- The Washington Times - Monday, February 28, 2000

The Justice Department, defending housing Secretary Andrew M. Cuomo against efforts to force his testimony in a bid-rigging case, told a federal judge that bids are missing for government housing auctions worth $5.2 billion.

The claim in court affidavits 10 days ago is now disputed by Mr. Cuomo's spokesman at the Department of Housing and Urban Development. He said disputed bids were seized more than two years ago by investigators for Susan M. Gaffney, the agency's inspector general, as part of an ongoing criminal probe of multibillion-dollar contract fraud and bid-rigging in HUD's auctions of defaulted federally subsidized housing properties.

The criminal investigation has not resulted in any prosecutions to date. The IG has declined to comment, saying the probe is still under way.

But left in the middle of administration finger pointing is a frustrated and angry HUD contractor, Bethesda, Md.-based Ervin & Associates, which has sued HUD for multibillion-dollar fraud in defaulted housing sales.

It has asked District of Columbia Judge Emmet G. Sullivan to sort out whether a cover-up is under way now assisted by criminal investigators appointed by President Clinton.

"Susan Gaffney is asleep at the switch or they're being told to kill this thing," said HUD contractor whistleblower John Ervin, who has used a four-year federal lawsuit and the Freedom of Information Act to extract evidence of HUD mismanagement and wrongdoing.

"They aren't stupid. There's a cover-up going on."

The tug-of-war over bid records involves Mr. Ervin's claim that Hamilton Securities Group, HUD's fired contractor for six housing mortgage auctions valued at $5.2 billion, improperly awarded most of the properties to Wall Street investment firm Goldman Sachs & Co. and its partners, among the biggest contributors in the current and past presidential campaigns.

Ten days ago, Mr. Ervin asked Judge Sullivan to compel Mr. Cuomo's testimony to explain the whereabouts of bids HUD officials had claimed were missing and why HUD turned over erased bid diskettes under court order for several sales tainted by Hamilton's actions to change bids and auction winners in several HUD property sales.

Justice responded that Mr. Cuomo's testimony was unwarranted because HUD never retrieved tainted bids from Hamilton after the firm was fired 28 months ago. Court records show that the firing occurred only after Miss Gaffney's investigators discovered HUD's knowledge of bid alterations and the agency's prior failure to protect the integrity of its sales.

"To the best of my knowledge, HUD did not receive the bids, original or copies, from Hamilton Securities at any time," said Gerald Salzman, then-supervisory financial adviser to FHA's comptroller, in an affidavit filed Feb. 18.

Joseph McCloskey, director of HUD's asset management division at the time of the auctions, said in a separate affidavit that HUD retrieved no bids for two auctions of 29,177 properties valued at $1.3 billion. "HUD received copies of most of the bid diskettes" for three other sales of properties valued at $3 billion, he said. Those were sales for which Mr. Ervin was provided some blank bid diskettes, court filings show.

Mr. McCloskey was silent about bids for 158 defaulted apartment complexes valued at $884.5 million, which HUD sold at auction in June 1996. HUD has produced no bid records for that sale.

Mr. Ervin called HUD's position untenable for an agency on the General Accounting Office's "high risk" list for waste, fraud, and abuse.

"Even accepting this reputation, it is difficult to believe that HUD would not take control of the bids even after it learned that its multi-billion-dollar note sales auctions might have been rigged," he said.

"The only rational explanation for such obvious malfeasance is that a high-level cover-up of the problems with these note sales is in place, which includes concealing the bids that might expose blatant favoritism."

David Egner, a HUD spokesman, told The Washington Times on Friday that the IG's criminal investigators moved in 28 months ago and sequestered the auction documents provided by Hamilton, which is why HUD never received them. According to court filings, no such explanation was offered by the Justice Department or HUD in its litigation with Mr. Ervin.

"Our understanding is that the inspector general or special master is in possession of the documents requested by Mr. Ervin," Mr. Egner said. "The inspector general's office has advised Mr. Ervin that it will not release the documents to him. If HUD had possession of the documents, the department would turn them over to Mr. Ervin, just as we have done with the other 12,000 pages of documents Mr. Ervin previously requested."

A senior HUD official told The Times that HUD received the bid documents from Hamilton, but they were promptly taken by IG investigator's on the eighth floor of HUD headquarters.

"It is my understanding that they took exclusive possession of these documents when they arrived in the department," the official said on the condition he not be named.

Mr. Ervin said the department's position proved concealment. "HUD always had access to the bids from their contractors and they could have gotten copies from the IG at any time. They have chosen not to," he said. "HUD was responsible for the note sales, not the IG."

HUD officials familiar with the criminal probe said IG investigators and the Justice Department have limited their probe to just two auctions involving Hamilton's admitted bid tampering and change of winners. By narrowing the scope, investigators excluded sales involving bids sought by the Ervin lawsuit that HUD officials said were missing, they said.

A criminal probe of possible bid-rigging in the HUD auctions commenced in October 1996, a year before Hamilton was fired. No officials have explained why the probe has taken more than three years to complete.

The disputed bids involve five auctions from 1995 to 1997 in which HUD sold 83,002 defaulted apartment complexes and single-family homes to developers and investment firms. Goldman Sachs and its partners won 68 percent of the properties valued at $3.6 billion.

Justice attorneys representing HUD told Judge Sullivan in their filings that the department never saw the auction bids but entrusted Hamilton, the fired contractor, to maintain and certify them before awarding defaulted properties to successful bidders at a discounted price.

"That's extraordinary," said Wayne G. Travell, Mr. Ervin's attorney, "because what it means is the government conducted $8.9 billion worth of auctions of government notes and never did even the most cursory review of how their contractor conducted those sales."

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