The indictments of two former members of the Housing Authority of Winston-Salem and a private developer in a property-flipping scheme have triggered much-needed local reform and better transparency in a federal program dogged by corruption nationwide, officials say.
In an indictment filed in August, Ernest Pitt, Reid Lawrence, and Thomas Trollinger were charged with mail fraud and wire fraud. Pitt and Trollinger each face one count of money laundering, and Trollinger and Lawrence face one count of lying to federal investigators.
At the time the frauds were alleged to have occurred, Pitt was chairman of the HAWS Board of Commissioners. Lawrence was executive director. Both Trollinger and Pitt were owners of East Pointe Developers, which specialized in residential development in the Winston-Salem area.
According to the indictment, Pitt and Lawrence engineered a sale of property from East Pointe to another development company, Wolfe Investments, and told the company’s officials that buyers of homes Wolfe intended to develop would come from the HAWS home-ownership program, which is funded through U.S. Housing and Urban Development HOPE VI grant money.
However, no buyers were referred to Wolfe, and the company had trouble making payments on the mortgage loan. The property went into foreclosure. In a meeting of the HAWS board in October 2002, Pitt made a motion authorizing Lawrence to enter into negotiations to buy the property in hopes of developing it for another HOPE VI project known as Happy Hills.
While the indictment notes that Pitt’s motion did not authorize Lawrence to buy the property, Lawrence negotiated a purchase in May 2003 at a price of $414,000, without the authorization of the HAWS board or HUD.
In the meantime, Trollinger bought the property out of foreclosure for $285,000 with the intention of selling the property to HAWS at the original price of $414,000. The indictment charges that Lawrence was aware that the property was in foreclosure and that he tried to bid for it.
In August 2003, Lawrence directed that the $414,000 be withdrawn from the HAWS general fund to purchase property, with Pitt and Trollinger splitting the profit.
Winston-Salem Mayor Allen Joines said the city became aware of the alleged scheme after the local HUD office refused to allow HAWS to reimburse itself for the cost of the land through a loan for Forsyth Economic Ventures Inc., a subsidiary of HAWS that sought to borrow the money to buy and develop the land.
Joines said he had heard community concerns about the purchase, but that he met with Lawrence and a HAWS lawyer and was assured those concerns were “just a technical issue.” But HUD’s refusal to approve the loan conformed the city’s suspicions, and the city hired a law firm to investigate the matter.
“We were giving them the benefit of the doubt until HUD made their determination about it. Once they made their determination, it confirmed our earlier concerns,” Joines said in a phone interview.
The FBI was eventually alerted and began a criminal investigation.
“We pulled back when we heard the FBI was investigating,” said Joines, who expects to be called as a material witness in the case.
HAWS released a statement saying it “will continue to work with our Board and HUD in determining the best solution in regards to the property commonly referred to as Lansing Ridge. We are seeking a solution that is in the best interest of all stakeholders, including HAWS, HUD, the current homeowners and the taxpayers.”
In a phone interview, HAWS chief executive officer Larry Woods, who took over a year after Lawrence left with a buyout valued at $100,000, said the needed steps had been taken to restore HAWS’ credibility with taxpayers.
Woods said the main problem was that HAWS had relied too much on outside consultants, so existing staff “had very little accountability or responsibility.”
“We’ve put in a lot of monitoring and oversight to make sure past problems don’t rear their heads again,” Woods said. “We’ve changed our management approach. Basically, it was a top-down agency where executives made all the decisions.”
Reforms include establishing tighter internal controls of financial record keeping and operations and bringing in executive vice presidents to add another layer of oversight. Woods credited chief financial officer Martha Dorsey for “straightening out our records and getting our books in order.”
The HAWS board was expanded to nine members, bringing in professionals in the legal and accounting fields. Subcommittees in finance and development have been established to approve property transactions before they go to the full board.
Other reforms include increased training of staff to better expand their knowledge.
“What we have now is an organization that mimics more of a business model than just a social group,” Woods said.
Property-flipping schemes and corruption involving HUD funds have shadowed the department for years in both Democratic and Republican administrations. Audits conducted during the Clinton administration by HUD’s Office of the Inspector General and the General Accountability Office revealed hundreds of cases of abuse throughout the country where local authorities spent hundreds of millions of dollars on fraudulent schemes, including a report on the Hope VI program in Puerto Rico found $5.4 million in ineligible expenditures, $10.5 million of unsupported costs, and $3.8 million in cost inefficiencies.
Another instance involved the former executive director of the Uvalde, Texas housing authority, who spent a total of $563,000 of HUD funds improperly, diverting those funds toward projects unrelated to the programs, including the construction of an affiliate’s apartment complex.
Allegations of corruption recently reached to the top when HUD Secretary Alphonso Jackson resigned in March when he drew attention to HUD’s practices under his leadership after a speech to minority real-estate executives. The Dallas Business Journal reported that Jackson told the audience “how government works. Once you get the contract, they just keep giving the tax dollars. …The most amazing thing is I’ve ever seen is the amount of contracts we give out every day. One contract can make you wealthy.”
Sam A. Hieb is a contributing editor of Carolina Journal.