Thread: Lawsuit contends Columbia mayor, HUD officials targeted whistleblower

Thursday, May. 10, 2012

Lawsuit contends Columbia mayor, HUD officials targeted whistleblower


By CLIF LeBLANC

Columbia Mayor Steve Benjamin and federal housing officials are accused in a lawsuit of conspiring to fire a Columbia HUD official because he was alleging a pattern of misuse of federal housing funds meant for Columbia’s low-income residents.

The wrongful termination suit filed by Peter Rowe, who oversaw $170 million U.S. Department of Housing and Urban Development funds for South Carolina, alleges that HUD officials in Columbia and Washington, D.C., ignored his persistent efforts to get documentation and explanations about how Columbia officials spent the city’s HUD money. Then, under political pressure, Rowe said, they threatened his job if he didn’t stop his inquiry.

Rowe was fired by Columbia’s HUD office Nov. 2 after working there 11 months – still within his one-year probationary period in the job. The reasons cited, he said, were that he was disrespectful and confrontational toward his staff and that he threatened a subordinate. Rowe contends he was fired because he is a whistleblower.
The suit, filed on Friday in federal court, names Benjamin and Rowe’s supervisors, Larry Knightner in Columbia and Jacqueline Roundtree in Washington as well as Bernie Mazyck, head of a trade group representing Community Development organizations around the state.
Rowe alleges misspending or the lack of proper accounting in the city’s Community Development Department, which made the news in the past year for being sanctioned by federal agencies for, among other things, improper loan documentation. Rowe’s suit also raises questions with regard to The Village at River’s Edge, a development project with which Benjamin was once involved, as well as the redevelopment of Rosewood Hills, once known as Hendley Homes.
Most of the problems were there before Benjamin became mayor, Rowe said in the suit.

The case portrays Rowe as stressed and frustrated. “Do I do my job or back off like it’s been done here prior to my arrival?” he asked in a June 24, 2011, email exchange with Steve Johnson, director of the office of Block Grant Assistance in HUD’s national headquarters. “It’s getting ugly down here.”

Benjamin’s spokesman on Wednesday referred all questions to attorney Allen Nickles, the city’s labor lawyer.

“We plan to vigorously defend this litigation,” Nickles said. “I believe there is a very strong possibility that this will not require a jury’s attention.”

The suit alleges that Benjamin, after he became mayor in July 2010, influenced Rowe’s firing to protect the development of the 28-acre The Village at River’s Edge, a portion of which was designated for $10 million in HUD-funded, low-income housing being built by the Columbia Housing Authority.

Benjamin once was a co-owner in the company developing River’s Edge, on the Congaree River north of Columbia. He sold his share in August 2009, two days before announcing his mayoral campaign, to business partner Jonathan Pinson, who recently stepped down as chairman of the S.C. State University board of trustees. Portions of the Housing Authority’s project are nearing completion, but nothing else has been built.

Rowe said that when he examined the paper trail for the Housing Authority expenditures at River’s Edge, the financing “simply did not add up.”

Rowe said he also called for HUD audits of a range of programs, including funds to the Columbia Empowerment Zone, which lends federal funds to low-income borrowers and has an arms-length relationship to city government, and of the city’s Community Development Block Grant (CDBG) program. No audits occurred, he said.

Instead, Rowe “was retaliated against and terminated at the behest of and at the hands of the defendants because he dared … (to) expose … waste, possible misappropriation of and abuse of public funds,” according to the suit.

Rowe said HUD supervisors told him to “lay off” Columbia. “That’s what your predecessor did and that’s the way it works here.”
“The city of Columbia was simply churning federal monies such that everyone in the loop, it appears, was being paid, but at the end of the day nothing was being built,” Rowe states in the suit. “This lack of transparency and accountability created an environment which allowed for so-called shady practices or worse to occur with little or no fear of exposure.”

Rowe seeks unspecified actual and punitive damages.
In the 18-page suit and in attached exhibits, Rowe contends:

• Half the 2009 CDBG money for the city was improperly spent on salaries for the city’s Community Development Department staffers. The suit does not cite the amount.

• A $1 million loan to the Columbia Housing Authority that was to be collateral for a larger loan did not occur, yet the loan is recorded with Richland County and the state. The Housing Authority has strong ties to the city but is not a city agency; it is not named in the lawsuit.

• There are no records to substantiate $931,000 disbursed to the city for the Rosewood Hills development, a Housing Authority development on Rosewood Drive.

• The city sought to improperly move $1.2 million from its revolving loan fund to the River’s Edge for infrastructure. City Council awarded that money before Benjamin became mayor, when he still was involved with River’s Edge.

• Benjamin, as mayor, went to Washington and told federal officials the city wanted to use $1.1 million in unspent federal money for River’s Edge. Rowe said he heard Benjamin say that during a conference call he participated in from Columbia and questioned it, since River’s Edge already had received federal funding.

• Mazyck, president of the S.C. Association of Community Development Corporations, “warned me that I am developing a reputation of being out to get people and that I should reconsider my actions.”

Mazyck said Wednesday he did not know he had been sued. When a reporter read him the key allegations, Mazyck said, “None of that is true … Everything is baseless.”

He acknowledged meeting with Rowe and discussing Columbia’s loan programs. But Mazyck denies pressuring Rowe. “In no way was it, veiled or direct, any kind of a threat.”

The city’s labor lawyer, Nickles, said that under scrutiny of the court, allegations that Benjamin, himself an attorney, used political pressure to fire Rowe will “be shown to be unsupportable.”
Housing Authority officials could not be reached for comment Wednesday evening.

Rowe’s lawyer, Ben Mabry, said in prepared statements: “If the allegations … are proven to be true, they would represent the exposure of an improper relationship between officials of the city of Columbia and the United States Department of Housing and Urban Development. We look forward to pursuing this case in court and not in the press.”

Lawsuit contends Columbia mayor, HUD officials targeted whistleblower - Crime & Courts - TheState.com

House of Cards: Columbia's Empowerment Zone Shoddy Paperwork, Questionable Ethics Draw Federal Scrutiny

BY RON AIKEN

Just what is the Columbia Empowerment Zone (CEZ), and why do its practices have accountants crying foul, city council members questioning its federal paperwork and the city’s own chief financial officer expressing “grave concerns” about a potential federal investigation? Tony Lawton, director of the Columbia Empowerment Zone and the City of Columbia Office of Business Opportunities. Photo by Jonathan Sharpe. It’s a long story, and one that Free Times has been following closely since last fall. That’s when the local office of the U.S. Department of Housing and Urban Development issued a monitoring report questioning the City of Columbia’s handling of its federal empowerment zone funds, which are intended to alleviate urban blight and create jobs. HUD pointed to several questionable loans made under the program — including two connected to interests of members of City Council — and questioned the city’s basic underwriting standards and ethical guidelines. Since that report was issued, HUD and the city have gone back and forth on the issues raised in it. But even as the city has scrambled to answer HUD’s concerns — and it has yet to do so to HUD’s satisfaction — more questions have come to light, including allegations of appraisal-shopping and conflict of interest against the city official who heads the program, Tony Lawton. Altogether, there are three major areas of concern: • As of this week, the CEZ’s external audit is a month-and-a-half behind schedule and counting, holding up the entire city’s comprehensive annual financial report. • One of HUD’s areas of concern, a $179,000 loan to CamBry, Inc., has resulted in numerous and conflicting accounts from city officials about what the money was used for. By the end of next week, HUD is expected to tell the CEZ whether it must repay the $179,000 loan made to CamBry, Inc. • Lawton, director of the CEZ and also the city’s Office of Business Opportunities, is at the center of a controversy over real estate transactions with the Columbia Housing Authority that have attracted the attention of the FBI and HUD. In short, the CEZ is a house of cards in which incomplete paperwork, misleading responses to federal inquiries, ethically questionable loans and allegations of impropriety aimed at its director have forced its actions into the spotlight. For those who are trying to clean up the CEZ’s mess, the frustration is clear and mounting. What isn’t clear is why the CEZ’s lengthy trail of troubling loans, lax ethical standards and slapdash paperwork have led to no disciplinary action for or even shaken confidence in Lawton — on Monday, Mayor Bob Coble expressed his “full support” for Lawton. Despite that endorsement, the evidence begs the question: Are Lawton and the CEZ incompetent, unethical or both? Bill Ellis, City of Columbia deputy finance director and interim CFO. Photo by Jonathan Sharpe. Conflict of Interest and a Shady Real Estate Deal Formed in April 2008, the CEZ is the city’s successor to the Sumter-Columbia Empowerment Zone, which was launched a decade ago. Under the direction of Lawton, the CEZ is a nonprofit 501c3 organization that’s currently managing a hotel development, two restaurants, the North Main Street Plaza and a Busby Street development, all projects originally developed under the SCEZ, which expired on Dec. 31, 2009. So far, so good — except for those questionable loans, of course. But in addition to questions about the CEZ’s loan standards, there is also evidence that Lawton has personally benefited from his position by selling at least one house to the Columbia Housing Authority at an inflated value. Because Lawton is in a position to direct federal funds toward the Housing Authority, any personal dealings with the agency at all could constitute a conflict of interest. But receiving above-market value goes even further — and has drawn the scrutiny of both HUD and the FBI. In an article published Dec. 30, Free Times was able to confirm that the FBI and the HUD Inspector General’s Office had been made aware of possible suspicious activity surrounding a transaction between Lawton and the Columbia Housing Authority in which Lawton sold a home at 225 Saddletrail Road for $65,000 despite two previous appraisals showing the house as worth much less. In the time since, Free Times has confirmed that the FBI contacted one of the appraisers after the December story ran. The home’s first appraisal, conducted by Paul Payne III on Oct. 24, 2008, valued the home as-is at $42,000. A subsequent appraisal on Nov. 20, 2008, by Chris Barczak determined the home’s worth to be $37,000. Neither appraisals pleased Lawton, who purchased the home for $36,000 in 2004, according to Richland County records. “When I told [Tony] what I appraised it for, he seemed disappointed,” Payne says. “He definitely seemed put out.” S. Allison Baker, seated at left, senior assistant city manager. Photo by Jonathan Sharpe. A third appraisal of $65,000 — which became the sales price — was done by John King of Palmetto Appraisal & Associates on Dec. 7, 2008. To reach that higher value, King’s appraisal was specifically contingent on certain repair work being done. In the appraisal, King writes: “Subject is being appraised ‘subject to’ the following, but not necessarily limited to, improvements: New flooring (carpet and vinyl including kitchen and bath), interior and exterior paint, replacement [insulated] windows, new appliances and landscaping.” The Columbia Housing Authority valued the needed repairs at $41,000 were it to have completed the work itself, but instead left Lawton to complete the required work. At issue is whether the work required to meet the appraisal price actually was performed. Columbia Housing Authority executive director Gilbert Walker said he believes that it was, telling Free Times in December that Lawton made the improvements to his satisfaction. “The fact of the matter is that [Lawton] did the work required to our satisfaction and everything was above board,” Walker said. “He went back out and did the work [after the third appraisal] so that when we got it about a year ago everything had already been done.” But that’s not the end of the story, because: • Both of the first two appraisers question the $65,000 valuation of the house. • Bill Ellis, the city’s deputy finance director and interim CFO, searched for building permits for the work and found that none were issued. • Lawton himself says he never saw the appraisals, didn’t know the third appraisal was contingent upon work being done on the house and therefore didn’t do the work. “I can tell you there’s no way [Lawton] put that much into a house like that,” Payne said in December. “For a house he bought for around $36,000, $38,000, which is a little below what I appraised it for even with a new roof, it makes no sense to double the money you put into a house unless you expect to sell it for a loss.” Barczak went even further, pulling data from the Columbia Multiple Listing Service to show that of 11 closed sales in the Saddletrail neighborhood from January 2008 to September 2009, the closing prices “ranged from exactly $20,000 to $40,000 … [there was] nothing outside that range except for [Lawton’s] property.” “Even fixed up, that property isn’t worth nearly what [the Housing Authority] paid,” Barczak said. When the story of potential appraisal-shopping appeared, it alarmed at least one person at City Hall. “I can tell you that when I read that story I went ape-mess,” interim CFO Ellis says. “Since I have to monitor federal funds that flow through the City of Columbia, I immediately clipped out the story and started a folder. As part of my due diligence, the first thing I did was [submit Freedom of Information Act requests to] appropriate parties to see if there were any business permits issued during the time of ownership. “I found no such permits issued during the period of ownership. I’m trying to get information from [Lawton] to support that he did the work, because not being able to show permits makes things nasty. If I had had them, I’d have stapled them to the article and have my folder ready in case HUD or anyone else wants to come in and examine the transaction, they can see that the city is clean. But I don’t. “Instead, I have a folder that says I have grave concerns about this individual and that this individual will not cooperate. That’s as far as I can take my own due diligence. Until someone makes him cooperate with me, he will not, and he can get away with it.” When the article ran in December, Free Times’ attempts to reach Lawton had been unsuccessful. However, Lawton did respond on Feb. 8 to an inquiry about the 225 Saddletrail Road property. When asked if he could provide any documentation, receipts or permits to show that the estimated $41,000 worth of improvements had been completed that would have merited the $65,000 appraisal, Lawton directly contradicts Walker’s version of events and the testimony of the appraisers who said they shared their results with Lawton. “I have never seen any of the appraisals ordered by the Columbia Housing Authority, nor was I aware that any work was required by the third appraisal,” Lawton wrote in an emailed response to questions. “I deny any allegations that I appraisal-shopped. I owned a house that the Housing Authority purchased. They paid the amount of the contract.” When apprised of Lawton’s comments that he did no work as required by the third appraisal to justify the inflated purchase price and asked whether he wanted to amend or clarify his previous statements that Lawton did, Walker declined. “The Housing Authority stands behind its previous statements about this purchase,” Walker wrote in an emailed response on Feb. 9. For Ellis, everything about the transaction stinks. “If I’m stupid enough to use my position to do business with the City of Columbia, which I wouldn’t be, not knowingly, then I’d say, ‘What do you want to know? Here are my tax returns, here’s my invoices, here’s everything you need.’ [In this case], we don’t have that. “If it were up to me ... I’d have called him in and tell him you don’t conduct transactions with someone you have authority over [in Lawton’s role as CEZ director and director of the office of Business Opportunities]. That’s bad, and don’t do it again. But if you do, make sure you have full disclosure on the front end because you need to protect yourself and the city. To protect him, I’d need his personal tax returns, but I don’t have the right to ask for his returns because he doesn’t report to me. I’ve never been in a situation like this. It looks bad, just like the CamBry loan looks bad.” When told that Lawton did not apply for permits to do the work required by the appraisal, councilman and mayoral candidate Kirkman Finlay sunk his head into his chest and rubbed his eyebrows with his hands. “You can’t do $40,000 worth of work with no permits,” he says. “You just can’t.” When asked his thoughts about the conflict of interest and failure to perform required work related to Lawton and 225 Saddletrail Road, Coble said he was unaware of any problems with the transaction. “If there were [problems], we’d look into it and be happy to do something about it,” Coble says. A Question of Ethics Lawton’s personal real estate dealings aside, there are also serious ethical questions hanging over his leadership of the CEZ. When HUD delivered its monitoring report of the SCEZ to the city on Sept. 15, 2009, among its many areas of concern was the fact that the CEZ never signed a necessary sub-recipient agreement with the city to officially take over SCEZ activities when the SCEZ expired at the end of 2009. The failure to enact such an agreement means that there was no legal framework in place with regard to CEZ activities. HUD also found that the SCEZ’s underwriting guidelines and internal processes for its loan programs did not meet HUD standards. In fact, so deep were HUD’s concerns about the lack of internal control over SCEZ loan underwriting that it required the city to amend its official conflict of interest and ethics code and to provide additional training to all SCEZ and loan personnel to “certify that all personnel and loan committee panel members are familiar with its Code of Conduct/Code of Ethics [and] to ensure and safeguard against any instance of a conflict of interest,” writes Senior Assistant City Manager Allison Baker in the city’s Oct. 15 response to HUD. Specifically, the loans that drew the most concern from HUD were a $280,0000 loan to Veronica Isaac, mother of Councilwoman Tameika Isaac Devine, and the $179,000 loan to CamBry. The Isaac loan — used to purchase a building that now houses Councilwoman Devine’s law firm — was disallowed by HUD because it involved the relocation of an existing business rather than the creation of new jobs. But whereas Veronica Isaac closed the book on that HUD concern by repaying the loan, the agency is still unsure of what the CamBry money went toward. Columbia City Councilman Daniel Rickenmann. Photo by Jonathan Sharpe. Councilman in the Crossfire Caught in the crossfire between HUD and the CEZ over the CamBry loan has been City Councilman Daniel Rickenmann. That’s because CamBry, Inc., purchased two Birds on a Wire restaurants owned by Rickenmann. At issue is what money CamBry used to finance the purchases — and when. CamBry closed on the two Birds on a Wire restaurants, one on Main Street and one on Devine Street, on Feb. 2, 2008, with loans obtained through First Savers Bank. In June, the $179,000 empowerment zone loan was approved to CamBry and used to refinance one of the original First Savers loans. That timeline — and accompanying paperwork obtained by Free Times — clearly shows that CamBry used private, not federal, funds for the initial purchase of Rickenmann’s restaurants. But last fall, incomplete and misleading paperwork HUD received from the CEZ incorrectly implicated Rickenmann in having directly profited from the CEZ loan, an assertion Rickenmann went to great pains to correct. And yet, just when Rickenmann thought his name was out of play with HUD’s upcoming ruling on the CamBry loan — the principal of which was lost to HUD for good when CamBry filed for bankruptcy in January 2009 — the city’s latest response to HUD, dated Jan. 19, 2010, only further confused matters. Asked by HUD to provide documentation proving that the loan to CamBry was “used in the Empowerment Zone to support an EZ business,” the city offered a bill of sale dated from February 2008 — rather than detailing the actual June disbursement — meaning the CEZ was still incorrectly asserting that the $179,000 went to buy the Main Street location of Birds on a Wire in February. (The Devine Street restaurant was not in the Empowerment Zone and would have been ineligible for the funds.) When asked to clarify the official CEZ position on the CamBry loan’s purpose as stated to HUD, Baker had this to say on Feb. 4: “The Empowerment Zone funds were always intended for the purchase of the 1320 Main Street location and for any other expenses incurred and associated with the borrower’s ownership and operation of that location.” That response didn’t fly with Ellis or with Rickenmann. “Rickenmann was mentioned in the HUD response because his name was on paperwork the CEZ gave HUD, paperwork for a loan that never took place,” Ellis says. “Daniel got offended because he knew he wasn’t involved in the loan, so he scrambled and was blaming HUD for getting all their facts wrong. Well, we, the city [through the CEZ] gave those facts to HUD.” Why, then, didn’t the CEZ just tell HUD that the loan was for a refinance of a pre-existing loan and provide those documents instead of insisting the loan was used directly for the purchase of the 1320 Main Street business? And why was Rickenmann mentioned in the first place when the loan did not directly involve him? The answer is bad bookkeeping. Indeed, until Rickenmann learned in late January 2008 that CamBry was planning to use EZ funds to partially finance the purchase of his restaurants, the loan package included a letter of commitment from the city to CamBry dated Jan. 25, 2008, for the purchase of the restaurants. That document later found its way to HUD. What wasn’t in the packet HUD received, however, was information showing that the February loan was never issued and that the purpose of the loan changed from February to June to a refinance of an existing loan. “It’s a case of due diligence not being done,” says Ellis, who was brought in from South Carolina State University in 2008 to help clean up the city’s well-publicized budget mess, which dates back to 2004. “If you do due diligence, you have a folder containing all the information about the CamBry loan in June.” For Rickenmann, who first saw the city’s Jan. 19 response to HUD and the June loan agreement from the CEZ at the Free Times office on Feb. 8, the message being sent to HUD from the city is still confusing, at best. “I have no earthly idea why they’d have sent this [response] to HUD, because it isn’t correct,” Rickenmann says. “I’ve given them everything I have that shows the purpose of the June loan was clear. Why didn’t they give HUD the documents I provided them? “There seems to be a pattern of giving the wrong information out and then not correcting it,” he adds. When asked about the documentation showing the June loan could not have been used to purchase the Main Street location of Birds on a Wire, Baker amended his earlier statement about the loan’s purpose in an email to Free Times on Friday, Feb. 5. “Initially, the Empowerment Zone loan was scheduled to close in January in conjunction with First Savers’ loan to complete the purchase,” Baker writes. “This did not take place and the record does not reflect the reasons why. “A few months passed and the Empowerment Zone assumed it would not need to disburse its funds at all. However, the borrower then later stated that it needed the Empowerment Zone loan in order to meet its bank obligations and to continue operating seamlessly. “Not closing in January as intended meant that the Empowerment Zone funds went towards paying off a loan from First Savers that was used to purchase the restaurant instead of being used to purchase the restaurant directly.” While that answer satisfies Rickenmann and corroborates his version of events, Rickenmann notes that he’s not the one who needs to hear that. “I’m glad to know that now, and I’m glad they’re finally telling the correct version, but it’s HUD who needs to hear that, not me,” he says. To date, HUD has only the information sent to them by the city in the Jan. 19 letter with which to make its determination, and the result could mean a disallowed loan that the city would have to repay with non-federal funds. Whether the CEZ can clean up its act remains to be seen. In the meantime, HUD continues to press the city for answers, CEZ director Lawton faces potential investigation by HUD and/or the FBI and the entire city’s audit remains in limbo while outside accountants try to make sense of the CEZ’s books — a task that was supposed to be completed in December but which Ellis says he cannot finish without the cooperation of the CEZ. For the outgoing Coble, however, nothing can rain on his persistent optimism. “The good news is the rest of the city has its books done,” Coble says of the CEZ audit delays. “The problems of the past two years [in the CEZ] are being corrected, so we feel really good about it.”

Free Times: Features - House of Cards: Columbia's Empowerment Zone