepted a position on the Board of Directors of Oak Hill Bank after Bank One left the area and retired from the board on December 31, 2002.” Annual Reports published by Oak Hill, however, state that Johnson joined the Oak Hill board in March of 1997, the very same month that the Marting’s debt was refinanced by Oak Hill.

In the spring of 2001, the directors of Marting’s, according to the statements of Clayton Johnson, “decided to liquidate when they realized that their current assets were no longer sufficient to cover the liabilities of the Marting Brothers Company.” And just how much money did the Marting Company owe in the spring of 2001? Records indicate that the company owed approximately $480,000 to Oak Hill Banks and to the SOGP, corporations in which, it should be reiterated, Clayton Johnson also served as a director. Thus, in the spring of 2001, Marting’s officials began looking for a way to close the store and sell off their property in order to liquidate their debts.

The Plan is Hatched: Martings and the “Solove-Hatcher Development"

By mid-August 2001, if not before, Clayton Johnson and Larry Leiter began informal and secret talks with Portsmouth Mayor Greg Bauer about the possible purchase of the Marting’s department store for use as a “new” city hall. These discussions about the sale of the building to the city took place in the context of another real estate development deal. In memos to the City Council, Mayor Bauer referred to this other real estate deal as the “Solove-Hatcher Development.” This development was to be christened the Portsmouth City Center, the long-dreamed of downtown strip mall. According to Bauer’s memos, which were obtained by means of Ohio Sunshine Laws, the attorney working on the Solove- Hatcher Development was none other than Clayton Johnson.

In a memo dated 20 August 2001, Mayor Bauer wrote to City Council: “On Wednesday, August 15, 2001 I met with the architects and engineering firms that will work on the Preliminary Site Studies for the Portsmouth City Center. Also in attendance were Jerry Solove and Neal Hatcher. . . . . As some council members are aware, there is interest from a local retailer [Marting’s] to have a new store in the proposed city center.” On 31 August 2001, eleven days after sending the first memo to City Council, which broached the subject of Marting’s leaving their old home on Chillicothe Street for what would be a much smaller space in the new Solove-Hatcher shopping center, Mayor Bauer fired off another memo, proposing that the city purchase the old Marting Department store properties. After considering the estimated costs of renting space for a new city building and the cost of building a new structure for city offices, Mayor Bauer told the City Council that he “seriously questions whether the city can afford either.” He then went on to note that “A less costly idea [for new city offices] could be that the city works out a deal with Marting's to purchase their building and they move into a new store in the Solove project.”

For reasons that remain unclear, in the fall of 2001, while the Solove-Hatcher Development appeared to be moving forward and preliminary talks with Mayor Bauer had taken place, Larry Leiter, the president of Marting’s, approached American Savings Bank (ASB) to see about refinancing the company’s debt. Leiter told state investigators that “The Board of Directors wanted to switch to a different lender and discussed American Savings Bank for two reasons, a member of the [Marting’s] board was an ex-president [at ASB] and it was a local bank.” This Marting’s board member was Gerald R. Jenkins, who was not simply an ex-president of American Savings Bank. Jenkins, at the time, was a member of the ASB Board of Directors and was the second largest owner of stock in the bank, just a few thousand shares less than ASB’s current President Bob Smith. Jenkins had served as president of the bank since 1983 and had retired from his executive position in only 1998; he continues to serve on the Board of Directors of ASB, having recently been reelected to another term.

John Kizer's Appraisal

When Leiter applied for the loan, he also gave ASB a copy of the old Rittenhouse appraisal from 1996. However, bank officials refused to use the pre-existing appraisal, not because it was outdated, but because, as Bob Smith reportedly claimed, “there did not seem to be any real information in the Rittenhouse appraisal.” So, ASB hired John Kizer to do a new appraisal. Kizer was an experienced local and licensed commercial real estate appraiser. At first, Kizer was told by ASB that the appraisal was needed in support of a loan application, but he was later told that there was an interested buyer. Kizer believed the unidentified buyer was another regional department store chain, but the buyer may have been the City of Portsmouth.
According to his BCII interview, sometime in the late fall or early winter of 2001, Kizer contacted Larry Leiter to arrange for an inspection of the Marting property, and when they met, Leiter gave him a copy of the well-worn Rittenhouse appraisal, which had valued the property at $2,386,000. Kizer told the BCII investigators: “I saw the figure and told him if this is the kind of value you are expecting I might as well stop right now and save my time and your money because there is no conceivable way this property is worth that kind of money in downtown Portsmouth.” According to Kizer, “LEITER agreed saying; Oh no, we know it is ridiculous, all we want to know is what we can sell it for to a prime buyer.” Kizer completed his appraisal on 27 December 2001 and turned it in to ASB’s President, Bob Smith, who then passed it on to Marting’s officials. Kizer’s appraisal had come in at $762,000, about $1.6 million less than the original Rittenhouse appraisal.

Kizer told state investigators that ASB’s president Bob Smith related to him that when Clayton Johnson had been told of Kizer’s numbers he had gone “berserk.” Smith, according to a BCII report, then allowed Marting’s to withdraw its application “rather than being formally turned down for the loan.” To keep the Kizer appraisal from becoming public, Marting’s then purchased the appraisal from American Savings Bank.

Violating the City Charter and Ohio's Sunshine Laws

At the next meeting of the Marting’s Board of Directors in January or early February 2002, they voted to move forward with their plan to shut down the store and liquidate their assets, specifically authorizing Clayton Johnson and President Larry Leiter to formally negotiate the sale of the Marting’s properties to the City of Portsmouth. Thus, at some point in January or February 2002, discussions between Mayor Bauer, Clayton Johnson, and Larry Leiter resulted in the scheduling of a round-robin meeting with City Council members at the law office of Johnson, along with a tour of the Marting’s properties.

City Clerk Jo Ann Aeh helped schedule the meetings so that no more than three council members at a time met together with Johnson. As Jim Kalb, City Council President, later acknowledged in a sworn deposition, the Sunshine Laws’ requirement that any meeting of more than three council members must be announced in advance and be open to the public “was on everybody’s mind.” When Kalb was asked whether “one of the purposes of doing it three and three [was so that their meeting with Johnson would] not . . . be construed as having a meeting,” Kalb answered: “I would say.” First Ward Councilwoman Ann Sydnor told state investigators that it was her recollection that it was Johnson who “suggested meeting with three City Council members at a time.”

Scioto County Common Pleas Court Judge William Marshall would later rule in Mollette v. Portsmouth City Council that this secret round-robin meeting violated both the City Charter and Ohio’s Open Meetings Act. The secret and illegal meeting with Johnson took place in either late February or early March 2002.

Ken Rase's Over-Valued Appraisal

Although Council members’ memories of this meeting are vague at best, Councilwoman Sydnor has claimed that during her tour of the building she “was afforded the opportunity to see the Rittenhouse appraisal but was not given a copy.” Sydnor told state investigators that “she did not pay much attention to this appraisal as it was ‘their’ appraisal and not the City’s but did look at the bottom line of 2.4 million and felt this amount was too high.” From the depositions of Council members, it appears that soon after this meeting both the Marting Brothers Company and city officials agreed that each party to the sale would obtain their own appraisal and then establish the price for the properties by splitting any difference in valuations. Thus, with the consent of members of City Council, but without a formal authorization made during a public meeting, Mayor Bauer, with Neal Hatcher working as an intermediary, hired Ken Rase, another local real estate appraiser, even though he was not licensed to appraise commercial structures with a value over $1 million. In fact, when first contacted about doing the appraisal, Rase turned down the job, claiming he was unqualified. However, he later changed his mind and agreed to perform the appraisal for Mayor Bauer.

According to John Kizer’s statements made to state investigators, Rase contacted Kizer about helping him do the appraisal. Kizer claimed that he turned down Rase’s request for assistance and advised Rase against performing the appraisal. But Kizer never divulged to Rase that he had carried out his own appraisal of the property just three months earlier. Although Rase took the job, he never actually carried out an independent appraisal. According to Portsmouth Police Chief Charles Horner, either Mayor Bauer or someone working in his office provided Rase a copy of the 1996 Rittenhouse appraisal. The Rase appraisal of the Marting’s property consisted of nothing more than a review and revision of the Rittenhouse appraisal of 1996.

While Rase may have never known of Kiser’s earlier appraisal, there is reason to believe that Mayor Bauer knew about its existence at the time of the purchase negotiations. In Ann Sydnor’s BCII interview, she claimed that when “she received the appraisal by KEN RACE [sic], she asked the Mayor why JOHN KIZER had not done the appraisal and was told KIZER was busy at the time.” While not conclusive evidence that Bauer lied to Sydnor in order to cover-up his knowledge of Kizer’s earlier appraisal, Bauer’s explanation does point to the fact that Rase was seen as an odd choice for an appraiser. Sydnor’s surprise, she explained, was the result of her familiarity with Kizer during her employment at Civic Savings Bank, which had employed Kizer for “a lot of their appraisals.” She told state investigators that “she knew [Kizer] was qualified and highly thought of professionally.”

While awaiting the submission of Rase’s appraisal, Mayor Bauer moved forward with arranging the financing of the purchase. He contacted the city’s municipal bond agent and requested that they work up a debt service schedule for $2.3 million. On March 26th, 2002, Ken Rase turned his appraisal in to Mayor Bauer’s office. Rase had valued the property at $1,850,000, which was $536,000 less than the original Rittenhouse appraisal and over $1.1 million more than the Kiser appraisal.

Rittenhouse's Second Appraisal

Meanwhile, in March, Clayton Johnson was busy filing paperwork with Ohio’s Secretary of State to obtain “a certificate of continued existence” for the Marting Foundation, whose incorporation papers were set to expire in June. Johnson was also busy tracking down John V. Rittenhouse, who made the original 1996 appraisal, to have his firm carry out a new valuation. Rittenhouse, however, would serve only as the supervising appraiser, overseeing the work of Laura A. Hannahs, who personally inspected the Marting’s properties on 12 March 2002. Hannahs appraised the property at $2,469,000, which was $83,000 more than the original Rittenhouse appraisal.

By early April 2002, Mayor Bauer, with the secret consent of City Council, had hired a Cincinnati firm known as PFB Architects, Inc. to inspect the Marting’s property and develop a cost estimate for its renovation into a new city building. Michael A. Finn of PFB subcontracted with Thermatech Engineering and together they inspected the properties on 10 April 2002. Seven days later, Bauer sent a memo to City Council informing them that PFB had provided a preliminary estimate of the renovation costs, which he quoted as being between $1.75 and $2.63 million. Bauer pushed City Council to take action on the deal, suggesting that Council needed to pass the necessary legislation to authorize the purchase because “Marting’s will announce the liquidation Wednesday of next week and it would soften the negative impact on the area if we could adopt the resolution and prepare a joint press release announcing our plans to turn the Marting’s building into a new city hall.”

Sealing the Deal in City Council's Secret Session

On 22 April 2002, at the start of the next regularly scheduled meeting of Council, members entered into a secret executive session, during which they met with Marting’s officials for over an hour. When Council returned to the public meeting, they added a new item, ordinance #53, to the agenda, which authorized the mayor to negotiate the purchase of properties belonging to the Marting Brothers Company. Council declared the ordinance an emergency measure and suspended the City Charter’s requirement of three separate readings. Upon the motion of Howard Baughman, the ordinance was amended “by changing the amount” that the Foundation would return to the city in grants “from $150,000 to $200,000.” There was no debate and the amendments and ordinance passed unanimously.

The City and Marting’s had their press release ready. Written with the help of Sallie Schisler, the wife of Municipal Judge and former City Solicitor Richard Schisler, the press release quoted Council president James Kalb as if the agreement had already been negotiated and signed. Kalb stated: “This agreement makes the best of a challenging situation. It is always difficult when a business which has served our community for over one hundred years has to close.” Mayor Bauer is quoted as having said: “these are very difficult times economically, and being able to utilize the Marting’s property is very important to the future growth of Portsmouth.”

Julia Smith Wisniewski, heir to the Smith’s Pharmacy fortune and the Chairperson of the Marting Brothers Company, as well as of the Richard D. Marting Foundation, explained the origins of the foundation: “We asked our legal counsel to design a corporate structure which would assure that no person could profit from the liquidation of Marting’s. We were determined to keep the store open as long as possible, and thus also requested a structure which would not require a return on investment to shareholders.” According to the press release, “Substantially all of the $1,999,900 purchase price paid for the real estate will be held by the Foundation as a public trust dedicated by its charter to economic betterment for the Portsmouth area.” The press release then quotes Council President Kalb as stating that “due to the unique structure of Marting’s and its nonprofit ownership, the purchase is a ‘win-win’ situation because all of the purchase money will be put right back into the city’s efforts to improve the economy through the vehicle of the Richard D. Marting Foundation for economic betterment.”

Wisniewski closed out the press release with a misleading claim: “while we are all saddened by the loss of a Portsmouth fixture and the closure of our company, we are pleased that we have been able to transform a negative into a positive by allowing the city government to achieve substantial economies in finding much needed facilities for housing local government.” Wisniewski’s claim that the city was achieving “substantial economies” – in other words, saving lots of tax payer money – was a bold claim considering Marting’s officials knew very well just how much the $2 million price tag for the Marting building had been inflated.

Kalb's $200,000 Kickback

While some on City Council may not have known about the Kizer appraisal, they went along with paying the $2 million to prop up property values in downtown. As James Kalb admitted in an interview with the Portsmouth Free Press, Bauer and the City Council negotiated a $200,000 kickback for the city. Kalb claimed that when he asked whether Marting’s would sell the building for $1.5 million he was told by the others involved in the deal: “Uhh, no . . . you know we really can't . . . uh . . . we don't want to lower the property values down town that much and everything.” Kalb explained the kickback straightforwardly. The city, he stated, “could pay the $2 million for [the Marting Building], which keeps the property values up, you know, I guess, is what they were telling me and ... uh ... they [the Marting Foundation] would return $200,000 to us after the sale, which [meant] they got their price out of it; we got our money back.”

Council members knew the price of the Marting’s properties was inflated, but perhaps not how much it had been overvalued. Nevertheless, Mayor Bauer and City Council members Jim Kalb, Howard Baughman, Carol Caudill, Barbara Halcomb, Ann Sydnor, and Ray Pyles, as well as Clay Johnson and other officials at Marting’s were willing to take tax money from the city and use it to inflate the value of property in downtown Portsmouth.

The joint press release broke the news of the deal, though none of the backroom shenanigans. We now know the deal had nearly been fully negotiated by mid-April in the days just before City Council officially authorized the Mayor to enter into negotiations. Before the deal could be signed, however, Council wanted to have the final report and renovation cost estimates back from PFB Architects.

Mayor Bauer, PFB Architects, and Estimating the Costs of Renovation

On Monday, 13 May 2002, the Mayor received by fax the much anticipated PFB report in draft form. Although the Executive Summary segment of the draft report estimated the renovation costs, depending upon which option the City chose, as falling between $2.5 and $3.9 million, the draft documents in the general report listed total costs ranging from $2.2 to $4.5 million. Such renovation costs would make the total cost of moving the city offices into the Marting’s building between $4.2 and $6.5 million. These estimates, however, did not include the cost of asbestos removal, which was later discovered during an environmental hazards inspection.

The total costs, as outlined in the PFB report, turned out to be quite similar to the estimated costs of building a new structure for city offices, which Bauer had reported to Council in a memo back in August of 2001. Bauer, when writing in favor of the possibility of purchasing Marting’s, stated that the city could not afford the estimated $6.3 million that a newly constructed building would cost.

On the evening of the 13th of May, City Council held their only public discussion of the Marting’s purchase, during the Conference portion of their meeting. Mayor Bauer submitted the formal request to have City Council pass an ordinance authorizing him to officially enter into a purchase agreement “in an amount not to exceed $1,999,990.” No official minutes of this “conference” meeting were kept by the City Clerk, and the only record that exists to document Council’s decision to authorize the preparation of legislation that would give Mayor Bauer the authority to sign the purchase agreement is a copy of the formal letter Bauer submitted to Council requesting the passage of an ordinance. This letter, which has notes recorded on it by City Clerk Jo Ann Aeh, indicates that Council voted 5 to 0 in favor of preparing the necessary legislation. With this virtually clandestine vote secured, all that was left was a formal vote on the ordinance at the next Council Meeting, which was scheduled for the 29th of May.

The Infamous 29th of May

The 29th of May 2002 is a day that should live in infamy in Portsmouth’s history. At 2:00PM that day the board members of the Marting Foundation – Clayton Johnson, Julia Smith Wisniewski, Gerald R. Jenkins, Roy B. Payne, Jr., and Randal Arnett – gathered together at the law offices of Johnson & Oliver to hold an official meeting, at which they authorized the acceptance of the proceeds obtained by the Marting Brothers Company in the sale of its properties. The official minutes state that “the Foundation shall accept transfer from the The Marting Brothers Company of net proceeds of sale of Marting’s real estate by way of ‘up stream transfer’ from the wholly owned subsidiary corporation of the Foundation.” The directors voted to kick back $200,000 to the city in grants and then pay off all the debts of the Marting Brothers Company; the remainder was to be invested in Neal Hatcher’s Portsmouth City Center shopping strip project. The Foundation Minutes state: “It was resolved that the Foundation specifically ratify its action and decision to commit 100% of its assets to an equity position in the Portsmouth City Center Shopping Center.” Thus, before City Council had even officially authorized the mayor to enter into a purchase agreement, the Marting Foundation was already spending their anticipated profits from the sale. They voted to use tax payer money to pay off some $400,000 in debt owed to Oak Hill Banks and the SOGP, and then whatever was left over after bailing out the Marting Brothers would be invested in the proposed shopping center.

Exactly what time of the day the purchase agreement was actually signed on the 29th of May 2002 is uncertain. All we know is that Greg Bauer and Julia Smith Wisniewski signed the agreement on the 29th of May in the presence of at least four witnesses, who signed their names to the agreement, as well. And who were these? Clayton Johnson, of course, along with his partner in the whole larger scheme, real estate developer Neal Hatcher, Councilwoman Carol Caudill, and Amy C. Fleming, a legal assistant working for Clayton Johnson. Regardless, of exactly where and when the purchase agreement may have been signed, City Council clearly violated the Ohio Open Meetings Act and the Portsmouth City Charter, which requires all Council meetings be open to the public and that all decisions be made before the public.

That evening, when Council introduced the legislation that would authorize Mayor Bauer to sign the agreement, Councilman Howard Baughman made the motion to suspend the charter’s requirement of three separate readings, and pass the ordinance immediately. There would be no debate, no discussion, and when the vote was called, the council voted unanimously to purchase the Marting’s properties in order that it could be renovated into new city offices.

Bill Shaw and the Original Referendum Petition

It was not until February 2004, nearly two years later, that the public became aware of the existence of the Kizer Appraisal; it was then that the municipal reform movement began to pick up steam. However, the controversy surrounding the purchase began almost immediately when local attorney Bill Shaw and others helped organize a petition drive to have the purchase placed on the ballot as a referendum. The voters suspected that the City had paid an inflated price for the Marting’s building, which would lead to increased property taxes, and it had all been done without any real public discussion. They suspected the Council had suspended the rules to quickly and silently push through the legislation needed to complete the Marting’s deal. By waving the Charter’s required three readings, the Council had effectively denied the voters a chance to learn about and debate the proposed purchase.

Bill Shaw’s petition drive failed when City Clerk Jo Ann Aeh ruled that there were insufficient valid signatures. But memos between Mayor Bauer and City Solicitor Kuhn indicated that had Aeh certified the petitions, Kuhn and the Council were ready to declare the referendum in violation of the City Charter.

Recalls and the Referendum of May 2006

In the summer and fall of 2004, Mayor Bauer and two city council members would be recalled by angry city residents. James Kalb, as Council President, would assume the Mayor’s office and after signing a second deal with the Marting’s Foundation, the new Mayor and Council would move forward with their original plans to renovate the Marting’s Building on Chillicothe Street into a new city hall. This decision led to the dramatic referendum in May 2006, when Portsmouth voters soundly rejected the renovation of the Marting’s building for use as a city building.

While city, county, and state law enforcement have been reluctant to complete a thorough investigation of the Marting Scam, the voters of Portsmouth through the May 2006 referendum believed that they had blocked the renovation. In doing so, the majority of Portsmouth voters refused to support a scheme that was designed to unload a 100-plus-year-old white elephant off on the public, pay off Marting’s creditors, raise money for Neil Hatcher’s shopping mall, and provide an over-sized home for city officials. Having followed Deep Throat’s advice to “follow the money,” it is clear that all of this was to be paid for with tax dollars raised within the City of Portsmouth.


  1. Very good synopsis of this entire situation. I might be wrong, but it seems I remember that the real estate office of the appraiser burnt and lost the documents from the appraisal the day before the Feds came to town?

  2. Rase's office, a converted house, on Court Street, did burn down during an investigation of the scam; however, it was not the "feds," but rather the state investigators of the BCII.

  3. I have read Drew Feight's account of the Marting Scam several times, and again now, in Nov. 2010. It is an excellent summary and a vivid account of one of the most infamous chapters in Portsmouth's history. Long may it be read and remembered.

    Robert Forrey
    River Vices