The arrest of a top New York City housing official may have exposed a network of fraud in Department of Housing Preservation and Development programs that took a toll on vulnerable Brooklyn neighborhoods, interviews and records suggest.
Wendell Walters, 49, appeared in federal court this week to face charges of bribery, corruption and fraud. He is alleged to have accepted at least $600,000 in bribes and kickbacks from developers and contractors seeking access to affordable housing programs at HPD, where he served as an assistant commissioner.
When Walters and six developers and contractors who were connected with the programs he ran were arrested two weeks ago, HPD commissioner Mathew Wambua emphasized that the charges against Walters were exceptional. “I do not view the actions of this individual as representative of the great work the agency does, day-to-day, in carrying out the nation’s largest municipal affordable housing plan,” Wambua said in a statement.
Yet the prosecutors’ case – which seeks to recoup $22 million from the defendants — suggests that corruption infected numerous HPD programs Walters ran. One initiative overseen by Walters, called the Neighborhood Entrepreneurs Program, was once honored by Harvard’s Kennedy School as one of the nation’s best innovations in government.
Court transcripts show a subcontractor in one program run by Walters confessed to grossly underpaying workers on federally financed housing construction. Contractors purportedly billed HPD as if the workers were paid $60 an hour, as required by federal law; instead, the workers received just $12 or $15 an hour for their labor. Prosecutors charge that Walters received more than $400,000 in bribes over a six-year period from the contractor in charge of those jobs. (Walters earned $135,000 salary in 2009 from HPD.) According to published reports, Walters awarded more than $10 million in work to that contractor.
The impact of the alleged criminal activity is especially vivid on the streets of Bushwick and Bedford-Stuyvesant in Brooklyn, two low-income neighborhoods HPD programs sought to assist. Under HPD’s HomeWorks program, overseen by Walters, developers were supposed to take vacant city-owned buildings and sell them to new homeowners. But in one of those projects – the three-story brick townhouse at 53 Rochester Ave. in Bushwick – thieves have torn through immaculately painted walls in search of copper and pipes to sell. Once-polished floorboards jut out dangerously, splintered and cracked.
“This building makes me feel sad,” said neighbor Egon Hanson as he ran his hands over a dusty window sill at 53 Rochester Ave. “They spend all this money fixing it up, and now…it’s a carcass.” At 224 Spencer St., the building is wrapped in white-and-blue paper siding, making it look like a present that was never gifted. Neighbors say the house has been in this state for more than a year.
Walters’ attorney, Howard Leader, told The New York World his client was not guilty and would fight the case.
Two Guilty Pleas
Through the program, the city selected small, local entrepreneurs to carry through its projects, seeking to stimulate the economies of low-income neighborhoods by using local labor and businesses. The entrepreneurs planned and oversaw the rehabilitation and design of the buildings, and were assigned to recommend general contractors to the HPD for approval.
The program continues to function, but with just 18 of the 788 buildings left to complete, it’s nearing its end. Most of the projects have been completed and are now occupied. Yet other buildings touched by the alleged bribery scheme now blight neighborhoods they were supposed to help revive.
The case against Walters and the other six defendants hinges on accounts by two men identified in court filings as “John Doe #1” and “John Doe #2,” contractors who attested to paying bribes to Walters and other defendants. Both pleaded guilty on Oct. 5 to charges of racketeering conspiracy, bribery, wire fraud conspiracy and money laundering. That case has been sealed.
Their names have been withheld because they are cooperating witnesses in the Walters case. But details in the FBI’s search warrant of Walters’ home and office, combined with property records, real estate advertisements and building permits, reveal that John Doe #2 is George Armstrong, the former head of the Housing Partnership Development Corporation. The Housing Partnership, previously an affiliate of the business group Partnership for New York City, worked with the Giluliani administration to create the Neighborhood Entrepreneurs Program as a centerpiece of the administration’s housing program.
When he was arrested, Walters was HPD’s assistant commissioner for new construction. But he was previously in charge of the Neighborhood Entrepreneurs Program, from 1998 until about 2007. During Walters’ first years with responsibility for NEP, Armstrong ran the Housing Partnership’s side of the program. An FBI affidavit asserts that John Doe #2 – Armstrong — “worked closely with Walters, who was then the head of NEP, on several HPD real estate development projects.”
Records show that Armstrong was recently a general contractor on at least 61 city projects, all of them run through Walters’ office, though none of them appeared to be part of NEP. Nearly a third of those projects still lack certification that they are complete and legal to inhabit, even though construction on some began more than four years ago.
One group of six Bedford-Stuyvesant buildings on which Armstrong served as contractor between 2007 and 2010 still hold no valid certificates of occupancy, according to the city’s online register. All but one of the buildings are boarded up and empty.
Armstrong’s New York City contractor license expired last November. HPD spokesman Eric Bederman would not comment on specific construction projects but said, “We monitor the work sites on all HPD projects to ensure safe and timely completion of construction.”
The New York World visited Armstrong at his home in Staten Island, where he declined to discuss details of the Walters case. Armstrong told The New York World he was involved in several court cases pertaining to his business dealings with HPD.
Records show that John Doe #1 is a general contractor, Bogdan Starzecki, aka Bob, who worked on dozens of Neighborhood Entrepreneurs Program sites. Starzecki was a defendant in a 2005 racketeering suit filed by workers. The suit alleged that he and his subcontractors severely underpaid carpenters, masons and other workers on federally subsidized HPD jobs, which were overseen by Walters.
Starzecki did not return repeated calls from The New York World made to his home, attorney’s and business numbers. The New York World also visited Starzecki’s office at MCR Restoration in the Bronx. An office worker who identified himself as Carlos said, “I have all your messages. I’ve passed them on. I can’t do any more than that,” and added, “I’m really sorry, but I can’t call Mr. Starzecki.”
In a 2008 settlement with 10 workers, Starzecki and the other employers agreed to pay workers back (the sum is not disclosed in public records). One of the subcontractors, Josef Wolosz, was subsequently convicted in a separate criminal case of conspiring to retaliate against the plaintiffs and their attorney who sued for their wages; he is currently appealing his case.
During the criminal proceedings, Wolosz admitted to depriving workers of their full pay and to conspiring with Starzecki in the scheme. “I didn’t pay those prevailing wages and I was aware of that,” said Wolosz in a hearing before Brooklyn Federal Judge Robert Levy in September 2010. “I knew that it was a fraud. I agreed it with (sic) Bogdan Starzecki to do that.”
Permit records from the city show Starzecki was the contractor on 53 NEP buildings from 2004 to 2011, or about one of every eight buildings completed under the program since Starzecki allegedly began making payments to Armstrong in 2002. (Records from 2002 to 2004 were not readily accessible.) During this period, Starzecki was also a contractor on more than 42 buildings built or renovated under other HPD programs.
Prosecutors assert that John Doe #1 — Starzecki — paid $420,000 in bribes to Walters, including sums hidden in overnight mail envelopes, a coffee cup, and a box of golf balls. With the help of these payments, he was allegedly able to secure a place as a go-to contractor for NEP.
In the mid-1990s, the city owned some 44,000 apartments from Bedford-Stuyvesant to Harlem to the Grand Concourse whose landlords had failed to pay property taxes. Squatting was rife, and the housing stock was crumbling. Into those conditions the Neighborhood Entrepreneurs Program was born.
Combining city, federal and private money – and run jointly by the city and the New York City Housing Partnership – the program tagged blocks of buildings for renovation and then sold them to developers selected in a competitive process. These entrepreneurs had to prove their track record and their ties to the local community. They were not allowed to evict current tenants, and they had to agree not to sell the buildings for 18 years. In that way the city could phase itself out of being a landlord while improving conditions in some of the most run-down buildings in the city.
Deborah Wright, who was commissioner of HPD during the early 1990s, teamed up with Housing Partnership CEO and founding president Kathryn Wylde to create the Neighborhood Entrepreneurs Program. Today, Wright is CEO of Carver BankCorp, a local financial institution. She is proud of what the program has achieved. “It’s one of the most successful housing schemes this city has implemented,” said Wright. “It’s literally changed the face of New York.”
She recalls how thousands of families lived in appalling conditions – often with no doors, no electricity and no running water. “They were destroying neighborhoods and lives,” she said. “NEP fixed a lot of that.”
“I’ve stayed in the touch with most of the entrepreneurs and they say the the program has served them well,” said Wylde. “They are all sick that the program has been tarnished.”
Between 1996 and 2002, George Armstrong was director of NEP at the Housing Partnership Development Corporation and then president and CEO, acting as the intermediary between the city and developers participating in the program. According to his online biography at his real estate company, Metropolis Development, Armstrong was responsible for leveraging more than $1 billion in private and public financing at the Partnership. Armstrong claims to have overseen the development of 6,000 apartments deploying $800 million of private and federal loans.
NEP was the Giuliani administration’s market-driven alternative to the tenant-run co-ops that had been the center of previous attempts by the city to repair and divest the buildings it had come to own. At the time, some housing advocates worried about what would happen under a profit-based program.
One longtime critic of NEP, Harvey Epstein from the Urban Justice Center, says he’s not surprised to learn the program became enmeshed in corruption. “You move a program into the realm of profit-making and you find you have people wanting to make profit,” he said. “The issue is a lack of oversight. There just aren’t enough checks and balances in place over people of Walters’ stature.”
But the accusations against Walters have surprised even longtime critics of NEP. Developers and contractors who worked alongside Walters have told The New York World they found him to be a highly professional, reasonable government employee. One source was “dumbstruck” by the indictment.
The indictment and FBI statements to the federal court describe arrangements in which Walters allegedly received payments not only from contractors, but from developers – the “entrepreneurs” in Neighborhood Entrepreneurs. Six developers are named codefendants with Walters, and they include three — Stevenson Dunn, Lee Hymowitz and Michael Freeman – who hired Armstrong as general contractor on a series of Brooklyn jobs and subsequently, according to prosecutors, made payments to Walters.
By 2004 or 2005, the FBI affidavit alleges, calling him John Doe #2, Armstrong made the first of two $10,000 payments to Walters to secure general contracting work with HPD. Dunn later reportedly demanded that Armstrong make payments to a company he and his partners controlled. According to authorities, the defendants said the funds were needed to pay off “The Big Man,” identified in court filings as Walters. Armstrong reportedly made $50,000 in these additional payments to Dunn.
According to the prosecution, Dunn didn’t deduct these kickbacks when he charged HPD for one project Armstrong worked on. That meant, the case alleges, that HPD was effectively overcharged for the project. Dunn, Freeman and Hymowitz then sent the money to two companies they controlled, prosecutors say. The indictment sets out allegedly fraudulent wire transfers between 2007 and 2008 worth $68,976.63. Another $493,527 allegedly went to a company controlled by Dunn. These payments were reportedly pulled from a cluster of four Brooklyn buildings in a program overseen by Walters, two of which still are not completed.
Acid and Beatings
Some of the most disturbing charges involving city housing programs are not leveled at Walters, but at contractors who were allegedly paying him off. At the criminal trial of Wolosz, the subcontractor who worked with Starzecki, Assistant U.S. Attorney Cristina Poza outlined a scheme of wage extortion, in which Wolosz “would pay certain of his workers the prevailing wage amount, have them cash those checks and then return a large portion of his — of their paychecks to him. And then they would report the inflated wages to the City in order to receive funding based on the inflated wages.” Then she added: “He did this in concert with … Bogdan Starzecki.”
After Wolosz and the courts settled the wage dispute, he hired men to threaten the laborers – the obstruction of justice for which he was convicted in 2010. The FBI recorded and transcribed Wolosz saying, “[t]hose people who ****ing did this to me, I will ****ing get them, one by one.”
Wolosz and his team did, according to prosecutors, enact some retaliation – they paid $15,000 to have acid thrown on one of the laborers’ girfriends as she walked to work. She suffered first- and second-degree burns. In court transcripts, an accomplice is quoted as saying “Just give them a [expletive] beating, legs…whatever they can get. It would be the best punishment right? Nothing needs to be said, you understand?” Wolosz pleaded not guilty to the attacks and is appealing his case.
Wolosz directly implicated Starzecki in his federal criminal proceedings, fingering Starzecki as a co-conspirator in the skimming of wages from their workers. The court asked Wolosz whether he was part of a wire fraud between June 2004 and April 2005.
“Yes,” replied Wolosz.
The prosecutor then asked, “And that conspiracy you undertook with Bogdan Starzecki. Is that correct?”
“Yes,” replied Wolosz again.
Bogdan Starzecki continued to complete contracts for HPD. His last building permit for an HPD project was issued in September 2010 – the same month his former subcontractor identified him as his partner in crime.
The New York World’s behind-the-scenes explanation of how we identified John Does #1 and #2.