Housing fraud investigation will resume Federal scrutiny to expand to the rest of Md., other U.S. cities

'Move as fast as possible'

Inspector general study shows state's situation among worst in nation

October 16, 1998|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

A major federal investigation of housing fraud in Baltimore -- delayed last spring by charges of racism -- has been revived and expanded to include the rest of Maryland. More than a half-dozen cities around the country also face scrutiny.

While all of Maryland will be targeted, the investigation here is expected to focus on the troubled Baltimore housing agency that spends about $350 million a year, most of that money from the U.S. Department of Housing and Urban Development.

New Orleans and San Francisco, initially selected for investigation, have been dropped from the list, but other cities, including Washington, Chicago, Los Angeles and Fort Worth-Dallas, have been added.

The investigation is one of six around the country that will team auditors and investigators from the HUD's inspector general with FBI agents and federal prosecutors. They plan a comprehensive look at the spending of all HUD funds, much of which doesn't involve public agencies.

Statistics supplied to a congressional subcommittee yesterday by Susan Gaffney, the HUD inspector general, show that housing fraud in Maryland is among the worst in the nation.

In recent years, federal investigators have obtained 49 housing fraud convictions in Maryland. They are investigating another 29 cases, Gaffney told the subcommittee.

Gaffney's disclosure comes six months after she delayed probes in Baltimore, New Orleans and San Francisco amid accusations of racism.

Mayor Kurt L. Schmoke, noting that all three cities had African-American, Democratic mayors, charged in April that their selection was "tainted by issues of race and politics."

Since putting those investigations on hold, Gaffney has decided to double the number of investigations to six. And, responding to criticism that she was unfairly limiting the probes to major cities, she decided to focus each probe on a federal judicial district, bringing scrutiny to suburbs, rural areas and smaller cities.

For example, Baltimore and the 23 counties of Maryland are a single judicial district where a probe will be conducted. Another investigation will target a district that encompasses the 18 counties in northern Illinois and includes Chicago and Rockford.

Other investigation will focus on the eastern district of New York, encompassing Brooklyn, Queens and Long Island; a California district that includes Los Angeles and Santa Barbara; and the northern district of Texas that includes Dallas and Fort Worth.

Capitol Hill appearance

Gaffney went to Capitol Hill yesterday to lay out her plans to an appropriations subcommittee headed by Rep. Jerry Lewis, a California Republican who is the moving force behind the investigations. Later, she and Lewis discussed the effort in interviews.

Lewis said the goal is "to have the most comprehensive as well as intensive oversight that has taken place in the housing arena in many a decade." At the request of Lewis' appropriations subcommittee, Congress has given Gaffney $18 million to begin the investigations. Lewis said more could follow later if needed.

"The underlying desire is to make sure that appropriated dollars get to the people that we intend them to serve in the first place," Lewis said.

Gaffney told the Lewis subcommittee that nationwide HUD provided $991 billion in mortgage guarantees and insurance in the fiscal year that ended Sept. 30, 1997.

It also sent $28.3 billion to local and state governments.

No discussion of details

In an interview yesterday, Gaffney refused to discuss details of the investigations, including timing and the number of investigators who will work in each probe.

"I have done no preparation," she said. "Clearly, we need to move as fast as possible. This has been on hold for some time."

Early this year, Gaffney advertised for criminal investigators to lead the probes in Baltimore, San Francisco and New Orleans. Schmoke said Gaffney told him in an April meeting that 20 to 30 investigators, including FBI agents, would spend three years looking into the use of HUD funds in Baltimore.

Schmoke did not respond yesterday to a request for comment. His racial charges last spring set off a groundswell of criticism of Gaffney that was joined by the National Conference of Black Mayors, the National League of Cities and HUD Secretary Andrew M. Cuomo.

New selection criteria

Gaffney developed new criteria for selecting the cities.

First, she said, for each judicial district, the number of housing fraud complaints, open cases, indictments and convictions handled by her staff was totaled. Then, for the top 16 districts on that list, comparable figures for FBI housing fraud cases were added.

From that final list, the six districts with the most cases, complaints indictments and convictions were picked for investigation.

"It's very mechanical -- just add them up," Gaffney said.

She told Lewis' subcommittee yesterday that in Maryland her office has obtained 36 convictions in the last seven years. The inspector general has 17 open cases and another 67 complaints.

Gaffney said the FBI had 13 convictions in Maryland over a similar period, and has 12 open housing fraud investigations.

Earlier this year, David R. Knowlton, the special agent in charge of the Baltimore FBI office, said "several investigations were going on" in the housing area, involving public agencies and private sector users of HUD funds.

Pub Date: 10/16/98

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