would eventually be indicted on six federal counts stemming from the A.G.-Mobil transaction. One knowledgeable source, said Sholtz lucked out, because federal investigators had turned over to the Justice Department enough evidence for more than eighty counts. Charges filed, the white collar case seemed to turn invisible, as if the region’s virulent smog—still the unhealthiest in the nation for ozone and particulate matter—had devoured it. Four years lapsed from her 2004 arrest to her 2008 sentencing, and even then her punishment warranted no Justice Department press release.
The two prosecutors handling the case, Assistant U.S. Attorneys Joseph Johns and Dorothy Kim, have steadfastly refused comment beyond Johns saying last year it was a calculated gamble to have Sholtz plead guilty to a single count. Adding to the mystery in United States v. Anne Sholtz, many of the key court documents, the transcript of her sentencing hearing among them, remain quarantined by judicial order. Justice Department spokesman Thom Mrozek said one reason is that her case involves “under seal filings” that might signal ongoing investigations into other areas. Wayne Nastri, the EPA’s West Coast administrator, was virtually the only significant suit to speak up. In a January 2008 letter to Judge Collins, Nastri recommended that she hand Sholtz a message-sending sentence. “Environmental regulatory programs which utilize market mechanisms,” Nastri wrote, “will fail if the integrity of such programs can be seriously compromised.”
At the April 2008 sentencing hearing, which caught many off guard because of the case’s frequent delays, Sholtz wept and foretold of family harm if she were given hard time. But what mattered to Collins, according to numerous people present that day, was that Sholtz’s companies had paid A.G. so it actually turned a profit in its trade dealings with her over time, in spite of her misleading actions. (Sholtz estimates that amount at $28 million.) Alluding to that and other factors, Collins stunned the Justice Department, EPA, and some of Sholtz’s victimized investors by giving her a skimpy sentence: one year of home detention as part of her five years of probation, plus a conditional ban on AQMD emissions trading.
In a surreal coda to one of the bigger cases of cap-and-trade criminality, Collins chided prosecutors for their strategy while praising Sholtz’s defense attorney, Richard Callahan of Pasadena. Even so, environmentalists and others say it is incumbent on regulators to learn from Sholtz’s gaming so it is not repeated on the bigger carbon stage. “We definitely see [this] fraud as a cautionary tale for the state thirty-five and the country as we move toward greenhouse gas regulations and potential market mechanisms,” said Bill Magavern, director of Sierra Club California. “In discussions about it, I’ve brought up the fact that there has been outright criminal fraud and I find that most people don’t know about it.”
OPERATION BALD-HEADED EAGLE
Thumb through the federal government’s case file on Sholtz and you would think she had confined her ambitions to smoggy Southern California. The felony that torpedoed her career, after all, involved Torrance refiner ExxonMobil Corporation. What you would never glean from the available prosecution documents was Sholtz’s involvement in a spectacular and alarming international venture—one intersecting the worlds of espionage, foreign policy, environmental markets, and con-artistry—in the years before authorities were chasing her. All of that has been buried until now. A months-long Pasadena Weekly investigation, based on business records, operational memos, wire transfers, invoices, résumés, and other documents scooped up by federal and bankruptcy officials and obtained by the paper, coupled with Sholtz’s own rendition of events, tells part of this bizarre story of cap-and-trade money gone sideways into areas it was never intended to occupy.
Peel back to 1998. After losing about $1.7 million in soured deals in the AQMD’s smog cap-and-trade program when a credit buyers’ check bounced, Sholtz said that Keller confided to her about an opportunity to dig her way out. The seemingly well-connected financier and dealmaker she had hired that year told her that not only could she recoup her losses and then some but simultaneously serve her country. The U.S. Government, he said, farmed out contracts to private firms for an extraordinary purpose: returning to federal coffers some of the government bonds, gold, cash, and other valuable items distributed to America’s allies, in some cases going decades back. Whether they were first allocated as foreign aid, secret payments, or other forms of funding from Washington, D.C. was not evident.
Keller, according to Sholtz, explained that once the booty was returned to the U.S., they could be converted into high-yield securities able to generate revenue. Contractors involved in this so-called repatriation or extraction effort could use the interest from the securities for their own businesses and charitable purposes before delivering the items back to the U.S. Treasury. Sholtz said Keller introduced her in Las Vegas to a cadre of men supposedly able to pull off these sensitive extractions. Many of them had CIA and military special forces backgrounds, and she said Keller told her it was “normal business” to employ them. “He said, ‘You’re special, the government has been watching you.’ I fell for it hook, line and sinker.”
Sholtz wasn’t exactly dispassionate about the older Keller in those days. In fact, she was in a romantic relationship with him, impressed by his smarts, interests, and charms. “He swept me off my feet,” Sholtz said. “He had that Southern air about him.” So, during the same summer the Monica Lewinsky scandal exploded, Sholtz, then thirty-three, launched a money-retrieval mission dubbed Operation Bald-Headed Eagle. Its specific target was a pallet of boxes stashed near the Philippine capital of Manila allegedly containing $20 million in mid-1930s U.S. Federal Reserve notes, plus German bonds, platinum bars, and other commodities of mysterious origin and undisclosed value. Based on her correspondence, Sholtz seemed transfixed by it all.
With the money she expected to rake in, Sholtz said she hoped to pave over the financial hole she claimed Keller created for her, re-capitalize her companies and support local philanthropies. To accomplish this trifecta, she founded a “charitable trust” supposedly blessed by the United Nations to take initial possession of the goods, memos show. Sholtz said one of the lawyers assisting her set up Gold Ray Ltd., which was chartered in the British West Indies. Technically, her companies, Automated Credit Exchange and its parent, EonXchange, were not part of Gold Ray. Like the Iran-Contra scandal of the late-1980s, Operation Bald-Headed Eagle married profit to American foreign policy. In the place of the enterprising, buck-toothed Colonel as its shot-caller, it was an entrepreneurial economist who seemed to fancy herself as an Olivia North.
Mission financing was not quite as daring as selling arms for hostages, but it was dicey, nonetheless. According to a September 14th, 2004, memo by Kathy Phelps, the lawyer for the court-appointed trustee overseeing Sholtz’s bankruptcy proceedings, an outwardly normal series of RECLAIM trades actually was Sholtz misappropriating roughly 500,000 credits owned by clients Chevron Corporation, Mobil, and oil-and-gas producer Aera Energy, which she then sold to power maker Southern California Edison for $1,913,162. In a June 18th, 1998 letter from Sholtz to Edison, Sholtz instructed the utility to pay that amount to a Florida attorney assisting her with Eagle.
Phelps, approached about her memo entitled “EonXchange—analysis of stolen credits,” said she and the bankruptcy trustee handed over evidence about Eagle to the government because it wasn’t their focus. Even so, Phelps wondered if the losses Sholtz incurred from Eagle were a reason why she initiated some of the financial improprieties later alleged. “The depth of what [she] was involved in was extensive,” Phelps said. Shown Phelps’ memo, Sholtz adamantly denied the RECLAIM credits sold to Edison were stolen but conceded she lacked the records to pinpoint where they had originated. “The money we made from the Edison deal was our money!” Sholtz added. “We just sold [Edison] credits we got stuck with from another transaction. It wasn’t some grand scheme.”
The paper trail suggests otherwise. Within days of receiving the windfall from the Edison transaction, it became the down payment on her plan to ferry former U.S. aid from the Philippines, records show. At its core, Eagle involved retrieving the treasure in a meticulously choreographed, special-access transfer from a holding company near Clark International
