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FBI begins Chelsea inquiry

Legality in question in officials’ handling of housing chief’s pay

KAYANA SZYMCZAK FOR THE BOSTON GLOBE

Michael E. McLaughlin resigned as head of the Chelsea Housing Authority Nov. 3 after the Globe reported that he was receiving $360,000 a year in compensation.

The FBI has begun investigating the finances of the Chelsea Housing Authority amid growing concern that agency officials may have committed crimes in paying the former chief an extraordinary $360,000 a year while concealing his full compensation from the government agencies that paid the bills.

Federal agents are looking at how the housing authority may have “spun the budget’’ to cover up former director Michael E. McLaughlin’s salary by transferring money among accounts, said one official with knowledge of the FBI’s involvement. Among other things, investigators are also scrutinizing McLaughlin’s expense and travel records, said the official, who declined to be named.

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The FBI was called in because much of the agency’s funding comes from the US Department of Housing and Urban Development.

McLaughlin abruptly resigned as executive director on Nov. 3, four days after the Globe reported his true income, but not before cosigning checks to himself for $200,000 for what he said was unused vacation, sick, and personal time during his 12 years at the helm. The state stopped payment on two checks, but McLaughlin had already cashed one for more than $80,000.

Officials from HUD asked the FBI to investigate as an alarming picture emerged of McLaughlin’s chaotic final day at the housing authority. The authority’s board of directors, already under pressure from Governor Deval Patrick to resign, hastily approved McLaughlin’s resignation, then installed one of his deputies as his replacement, offering him a five-year contract that appeared to be drafted so quickly that it contained errors.

“When we asked the board members to resign, we didn’t think they’d commit the authority to a five-year contract before they resigned, let alone another contract that provides for a salary in excess of DHCD guidelines,’’ said Deborah Goddard, general counsel at the Department of Housing and Community Development.

Investigators say questions were also raised by the behavior of the agency’s accountant, a longtime McLaughlin family friend who cosigned the checks to McLaughlin. James McNichols has admitted he recently shredded documents in the authority’s offices and helped McLaughlin remove boxes of materials from the office on the night he told the Patrick administration he would resign.

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Federal housing officials declined to comment on their request for an FBI investigation.

McLaughlin formally applied this week for a state pension that would be by far the largest in state history, based on annual pay that may be the highest among all US public housing officials. The pension application shows that his pay reached $370,678 in 2011 and averaged $347,665 over the past three years.

McLaughlin, who did not return a call seeking comment yesterday, has said previously that he deserves such generous salary and retirement benefits because of a career in public housing he likened to that of football great Joe Montana.

However, regulators say that if McLaughin received any part of his pay fraudulently, he could lose the pension or see it drastically reduced. McLaughlin has already admitted that he concealed his full pay from state officials, reporting that he made only $160,000 a year.

The executive director of the state’s Public Employee Retirement Administration Commission has directed the city to delay approving any benefits until further notice while various investigations are ongoing. State Inspector General Gregory W. Sullivan urged the retirement board to base McLaughlin’s benefit on the salary he reported to housing officials, $160,000, not his actual pay. That would cut his pension in half.

David Pickering, executive director of the Chelsea Retirement Board, confirmed yesterday that he had known for years about McLaughlin’s ballooning pay - it has grown nearly five-fold since 2000 - but said he never thought to alert anyone.

Pickering said McLaughlin’s salary was so out of proportion with others that he called the housing authority every year to make sure the figures were accurate. McNichols, the McLaughlin friend and accountant, confirmed the amounts, Pickering said.

But Pickering said he did not share his concerns with city or state officials. Asked why not, he said, “I don’t know. I’ve never received a mandate to tell anyone.’’

Jay Ash, the Chelsea city manager, said Pickering should have provided the information to the state and federal government and to him.

“Something should have clicked with him so he disclosed it,’’ said Ash, who has also come in for criticism because he appointed four of the five members of the authority board. “It wasn’t his responsibility, but in hindsight it would have been great if [Pickering] reported it.’’

On Nov. 17, the Chelsea Retirement Board will consider McLaughlin’s pension request, backdated to Nov. 4, Pickering said.

The debate over McLaughlin’s pension comes as the picture of his hasty departure on Nov. 3 grows more vivid and more disturbing to investigators.

Although Patrick had called on the board the night before to resign over McLaughlin’s pay - and one member had complied - three board members met at midday as McLaughlin packed up and prepared to leave for good.

Despite the mounting public controversy, the board voted to accept McLaughlin’s resignation and then immediately chose McLaughlin’s successor and offered him a five-year contract.

With no apparent search, the three board members in attendance approved the appointment of assistant executive director Albert Ewing as the new boss starting Jan. 1, boosting his pay by more than $40,000 a year. Though Ewing’s $135,000 salary is lower than McLaughlin’s, it still exceeds the $82,158 to $85,158 salary recommended by the state for a first-year executive director at an agency the size of the Chelsea Housing Authority.

“We would have hoped they would let a new board make that type of decision,’’ said Goddard, the lawyer for the state Department of Housing and Community Development.

Seven minutes after the board adjourned on Nov. 3, the agency’s senior accountant, McNichols, a former nightclub bouncer and someone McLaughlin’s considers as close as a son, cut checks to McLaughlin totaling $200,948. Investigators said McLaughlin cosigned the checks himself.

McNichols admitted removing boxes from the authority after the office closed the night McLaughlin agreed to resign. He also admitted shredding documents, investigators said.

By the time investigators found evidence of the checks, McLaughlin had already cashed one for $81,578.79. The amount represented 793 hours of unused vacation. State officials ordered Ewing to stop payment on the other two checks and to make no further payments of any kind to McLaughlin “no matter how they are categorized,’’ according to the letter from Steven Carvalho, acting director of the state Department of Housing and Community Development.

The other checks were in the amounts of $114,237 for more than 1,000 hours of unused sick time and $5,133.82 for 47 hours of personal time.

McLaughlin told McNichols to withhold roughly $22,0000 - 135 hours of unused sick leave - “for any expenses that arise.’’

Investigators are examining time sheets and other records to see whether McLaughlin actually took time off without reporting it. If McLaughlin was absent from work but never used vacation, sick or personal days - carrying over huge sums of money that he now says he is owed as severance - state officials may be entitled to recover the money, one investigator said.

Sean P. Murphy can be reached at smurphy@globe.com. Andrea Estes can be reached at estes@globe.com.

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