Federal prosecutors have launched an investigation into whether federal officials or others helped former Chelsea housing chief Michael McLaughlin defraud the government, repeatedly telling him in advance about “surprise” apartment inspections so that his agency could pass with flying colors even though the buildings were poorly maintained.
McLaughlin, who faces sentencing in June for deliberately concealing his bloated $360,000 salary from regulators for years, agreed to cooperate with prosecutors in exchange for the hope of less prison time. However, his lawyer declined to say whether McLaughlin is helping investigators, who say that millions in federal funds remain unaccounted for from McLaughlin’s decade in charge of Chelsea’s low-income housing projects.
A Globe investigation suggests that McLaughlin escaped scrutiny for years in part by rigging the federal inspections that determined how closely Chelsea’s operations would be scrutinized. Several agency employees said McLaughlin always received the list of 25 apartments to be inspected weeks in advance, allowing him to clean them up before the inspectors arrived.
“They had the list and Mike kept sending us back to the same apartments. For about two weeks before the inspection, you’d go to the apartment every day,” explained one authority employee who asked not to be identified out of fear of retaliation.
Chelsea Housing records from the three weeks before the 2011 federal inspection show that McLaughlin’s staff made sure exterminators visited all 25 apartments that were ultimately inspected, while 25 apartments immediately adjacent to the inspected ones received zero visits from the exterminator.
Other public housing officials were appalled at the possibility that McLaughlin may have had a pipeline to HUD that gave him an unfair advantage in inspections over everyone else.
“That defeats the whole purpose” of inspections, said Thomas Connelly, head of MassNAHRO, the professional group of housing officials. “That’s the way [McLaughlin] operated. He would curry favor with somebody. Next thing you know he’d have access to information.”
A spokesman for US Housing and Urban Development, which oversees public housing, said he had no knowledge of a federal investigation targeting HUD, but he didn’t rule out the possibility that investigators are looking at potential wrongdoing by individual officials.
“I can say that any allegations against our employees will be thoroughly reviewed,” said the spokesman, Jereon Brown.
The federal probe of the Chelsea Housing Authority took on new energy in late February after McLaughlin pleaded guilty to four felony counts of hiding his salary, one of the highest paid to any public housing official in the United States. As part of the plea deal, McLaughlin agreed to help investigators trying to understand how he escaped detection for so long and what became of $3.5 million in federal apartment modernization funds that can’t be accounted for.
Since McLaughlin’s plea, at least one authority employee has been questioned by investigators about who might have tipped off McLaughlin about inspections ahead of time. Some questions concerned Bernard J. Morosco, a consultant with HUD connections whom McLaughlin hired to prepare for apartment inspections in 2004, the year Chelsea’s scores suddenly improved dramatically. Morosco, who has not been charged with a crime, has denied tipping off Chelsea officials.
And the authority official in charge of maintenance, Richard Russell, has been called to testify before a federal grand jury on May 21, according to someone with direct knowledge of the subpoena sent to Russell.
Meanwhile, HUD’s inspector general has seized the computer hard drive belonging to the Chelsea official in charge of apartment modernization, James Fitzpatrick, who abruptly retired in March after almost 20 years with the authority. Fitzgerald has admitted that during his tenure the agency kept virtually no records of how modernization funds were spent.
The Chelsea Housing Authority is also preparing legal action against McLaughlin, drafting a motion to ask a federal judge to declare the agency a victim of McLaughlin’s criminal deceptions. Agency officials believe McLaughlin owes them more than $500,000, representing the difference between his publicly acknowledged salary of $161,945 and the extra money he was paid from 2007 to 2010.
McLaughlin resigned under pressure from Governor Deval Patrick in November 2011 after the Globe revealed his salary, and the entire board of the housing authority resigned close behind him. Since then, the authority has been the target of multiple investigations looking at misuse of public funds as well as McLaughlin’s allegedly illegal fund-raising for Democratic politicians, including Lieutenant Governor Timothy P. Murray.
Public housing officials have good reason to want to excel on their federal apartment inspections; it is one of the main tests HUD uses to determine if a housing authority is a “high performer.” By winning HUD’s seal of approval, a housing authority can guarantee that regulators will assume things are well managed and pay less attention to them, even cutting back apartment inspections from yearly to every two years.
“HUD didn’t bother you when you were a high performer,” explained one housing authority employee, who asked not to be named out of fear of retaliation. “You had more flexibility with spending the funds and there was no oversight. That’s why Mike wanted it,” even making employees come in on weekends before apartment inspections to get ready.
There was another incentive: money. For the first few years McLaughlin was in Chelsea, HUD gave a 3 percent annual boost in federal funding to its high performers.
In 2003, Chelsea Housing Authority scored a disappointing 22 out of a possible 30 points for the upkeep of its apartments, threatening its coveted high performer rating. The next year, records show McLaughlin hired Morosco, a former apartment inspector certified by HUD who had started a business to help authorities with the inspection process.
Three months after Morosco was hired in September 2004, the authority aced its first federal inspection, receiving 28 out of a possible 30 points. For the next six years, the authority never received a lower score on its apartments and three times, Chelsea scored a perfect 30, giving McLaughlin major bragging rights, which he exploited in letters to the public and politicians as well as personal commendations from his board.
“We knew we did well as we worked very hard between inspections to keep our buildings in the best shape possible,” McLaughlin gushed in a letter to Chelsea City Manager Jay Ash in 2011. “But even we were a little surprised with a perfect score of 30 points out of 30.”
But inside the authority, several employees said they were convinced that McLaughlin was getting the list of apartments to be inspected ahead of time, despite HUD rules that the authority is not supposed to know until the day of the inspection. Then, McLaughlin would act surprised when the inspector revealed which apartments he wanted to see.
“We had the list at least a month in advance,” said another housing authority official who, like the other two quoted above, asked not to be named for fear of retaliation.
James Cirino, a veteran inspector hired by HUD to do the Chelsea inspections in 2011, said he had no sense that authority officials knew ahead of time, explaining that, on the day of the inspection, he simply pushed a button on his computer and up popped the list of apartments to inspect.
“If [McLaughlin] knew, he didn’t get it from me,” said Cirino, who scored the Chelsea apartments 29 out of 30 points in 2011.
Morosco, who helped Chelsea with the 2011 inspections, said he, too, never provided lists of Chelsea apartments to be inspected, noting that any number of HUD officials would have had access to the lists, which are generally set a month before the actual inspection
“Almost any HUD employee had access to the system,” Morosco said in an interview.
Morosco said he had never heard of a case in which a HUD employee leaked copies of the inspection lists, but he did cite a 2005 incident in which a private inspector certified by HUD allegedly allowed New Haven housing officials to use his password to access confidential information regarding inspections.
In the New Haven case, the consultant along with three top housing officials were banned from doing business with the government for two to three years.
In Chelsea, it’s unclear who, if anyone, leaked the apartment lists to McLaughlin, though he did cultivate close ties with several HUD officials, including one who was a childhood friend of a top aide and close enough to McLaughlin that he donated $200 to Murray for a 2010 fund-raiser for the lieutenant governor organized by McLaughlin.
But one thing is clear: Once McLaughlin resigned in late 2011, the talk about Chelsea’s “perfect” public housing maintenance ended almost immediately.
Residents of Chelsea housing complained that their apartments were cold, leaky, and poorly maintained and often infested with roaches or rats while federal money that was supposed to go toward improvements was being diverted. In 2012, HUD gave Chelsea a dismal 21 out of 40 possible points for its apartments, making it an officially “troubled” agency.