Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 1 of 9 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS INDICTMENT GENERAL ALLEGATIONS

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1 .~. Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 1 of 9 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS UNITED STATES OF AMERICA ) ) Criminal No. t3 c42- l 0 30~ v. ) VIOLATIONS: ) JAMES H. FITZPATRICK ) 18 U.S.C. 371 MICHAEL E. McLAUGHLIN ) Conspiracy to Defraud the United States and ) BERNARDJ.MOROSCO ) Defendants ) The Grand Jury charges that: At all times material to this Indictment: INDICTMENT GENERAL ALLEGATIONS 1. The Chelsea Housing Authority ("CHA") was a public housing authority ("PHA") obligated by law and contract to provide decent, safe, and sanitary housing for low-income, elderly, and otherwise eligible tenants and their families. 2. The operation of the CHA was funded in substantial part by the United States Department of Housing and Urban Development ("HUD"), the federal agency empowered by law to ensure that public housing authorities meet the standard of decent, safe, and sanitary housing for its federally-funded properties. 3. The CHA managed three federal developments containing a total of approximately 350 units divided into eight low-rise buildings and a thirteen-story high-rise building that is primarily for elderly tenants. 4. The Real Estate Assessment Center ("REAC") is an agency within HUD with oversight responsibilities for federally-funded public and multi-family housing. Pursuant to the Public Housing Assessment System ("PHAS"), codified at 24 CFR Part 902 et seq., REAC

2 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 2 of 9 evaluates the performance of housing authorities in a myriad of categories, including the physical condition of the property and its housing units. Pursuant to 24 CFR , entitled "Physical condition assessment," to determine whether a public housing authority is meeting the standard of "decent, safe, sanitary, and in good repair, ("DSS/GR"), REAC is required to "provide for an independent physical inspection ofa PHA's property or properties that includes, at a minimum, a statistically valid sample of the units in the PHA's public housing portfolio to determine the extent of compliance with the DSS/GR standard." 5. REAC inspections are conducted by independent contractors who have received training from REAC on the inspection protocol and regulations and have been certified. Once certified, an inspector is given an inspector number and with a password can access the secure REAC server which contains data on all public housing authorities. 6. REAC inspections are conducted pursuant to 24 CFR , which states, "[t]he dwelling units inspected in a property are a randomly selected, statistically valid sample of the units in the property." 7. Once a REAC inspector is assigned to conduct an inspection of a PHA, using his inspector number and the number of the inspection assigned by REAC, the inspector can download the housing profile of the PHA from the REAC database which contains a listing of the buildings and units. On the day of the inspection, the inspector meets with the property manager and verifies that the building and units are accurately counted, sometimes using a "rent roll" from the PHA which lists all the units in each building. At that time, using a handheld computer device, the inspector hits a "Generate Sample" button and an embedded algorithm, based on the number of buildings and units, generates a statistically valid sample of units to inspect. For example, for a 350-unit housing authority, 25 units would be randomly selected. 2

3 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 3 of 9 8. The REAC inspector then inspects those randomly selected units, as well as common areas and building exteriors, and notes deficiencies in the hand held computer from a standardized list that grades the level of the severity and the criticality of the deficiency. Subsequently, REAC generates an Inspection Report based on the input of the inspector. The scores on the units compose approximately 35% of the physical inspection score. An overall score of 90 or higher makes the PHA a High Performer, which results, among other things, in less frequent physical inspections, less monitoring from HUD, and a three percent annual increase in capital funding from HUD for the PHA. 9. The defendant, MICHAEL E. McLAUGHLIN was Executive Director of the CHA from 2000 until November, The defendant, JAMES H. FITZPATRICK, was Assistant Executive Director of Modernization and Capital Planning of the CHA from 2001 until The defendant, BERNARD J. MOROSCO, owned and operated his own consulting business in Utica, New York that provided, among other things, consulting services to PHAs and other government-assisted housing entities for REAC inspections. MOROSCO was also a certified REAC inspector. In 2004, the CHA first hired MOROSCO as a REAC inspection consultant and MOROSCO provided those services for the CHA's inspections through

4 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 4 of 9 COUNT ONE: 18 U.S.c Conspiracy to Defraud the United States The Grand Jury further charges that: 12. The allegations of Paragraphs 1 through 11 are realleged and incorporated herein as if fully set forth. 13. From in or around sometime in 2006 through in or around sometime in November, 2011, in Chelsea in the District of Massachusetts and elsewhere, the defendants JAMES H. FITZPATRICK MICHAEL E. McLAUGHLIN and BERNARD J. MOROSCO knowingly and unlawfully conspired and agreed with each other and with others both known and unknown to the Grand Jury to defraud the United States and an agency thereof, that is, the Department of Housing and Urban Development, by impairing, impeding, and defeating the proper operation of the physical condition assessment of the federally-funded housing units of the Chelsea Housing Authority by the Real Estate Assessment Center, which relies on a statistically valid random sample of units to inspect. The Manner and Means of the Conspiracy 14. It was a part ofthe conspiracy that defendant MOROSCO, a certified REAC inspector with access to the secure REAC computer data base and software, would identify and provide to defendants FITZPATRICK and McLAUGHLIN the units ofthe CHA that would be randomly selected to be inspected by the HUD REAC inspector on the day of the inspection. 15. It was also part of the conspiracy that MOROSCO would identify and provide a list of those units to be inspected sufficiently in advance of the inspection so that McLAUGHLIN and FITZPATRICK, by organizing and directing REAC "SWAT" Teams of 4

5 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 5 of 9 CHA employees, could concentrate on ensuring that any needed repairs would be made to those identified units. 16. It was also part of the conspiracy that MaRaSCO, McLAUGHLIN, and FITZPATRICK would conceal from the HUD REAC inspector and from HUD their advance knowledge of which units would be randomly selected. OVERT ACTS 17. In furtherance of the conspiracy and to accomplish its objectives, the defendants and their co-conspirators committed the following overt acts in the District of Massachusetts or elsewhere: a. On or about December 6, 2006, MaRaSCO, using his REAC inspector number, downloaded the upcoming scheduled CHA inspection from the secure HUD REAC computer. b. On or about December 7, 2006, based on information transmitted by MaRaSCO, CC#I created a list of the units in the CHA that would be randomly inspected by the REAC inspector during the inspection scheduled for February c. In or around December, 2006 and January, 2007, McLAUGHLIN, using the list provided by MaRaSCO, assigned CHA administrative employees into REAC "SWAT Teams" to inspect and ensure that any necessary repairs and/or fumigation were done to those units. d. On February 7, 8, and 9, 2007, MaRaSCO accompanied the REAC inspector as he inspected the same random sample of units at the CHA that MaRaSCO had previously identified and provided to FITZPATRICK and McLAUGHLIN. 5

6 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 6 of 9 e. On or about October 16,2008, MaRaSCO sent an to FITZPATRICK, McLAUGHLIN and others advising them that the CHA would be up for REAC inspection and said, "I need you to fill out the attached sheets exactly as you give them to the inspector and get them back to me ASAP." f. On or about November 7,2008, FITZPATRICK forwarded to MaRaSCO an from the REAC inspector's scheduler that confirmed February 19,2009 for the inspection and included the REAC inspector's letter advising FITZPATRICK that "[t]he inspector will inform your representative of the units that have been selected for inspection on the day of the inspection, which is the result of a sample drawn on-site." g. On or about December 18,2008, CC#1 sent an to MaRaSCO with a property profile list ofthe buildings and units in the CHA, stating "Hi Bernie: Here are the Excel files on our properties. Do whatever you need." h. On or about January 12,2009, MaRaSCO, using his REAC inspector number, downloaded the upcoming CHA inspection from the secure HUD REAC computer. I. On a date unknown to the Grand Jury but in January, 2009, MaRaSCO provided to FITZPATRICK and CC#1 a list of the units in the CHA that would be randomly inspected by the REAC inspector during the inspection scheduled for February 19,2009. J. From in or about February 2 through 18,2009, McLAUGHLIN, using the list provided by MaRaSCO, assigned CHA administrative employees into REAC "SWAT Teams" to inspect and ensure that any necessary repairs and/or fumigation were done to those units. 6

7 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 7 of 9 k. On February 19,2009, MOROSCO accompanied the REAC inspector as he inspected the same random sample of units at the CHA that MOROSCO had previously identified and provided to FITZPATRICK and McLAUGHLIN. 1. On or about March 21, 2011, McLAUGHLIN received a letter from the REAC inspector confirming that a REAC inspection for the CHA was scheduled for April 21, 2011 and advising, "On the day of the inspection, HUD's inspection software will 'Generate a Sample' in order to determine which dwelling units are to be inspected. The inspector will inform your representative of the specific units that have been selected at that time." m. On or about March 22, 2011, FITZPATRICK sent an to MOROSCO with the subject: "Information Embargo," and stating, "Mike [McLaughlin] asked me specifically to remind you again that [CHA manager] is not in the REAC inner circle..." n. On or about March 23, 2011, MOROSCO, using his REAC inspector number, downloaded the upcoming CHA inspection from the secure HUD REAC computer. o. On or about March 24, 2011, based on information transmitted by MOROSCO, CC#l created a list of the units in the CHA that would be randomly inspected by the REAC inspector during the inspection scheduled for April 21,2011. p. In or around the first three weeks of April, 2011, McLAUGHLIN, using the list provided by MOROSCO, assigned CHA administrative employees into REAC "SWAT Teams" to inspect and ensure that any necessary repairs and/or fumigation were done in those units. q. On April 21, 2011, MOROSCO accompanied the REAC inspector as he inspected the same random sample of units at the CHA that MOROSCO had previously identified and provided to FITZPATRICK and McLAUGHLIN. 7

8 Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 8 of 9 r. On various dates, McLAUGHLIN told other co-conspirators known to the Grand Jury to tell other CHA employees on the SWAT Teams that CC#1 had devised some algorithm to predict the units to be inspected and not disclose MaRaSCO's role. All in violation of Title 18, United States Code, Section

9 . Case 1:13-cr DPW Document 1 Filed 10/29/13 Page 9 of 9 A TRUE BILL ~l( ~~oe~ "6<ex1.'(\~<'. -e:,~~ FOREPERSON OF THE GRAND JURY %()/L1- ASSISTANT U.S. ATTORNEY DISTRICT OF MASSACHUSETTS; October 29,2013 Returned into the District Court by the Grand Jurors and filed. ej?/---- DEPUTY CLERK t?j-1",