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A cloud over DiFrancesco

Star-Ledger, March 4, 2001

The race for governor has been turned upside down by the latest ethics charges against acting Gov. Donald DiFrancesco, the Republican front-runner.

If you give DiFrancesco every benefit of the doubt, he showed terrible judgment by jumping into the middle of his brother's bad business deal with one of the state's largest building firms. Our view is that DiFrancesco is tone deaf when it comes to the apparent conflicts of interest.

Two weeks ago, we learned that he borrowed heavily from a friend who does business with the state and did not reveal the loan until he was outed in the media. This time, it is worse. He benefited indirectly from a $225,000 payment from K. Hovnanian Partners, a heavyweight real estate developer with extensive interests before the state government.

DiFrancesco did not personally profit from this, and he maintains that he played no role in arranging the payment from Hovnanian. But he put himself at some financial risk by arranging a loan from a law partner to rescue his brother and cousin from a bad real estate investment. And because Hovnanian's money paid off that loan, he did benefit.

DiFrancesco's brother got him into this potential jam, and Hovnanian's money got him out.

It is unnerving that a man who serves as acting governor cannot see the appearance of a conflict in that. He should have kept himself a mile away from a deal like this so that voters would not have to wonder if he owes Hovnanian a favor.

This land deal has a long and tortured history dating back to 1987, but the important part came in 1996 when DiFrancesco arranged a $225,000 loan from a law partner, John Coley. The money from Hovnanian would eventually pay off that loan.

DiFrancesco sees nothing improper in this. The Hovnanian payment did not benefit him, he says, because he had no legal obligation to pay off the loan to Coley. There was no contract, and the understanding among friends was that his brother and cousin would pay back the money.

But DiFrancesco was the fallback guy in the event Paul and Ernest did not pay -- he acknowledges that he would have had a moral obligation to pay the loan out of his own pocket if Paul and Ernest did not come through.

There was some risk of that. The town had moved to foreclose this property because of failure to pay taxes. And Paul DiFrancesco was no stranger to bankruptcy court -- he had already filed personal and business bankruptcies several times. When Hovnanian paid off the loan from Coley, it ended Donald DiFrancesco's exposure.

Hovnanian's payment was supposed to count as an investment toward the purchase of this land. But the deal fell through, and Hovnanian finally abandoned efforts to recover the money from Paul and Ernest DiFrancesco, writing off the loan.

DiFrancesco's intention in this deal was to help his brother and cousin. In the end, the friends he tapped for help were paid back and remain his friends. His brother and cousin are back in business. Hovnanian wound up taking the brunt of this, but a company that builds $1 billion worth of homes in a year can shrug it off. It has since donated money to DiFrancesco's campaigns.

The real losers are New Jersey voters, who now have to scratch their heads and wonder about this relationship -- and about the ethical sense of the acting governor.

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