Embattled former Chelsea Housing Authority chief Michael E. McLaughlin once used $40,000 in authority funds to settle a sexual harassment claim that came about after a top aide humiliated a manager by giving her sex toys at her retirement party.
The aide - described by many employees as the longtime close companion of McLaughlin - presented the toys at the manager’s retirement party at Foxwoods in Connecticut in 2002.
McLaughlin passed the gifts off as a joke, according to people who were there, but several employees interpreted the scene as retaliation against the manager for her earlier questioning of McLaughlin’s unusual accounting techniques.
“It was his way or the highway,’’ said one guest at the party who was aghast at the way that McLaughlin and his top aide, Linda Thibodeau, embarrassed the woman in front of about 40 agency employees and guests.
A few months later, the authority’s board of directors quietly approved money “to settle a claim with a former employee,’’ say the meeting minutes, but apparently never filed the required report of the payment with the state or federal agencies that provide most of the Housing Authority’s funding.
The Foxwoods incident is one of several troubling accounts about McLaughlin’s conduct at the authority that have emerged since he was forced to resign Nov. 3 amid public furor over his $360,000 salary, which he had concealed from state officials. On the day McLaughlin resigned, he cosigned checks to himself for more than $200,000 for what he said were unused vacation, sick, and personal days, while an employee shredded records.
Now, the FBI is conducting a criminal investigation into alleged misuse of government funds at the authority, which manages 1,450 housing units for low-income people. McLaughlin and his entire board of directors have resigned under pressure from Governor Deval Patrick, and they were replaced this week by a court-appointed receiver.
Several employees said that McLaughlin openly played favorites during his more than 11 years at the helm and punished dissenters, creating what staff members outside the inner circle saw as a culture of unfairness.
“Everyone knew to keep your mouth shut, keep your head down and do your work,’’ said one employee who asked not to be named for fear of retaliation.
While the woman who received the sex toys left the authority in humiliation, the aide who arranged the party has flourished. Thibodeau has risen through the ranks to make nearly $100,000, including a $10,000 stipend that she started receiving in 2009 for what McLaughlin described in a letter as additional duties.
McLaughlin and Thibodeau did not return calls seeking comment. Thibodeau has been out on medical leave since the day after an investigator for state Inspector General Gregory W. Sullivan attempted to question her at the authority’s headquarters.
The manager who received the sex toys had questioned McLaughlin’s irregular payroll practices, including the way he structured his contract so that it was difficult to discern his full pay. She decided to take advantage of a statewide early retirement program to get out of an increasingly tense workplace.
Employees pitched in to pay for the woman’s retirement party, and even the longest serving board member, Henry Cordero, came along. But the woman had been warned that her bosses would be giving her “something not too nice,’’ a co-worker told her. “Just play along with it.’’
At the party, say people who were there, Thibodeau presented the woman with a vibrator and a blow-up doll as parting gifts.
The woman asked not to be named because she felt humiliated by the event.
Boston attorney Jody Newman later wrote the authority a demand letter, which is normally sent before someone files a lawsuit. Shortly thereafter, the woman, who still had a few weeks left to work, was escorted from the building and prevented from retrieving anything from her computer, according to someone who witnessed the incident.
The late Walter Underhill, a friend of McLaughlin’s who was then the authority’s attorney, negotiated a settlement with Newman, which was approved by the board of directors. In June 2003, a check for $40,000 drawn on the agency’s general checking account was sent to Newman, along with a confidentiality agreement the woman was instructed to sign.
But authority officials apparently never told state and federal housing officials about the settlement, which could have undermined their efforts to improve the agency’s reputation. The authority had been considered troubled by the US Department of Housing and Urban Development when McLaughlin arrived in 2000, but began winning “high performer’’ awards from HUD the very next year.
Neither HUD nor the state agency that provides funds to the authority had records of the payment.
“A housing authority is required to report litigation to HUD,’’ said HUD spokeswoman Rhonda Siciliano. “We have no record of approving the use of program funds to settle a sexual harassment claim.’’
State housing officials said they, too, were not informed of any payment.
“Local housing authorities are expected to notify DHCD if state funds are being used to settle any legal matters,’’ said Deborah Goddard, general counsel of the state Department of Housing & Community Development.
Thibodeau, the assistant executive director for housing management, came to the agency in November 2000, just months after McLaughlin started. She became a formidable presence at the agency, and some co-workers resented the attention she received from McLaughlin.
McLaughlin and Thibodeau frequently attended housing conferences and vacationed together, traveling out of state to the same destination on at least six occasions since April of this year, authority records show.
Several employees said they had no idea Thibodeau, 45, had been getting the extra $10,000 bonus beginning in 2009, making her the second highest paid employee behind McLaughlin. One employee complained that she did not deserve the money and that McLaughlin had promoted her mainly to make her eligible to run another housing authority after he retired.
McLaughlin, whose wife is chronically ill, has been a close companion to Thibodeau for years, according to interviews with numerous associates and co-workers, including people who were told directly about the relationship by Thibodeau.
Asked about Thibodeau before he resigned Nov. 3, McLaughlin said they had a normal work relationship.
“She’s a friend like all the other employees,’’ he said.