Amazon Web Services had embarked on a data center building boom to handle soaring demand as attendees gathered for its 2019 re:Invent conference in Las Vegas. Eleven data center deals are now the subject of a suit by Amazon vs. two former AWS real estate managers and others. (GeekWire Photo / Todd Bishop)

The August 2017 meeting at an Amazon office in downtown Seattle was, by all appearances, a normal bit of business. Just another trio of ambitious, intense men gathering to make plans that could make money.

Amazon Web Services needed more capacity. The cloud giant was rushing to build data centers around the world to fuel a fast-growing business that three years later would generate more than $45 billion in annual revenue, helping to make its longtime leader, Andy Jassy, the Amazon board’s pick to succeed Jeff Bezos as CEO.

Two of the participants in the August 2017 meeting — Casey Kirschner, an AWS real estate manager, and Carl Nelson, Kirschner’s boss and mentor — were leading that physical expansion for Amazon. The third, Colorado developer Brian Watson, put himself forward as a person who could salve Amazon’s growing pains.

In the ensuing 2-and-a-half years, the groundwork laid during the afternoon meeting at the West 8th building would support a $500 million data center building blitz, before allegations of secret kickbacks, bribery and double-dealing blew it apart.

In its place are a web of civil lawsuits and a federal criminal investigation. Amazon claims the men conspired with others to generate millions of dollars in kickbacks to Nelson and Kirschner in exchange for directing AWS development deals to Watson’s company, Northstar Commercial Partners. The Department of Justice, acting in concert with Amazon, has also seized millions in proceeds related to 11 Virginia real estate deals involving Kirschner and Nelson.

Watson and Nelson, the husband of Seattle entrepreneur Amy Nelson, deny any wrongdoing. They are vigorously fighting Amazon’s civil action.

Attorneys for Carl Nelson and Watson separately claim Amazon hasn’t shown that any of the data center leases damaged the tech giant, which fronted no money for the projects. Watson’s capital partner, IPI Partners, an investment company linked to Facebook founder Mark Zuckerberg, put up more than 90% of the construction costs while Watson covered the rest, expecting to profit as Amazon paid to occupy the leased, built-to-suit data centers.

An Amazon Web Services data center in Sterling, Va. (top) is one of the real estate deals in which Amazon alleges two former AWS real estate managers conspired with a real estate developer to receive kickbacks in exchange for the company’s business. Amazon was alerted to the alleged fraud by an email to Jeff Bezos in December 2019. (Loudon County Va. and U.S. District Court Images)

Attorneys representing Watson and Northstar claim Amazon and IPI sparked the federal investigation to cut Northstar out of millions in future profits.

In addition, Amazon hasn’t broken the data center leases alleged to have funded the kickbacks. Nor has the company canceled two contested land deals, one of which saw Nelson and Kirschner work with two Northstar employees to buy land in northern Virginia and sell it to Amazon — netting them a collective $18 million in the process.

In court papers, Nelson’s attorneys claim provisions of his Amazon employment contract, inked in 2012 when he became the second member of the AWS real estate team, include broad allowances for outside work. They say the Justice Department has seized money he made independently of Amazon, and have taken Amy Nelson’s earnings as well.

Carl Nelson has filed his own suit against Amazon, alleging that the company has run afoul of Washington state’s new law restricting non-competition agreements. His attorneys also claim Amazon has violated his contract by suing him in federal court in Virginia rather than in Washington state court, the venue set in the agreement.

As evidence of Amazon endorsing outside business activities, and of company executives making liberal use of the contract provisions, Nelson’s attorneys point in part to Jassy’s investment in the ownership group behind the new Seattle Kraken NHL franchise, and Amazon’s subsequent purchase of naming rights for the team’s arena.

For its part, Amazon says the case against Nelson and Kirschner is about outright fraud, not a side business. While the company hasn’t assigned an exact dollar figure to the purported scheme, Amazon attorneys contend millions of dollars were paid out in kickbacks.

Watson and Northstar, the data center developer, “obtained all of their business with us by fraud, and specifically by paying bribes and kickbacks to corrupt insiders within our company,” said Elizabeth Papez, an attorney for Amazon, during a hearing before the Fourth Circuit Court of Appeals in late January.

‘Devastating financially and emotionally’

Nearly a year has passed since the FBI arrived at Carl and Amy Nelson’s West Seattle home, which they sold weeks ago to cover mounting legal costs.

The financial seizures that followed amount to $892,135 for the Nelsons, including hundreds of thousands of dollars Amy Nelson earned as CEO of The Riveter, a network of working women that vaulted Amy Nelson to national prominence after opening co-working spaces in Seattle and other key markets across the country.

Amy and Carl Nelson working on the original location of The Riveter co-working space in Seattle prior to its opening in 2017. (Photo via Amy Nelson, Instagram, published with permission.)

“It’s been devastating financially and emotionally,” said attorney Alex Little, who is representing the Nelson family. “The government has seized not only Carl’s money but also money that Amy independently earned.”

The seizures, Little continued, “required them to rely on the kindness of friends and family to stay afloat, while giving them no forum for more than nine months to challenge the accusations Amazon has made.”

The Justice Department investigation and Amazon litigation have also hamstrung Northstar, which claims to lack the funds to cover a $21.25 million bond ordered in the civil case as an assurance that, if it prevails, Amazon will be compensated to some degree.

While Northstar now claims to manage or own $1.3 billion in assets, the 35-person company’s portfolio consisted primarily of large nursing homes before the fateful Seattle meeting between Northstar’s Watson, Nelson and Kirschner in the summer of 2017.

At the time, Kirschner’s brother Christian was on contract with Northstar, introducing Watson to dozens of potential clients. The Amazon connections he delivered proved to be a game-changer for Northstar.

In Amazon, Watson had an opportunity to achieve his dream, as he later explained, to “make everybody multi-millionaires.” He wanted to get Northstar out from under lenders like IPI Partners, the Chicago-based investment firm funded in part by ICONIQ Capital, a money manager to Silicon Valley’s elite with a client list that includes Zuckerberg. IPI was fronting nearly all the money for the data center developments.

“We’re not gonna have to depend on the IPIs of the world anymore,” Watson explained during a May 31, 2019 conversation recorded by a Northstar employee. “We’re gonna have our own capital, and we’re gonna kill it.”

Casey Kirschner was already tight with Nelson, who would help secure Northstar’s place in the constellation of real estate developers making millions by helping Amazon grow. Having previously worked with Casey Kirschner in commercial real estate in Seattle, Nelson served as his mentor and, eventually, supervisor after Casey Kirschner arrived at Amazon in 2015. Nelson was in charge of its real estate transactions in the Americas, while Casey Kirschner had responsibility for AWS’s hottest territory, northern Virginia.

For AWS, real estate deals took two forms: build-to-suit leases and land purchases.

On the leases, developers working for Amazon built a data center’s shell, which Amazon filled. Amazon agreed to a lease ahead of time, paying the developer’s costs plus fees that amounted to profits. Monthly rents on the data centers Northstar helped build for Amazon run from $218,224 to $297,597, and the total value of each building and lease extends beyond $100 million. Northstar would have collected a portion of rents roughly equal to its investment in the projects, usually 5% to 10%. IPI received the rest.

The March 2018 Northstar Commercial Partners press release announcing a $100 million data center development in Virginia for what was then an unnamed Fortune 20 company.

Land deals were straightforward — a developer would scout for property wired to absorb a large data center. Amazon would then buy and build upon the land.

The month after their August 2017 meeting, Casey Kirschner sent Watson what Amazon now describes as a “sham” request for proposals on a 215,000-square-foot data center in Loudoun County, Virginia.

In an arrangement that set the mold for the eight leases that followed, Northstar and IPI’s joint venture bought a parcel in the Washington, D.C.-Dulles corridor and built a shell. Amazon then finished the data center and operated it. Lease payments exceeded $2.6 million a year, almost all of which went to IPI.

That February 2018 deal done, the men established another pattern that would be repeated on the developments that followed, Amazon’s attorneys contend. Payments were wired to a bank account named for a street Christian and Casey Kirschner once lived on in Aurora, Colo., and then into accounts held by Nelson and Casey Kirschner.

As contracts were awarded, Casey Kirschner requested that Northstar increase leasing fees charged to Amazon, which were in turn passed along to his brother’s trust account and paid out to Nelson, Casey Kirschner and others, Amazon’s attorneys contend. While the first project included a lease fee of 0.5%, the next set the fee at 2%, or roughly $1 million.

Financial transfers that Amazon contends demonstrate part of the alleged kickback scheme. (U.S. District Court document; Click for larger image.)

The transfers were plainly labeled as payments related to the Amazon projects, attorneys for Watson and the other defendants note. That Watson and Christian Kirschner did nothing to hide the transactions, they contend, demonstrates that the purported kickbacks were simply payments agreed to by Amazon. “The emperor,” one attorney remarked in court papers, “has no clothes.”

As Amazon attorneys tell it, Nelson and Casey Kirschner set about ensuring that Northstar would get developments while Northstar employees drew up contracts primed for skimming. Nelson and Casey Kirschner guided development deals to Northstar, the attorneys claim, duping higher-ups at Amazon into believing Northstar’s prices were market rate.

The company has yet to offer in court any evidence that the leases were not competitive. Northstar attorney George R. Calhoun argued that Amazon was well-equipped to judge the merits of each lease.

“It defies all logic and common sense that a massive and sophisticated real estate purchaser … could not determine the market prices for real estate in Virginia or that it approved transactions that it believed to be above market,” Calhoun told the court.

‘Let me really line your pockets’

While a complete accounting has not been put forward, Amazon attorneys claim Northstar “paid millions of dollars in kickbacks to obtain tens of millions of dollars in fees and profits.” Northstar paid at least $5 million to Christian Kirschner’s trust account in 2018 alone, Amazon claims. The company also says a ledger taken from Casey Kirschner’s laptop shows he was paid, or believed he was owed, $16.25 million in kickback “shares.”

Writing the court in October, Casey Kirschner’s attorney at the time, Scott Pivnick, argued Amazon offered “a fictional tale of ‘kickbacks,’ ‘bribes,’ and self-dealing” at odds with the facts.

“Amazon does not allege that Mr. Kirschner had the ability to steer business or business opportunities to any particular entity,” Pivnick said in court papers. “To the contrary, Amazon’s own allegations confirm that dozens of other individuals within and outside Amazon helped negotiate the transactions.”

The relationship between Northstar and the Amazon employees deepened as the data center deals were signed. Amazon contends Watson paid for Casey Kirschner to join him on a hunting trip to New Zealand in March 2019, and treated him and Nelson to a fishing trip in the Florida Everglades later that year.

In text message exchanges among Northstar account manager Kyle Ramstetter, Nelson and Casey Kirschner, the men discussed moving money.

“Flip me a couple buildings … and let me really line your pockets like we were discussing! 😂 🤣” Ramstetter wrote in a Dec. 17, 2018 message to Nelson, according to a copy of the exchange Amazon filed with the court.

The landscape changed in June 2019, when Nelson was fired from Amazon for reasons unrelated to the Northstar deals.

Casey Kirschner took over Nelson’s portfolio while Nelson turned his focus to his own real estate firm, Cheshire Ventures and AllCore Development. Nelson pitched projects to Amazon in the months that followed. He also kept working with Ramstetter, meeting with him that July at Denver International Airport.

In a conversation recorded by Ramstetter, the men dreamed about trips to the Florida Keys and, in Nelson’s case, chasing the developments “we want to chase.” Ramstetter was enthusiastic about a piece of land in Virginia. And he was nervous.

“I just don’t want to f— with Amazon,” Ramstetter said.

As payments flowed into Christian Kirschner’s trust account, Ramstetter and a Northstar colleague, financial analyst Will Camenson, set to work on that Virginia land deal.  It would ultimately, if briefly, net Ramstetter, Camenson and their bankers nearly $18 million of Amazon money. Much of the money has since been seized by or surrendered to the Justice Department.

Chuck Kuhn, a Virginia moving mogul turned land speculator, had paid $20 million in 2018 to buy the 89-acre swath outside Arcola, a town of 230 located 33 miles east of Washington, D.C. By the following summer, a company controlled by Ramstetter and Camenson was set to acquire it for $98.7 million. They had a buyer in mind.

On July 30, 2019, Ramstetter and Camenson, working without Watson’s knowledge, bought the land and then sold it to Amazon for $116.4 million, turning a $17.7 million profit on land they owned for less than a day. Attorneys for Amazon contend Casey Kirschner supported the price internally at Amazon in exchange for a $5 million kickback, which he then allegedly split with Nelson.

Amazon’s attorneys argue the flip sale amounted to theft, a contention disputed by Northstar, Watson and Nelson. The flip wasn’t hidden from Amazon, said Calhoun, the Northstar attorney, during a Fourth Circuit Court of Appeals hearing.

“Amazon can’t claim it was misled into paying more than market price,” Calhoun said. “If they looked at the contract, they knew the buy and sell prices.”

Weeks passed before Watson was sent a Washington Business Journal article on the sale. Recognizing Ramstetter and Camenson’s names in the article, Watson confronted both in a meeting recorded by another Northstar executive.

During the meeting, Watson accused Ramstetter and Camenson of “usurping” Northstar’s role in the deal.

Watson told Ramstetter to “do the right thing and pay us the money immediately.” Ramstetter responded by suggesting they get a drink with Casey Kirschner and talk things out, while dropping hints about Northstar’s other Amazon transactions.

A portion of the transcript from a recorded conversation between Northstar account manager Kyle Ramstetter and the head of the development firm, Brian Watson, over a land deal allegedly made without Watson’s knowledge. (U.S. District Court filing.)

“What we did for Amazon, that’s FBI,” Ramstetter told Watson, according to the transcript of the meeting.

“If I say something to the wrong person and it gets out, the whole Amazon thing is shut down and we will never do another deal in the data center space,” he continued.

Amazon wasn’t notified formally, though Casey Kirschner and Ramstetter discussed the meeting at length through WhatsApp.

According to a text message string filed with the court, Ramstetter texted Casey Kirschner hours after the September 2019 confrontation. He sent a second message the following day asking to chat; Casey Kirschner explained he couldn’t talk because he was at Watson’s wedding, but reassured Ramstetter.

“I’m sure he would be open to any solution as long as it resulted in lots of ???? ????,” Casey Kirschner texted Ramstetter, using the emojis for cash and a smiley face.

Ramstetter and Camenson were suspended and later fired after agreeing to pay Northstar $5 million of the proceeds from the sale. Amazon contends the money was deposited into Watson’s personal bank account. Ramstetter and Camenson have since forfeited the proceeds of the sale to the Justice Department, less the $5 million passed to Northstar, and Ramstetter’s attorney has said Ramstetter is cooperating with federal investigators.

Watson doesn’t deny taking the $5 million cut of the sales proceeds. As his attorneys describe it, Northstar was owed for the lost business opportunity.

Email to Jeff Bezos sparks investigation

Amazon first learned of a side channel flowing between Northstar and AWS employees at 5:40 p.m. on Dec. 2, 2019, when someone presenting as a Northstar employee dropped an email to jeff@amazon.com, Amazon founder Jeff Bezos’s public email account.

The tipster wondered whether “Mr. Bezo’s” would “care to hear about a couple of your employees who have taken kick backs in excess of $8,000,000 maybe as high as $50,000,000, and in my opinion represent a threat to the security of AWS?”

“I thought about doing a SEC whistleblower (complaint) or just calling a newspaper but honestly I have so much respect for what you have accomplished I feel better just telling you; not to mention I wouldn’t turn away compensation or some sort of professional engagement but we can see how this all plays out,” the message continued.

The email to Jeff Bezos that alerted the company to the alleged kickbacks. (U.S. District Court Records; spacing adjusted here for purposes of display.)

The investigation underway, Amazon continued to sign deals involving Nelson and Casey Kirschner. That Christmas Eve, Amazon bought a 100-acre property in Virginia from the Blueridge Group, a transaction Nelson helped facilitate. According to court records, the sale price, $83 million, included a $10 million fee paid in part to one of Nelson’s companies and Casey Kirschner.

Northstar’s chief operating officer came forward separately in early 2020, providing IPI with documents related to the payments and an audio recording of the showdown between Watson, Ramstetter and Camenson. The information was shared with Amazon almost immediately, which then contacted the Justice Department.

IPI’s investigation into the Northstar projects found that financial reporting was lacking, project budgets weren’t balanced and contractors were waiting months for a payment, according to an affidavit the company’s president filed on Amazon’s behalf. Contracts were being signed without IPI’s consent, including change orders totaling more than $50 million.

Investigations simmering for four months boiled over last April. FBI agents fanned out across the country as IPI took sole control of the nine leases its joint venture with Northstar was managing and Amazon brought the hammer down internally.

Casey Kirschner was fired. Amazon investigators discovered undeleted files in the recycle bin of his computer, which he had filled but not emptied the night before. According to Amazon, investigators found a six-row spreadsheet summarizing kickbacks he and others were due for various Amazon developments.

While some of the developments involved Northstar, several did not. Casey Kirschner’s connection, if any, to those other projects was not clear in court records. Amazon declined to comment on the matter, or answer any questions related to the litigation.

That same morning, April 2, 2020, FBI teams arrived at Nelson’s home in Seattle, and Watson’s in Denver. Agents seized electronics from both men and attempted to interview them.

That night, Watson sent an email to dozens of employees, colleagues and adversaries, the two FBI agents who visited his home among them. Several Amazon informants were included on the email, which carried the subject line “Last Words.”

In the email, Watson described himself as “scared, shocked, and devastated” by the accusations. Watson went on to deride Ramstetter and Camenson as “thieves” and others as “greedy leeches, who will never be satisfied,” before apologizing to the Northstar employees.

“I am sorry I let you down,” Watson wrote that night. “I tried my best.”

Northstar’s attorneys now contend IPI wrongly cut Northstar out of what could be a nine-figure income stream and have, with Amazon’s help, “succeeded in inducing the Department of Justice to initiate grand jury proceedings against Mr. Watson.” Watson and Northstar have since sued IPI in Delaware, claiming they are due compensation in excess of $66 million.

When Northstar was pushed out, planning and construction were still underway at five of the nine data centers Amazon had awarded to the joint venture. Northstar argues the capital investment firm stands to reap a windfall when it sells the data centers in the years ahead.

An IPI spokesperson described Northstar’s lawsuit as “misleading” and containing “numerous inaccuracies,” and defended Watson’s ouster from the joint venture managing the leases with Amazon. “IPI responded reasonably and responsibly upon learning of very serious allegations of impropriety at Northstar,” the spokesperson said. “We stand firmly behind our decision to terminate Northstar ‘for cause.’”

10 months later, questions linger

While Amazon hasn’t offered a full accounting of payments it contends were fraudulently made to Nelson, Casey Kirschner or the Northstar employees, its attorneys argue Watson and his company are liable for $21.25 million in damages at the very least. Among other claims, Amazon argues the men violated federal racketeering and antitrust laws by conspiring to deprive Amazon of Nelson and Casey Kirschner’s “faithful work and honest services.”

Amazon’s damage claims against Casey Kirschner and Nelson are less well-defined.

Amazon argues the men “shepherded” projects “through Amazon’s internal approval process in exchange for multi-million dollar kickbacks and bribes.” While the company has offered proof of some payments, it has not yet put forward evidence indicating Nelson or Casey Kirschner wrongly favored Northstar bids over competitors.

Amazon also claims the former employees unfairly profited from the two Virginia land sales at issue in the lawsuit. The company has not offered detailed allegations as to how much money Nelson or Casey Kirschner made from the sales, though Amazon contends it was duped into paying millions to each man when it bought those parcels.

Attorneys for Nelson note he was no longer with Amazon when either land sale occurred, and assert his contract didn’t prohibit outside work.

Little, Nelson’s attorney, said he would “let the contract speak for itself,” while describing it as a startup-style agreement offering generous terms to attract employees to what was, when Nelson joined it, a nascent part of AWS’s business.

“It’s very pro-employee, like those at most startups,” Little said. “In other cases, Amazon has called the limits placed on such employees ‘narrow.’”

Though the U.S. Attorney’s Office for Eastern Virginia declined to comment on the criminal investigation being pursued out of its office, court filings indicate investigators are collecting financial information on Watson, Nelson and Casey Kirschner.

None of the men have been charged — grand jury proceedings necessary to bring charges are paused in the district until Feb. 28 due to the pandemic. In forfeiture actions, though, prosecutors have accused the men of wire fraud and related offenses, including money laundering.

Attorneys for the Nelsons contend the bank account seizures were baseless, and that the warrants were obtained “though incorrect, misleading, or incomplete allegations” recklessly advanced by federal prosecutors.

“I hope the government recognizes that the accusations Amazon made months ago have not proven to be true,” Little said. “There are far more worthy targets upon which to aim the full force of federal law enforcement.”

Legal actions remain ongoing in the U.S. District Court for Eastern Virginia and in state courts in Delaware and Washington, where Nelson has brought the lawsuit arguing that his contract with Amazon allowed him to work independently. Amazon has asked that the Washington state suit be thrown out, a request that a King County Superior Court judge is expected to take up on Feb. 26.

The Fourth Circuit Court of Appeals, which heard arguments in late January related to a bond Northstar has been ordered to put up, is expected to rule in coming weeks.


From : www.geekwire.com

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