As of late 2005, the situation was grim. Settlement was piling debt on top of debt, mortgaging one property to pay off the debt on another. It had current assets of $3.3 million and current liabilities of $6.8 million. Yet Freeman apparently had no plans to scale back: In an unintentionally chilling letter to the city, he listed $155 million worth of future projects in his development pipeline, including a nursing home and a hospital. Eventually, the monster would consume Germantown. What Philadelphia desperately needed was a whistleblower. An accountant with a conscience. And Ray Devlin is as surprised as anyone that it turned out to be he.
IT WAS DEVLIN, a former officer at a Freeman-run company, who told me this:
“Emanuel Freeman is the Robert Mugabe of Germantown.”
Devlin is a finance guy. He understands how to structure tax deals, how to marry public money with private development. He worked for years at PIDC, the city’s nonprofit economic development company, then went to the Philadelphia Housing Authority. Taking a job at GGHDC seemed like a natural next step. He didn’t live in Germantown, and as far as he knew from the outside, GGHDC was “the premier development agency in the city.”
Freeman hired Devlin in January 2006 to get GGHDC’s books in order so it could produce the audits the city required. Two weeks into Devlin’s first month on the job, his paycheck bounced. Freeman’s people apologized, blamed a bank error. “I thought, no big deal,” Devlin says. “I’ve been through worse.” In his 20s, serving a stint in the Peace Corps, Devlin lived for two years as the only American man in a remote village in what’s now called Congo.
But then Devlin discovered something. He looked at the accounting ledgers, which were in disarray; he looked at the deeds, the agreements of sale, the mortgage pro formas. “I did not have the courage to look at the records that were being kept in the abandoned muffler store,” he says. And he discovered something profound: Both GGHDC and Settlement were “essentially bankrupt.” Freeman couldn’t afford to take care of his properties, or pay his employees’ health insurance (although he kept his own family’s health insurance current), or make his mortgage payments. For the first time, the disconnect between Settlement’s income and its deficits made sense. The reason the company was broke was that one part of it was always raiding another part.
“We were just blown away by how little understanding they had of life in the financial world,” says one person familiar with Settlement’s records who corroborated Devlin’s story. “If I worked at Settlement and I wanted to steal a million dollars, it would have been very easy.” In 2003, an auditor found that two large federal grants — one for $530,000, another for $770,000 — weren’t recorded properly in the ledgers. Work proceeded slowly, because auditors were always having to re-create records that had been destroyed in what Settlement explained were freak accidents: fires, computer crashes. Said the person familiar with Settlement’s records, “They just seemed to have an inordinate talent — I’m choosing my words exceedingly carefully — to lose important documents that would either exonerate or prove malfeasance.”
So where had all the money gone?