Lessons of the Tall Guy: Closing Chapter Nears for Housing-Agency Scandal

For the building at 440 East 139^th Street to stand out on its solid-looking block of Mott Haven, one must notice the elegant sign shaped in concrete above the entryway. It dubs the five-story, 16-unit structure “The Daytona,” a token from earlier decades when housing for the urban working class was designed with aspirational formality. The building, however, is part of more recent history as well. It was one of the properties caught up in a scandal at the New York City Department of Housing Preservation and Development that broke into the open with the FBI's arrest of 12 people in 2011 and 2012.

The man at the center of that scandal, former HPD Assistant Commissioner Wendell Walters, is due to be sentenced on July 14. That will bring to a close an investigation that has sent five people—including two former HPD officials—to federal prison, and resulted in a city statute, Local Law 44, compelling HPD to divulge more about the contractors involved in producing subsidized apartments.

One year into Mayor Bill de Blasio's ambitious plan to build or preserve 200,000 units of affordable housing, the echoes of the Bloomberg-era HPD scandal raise the question of whether the housing agency has reformed its practices to avoid any repeats of the corruption that put one of its top officials—Walters, sometimes referred to in court documents as “the tall guy” or the “big man”—in handcuffs.

First weed, then wages, then Walter

According to a memo released under the Freedom of Information Act by the city's Department of Investigation, the Walters probe grew out of an earlier joint federal and city investigation into marijuana trafficking. In 2010, that effort—dubbed by the Drug Enforcement Agency as “Operation Green Venom”—led the U.S. Attorney for New York's Southern District to make at least 40 arrests related to a pipeline that for 20 years had delivered “ton quantities” of weed from California and Florida to street dealers in New York City.

The DOI memo says that during that investigation “information was developed regarding corrupt activities by Walters and various HPD developers and contractors.” Meanwhile, an HPD contractor facing charges of wage fraud told prosecutors in the Eastern District of New York that Walters “had solicited and accepted over $500,000 in bribes from him,” the DOI memo reveals. That developer “implicated himself and at least four other development companies in kickback and delivery schemes.” DOI and the Eastern District prosecutors teamed up to go after Walters, using his own emails among other pieces of evidence.

In October 2011, Walters and six developers were arrested. The federal indictment said that over a period of 11 years Walters “solicited and received undisclosed and illegal payments, bribes and kickbacks from individuals and entities ... in return for the award of a series of multi-million dollar contracts with HPD.” It alleged that Walters met with a developer, referred to as John Doe #1, “at various locations throughout New York City, including a golf driving range and a parking lot, to receive the illegal cash payments” and “used a variety of means to conceal the true nature of such payments.” There was also a John Doe #2.

While Walters received bribes directly, the government alleged that the businessmen arrested with him employed a more complicated scheme: To get their payoff for hooking John Does 1 and 2 up with HPD contracts, they sent fake or inflated invoices to the John Does, who then passed them on to HPD for payment as part of the housing project.

The Tall Guy pleaded not guilty at first but by March 2012 had changed his mind and owned up to accepting $2.5 million in bribes. He faced 30 years in prison and massive financial penalties and was supposed to be sentenced in the summer of 2012. But he had begun cooperating, so sentencing was delayed.

After Walters' plea, other dominoes began to fall. June 2012 saw were five more arrests, including HPD's director of Construction Services Michael Provenzano and Luis Adorno, a former inspector for the agency, and a developer named Placido Rodriguez.

Provenzano ultimately copped to accepting $30,000 in bribes for helping a contractor doctor his payroll to conceal wage violations. Adorno admitted to getting $100,000 to steer a contract to a developer. Rodriguez admitted to a scheme to get $300,000 in kickbacks from a contractor for his help securing an HPD contract, and then getting HPD to pay for the kickbacks by inflating subsidies to that project—the building of the Alexander Avenue Cluster, a four-site HPD deal.

Both Provenzano and Adorno were sentenced to 18 months in prison. Rodriguez got six months. Three of the developers arrested back in 2011 with Walters—Sergio Benitez, Robert Morales and Angel Villalona—also pled guilty; Morales was sentenced to probation, Villalona to six months and Benitez to a 22-month term.

Charges were dismissed against two of the developers arrested in 2012. And three developers busted back in '11 with Walters—the only defendants to go to trial—were acquitted on all charges last year. But the six men convicted in the scheme so far have been ordered to pay a combined $2 million in forfeiture and fines.

Calls for reform

Shortly after the 2011 arrests, the City Council began considering Intro. 730, a bill to require transparency from HPD on the affordability terms, subsidies and contractors involved in building affordable housing. The Walters case wasn't the sole impetus for the bill—bill sponsors said they were also responding to complaints about construction quality and possible wage violations—but it was part of the rationale.

The Bloomberg administration resisted the push for more transparency. Then-HPD commissioner Matthew Wambua came out in support of disclosing “basic details” about the entity sponsoring each affordable project and what the subsidies were, but said the amount of information Intro. 730 required would pose administrative burdens, open the city up to lawsuits and discourage developers from participating. 

The Council passed an amended bill, but Mayor Michael Bloomberg vetoed it, complaining that the bill created an “unnecessary layer of red tape” that would discourage the creation of affordable housing and allow organized labor to pressure housing developers to hire unionized workers. 

Council members overrode the veto and the measure became Local Law 44 of 2012. The public data came online a year after the law took effect, and the data now available runs through December 2014.

As valuable as transparency is, it largely depends on the public to notice when a deal—a done deal by the time they see the data—smells fishy. Internal controls are important for preventing dirty doings in the first place.

Asked about the fallout from the Walters case, HPD told City & State that it looked carefully at its practices after the scandal. The agency, however, wouldn't detail what changes were made because that could “diminish the effectiveness of those controls by educating potential wrongdoers on how to minimize their chances of being detected.”

“As appropriate, properties involved were subject to additional scrutiny,” an HPD spokesperson wrote. 

A spokeswoman for DOI says its recommendations to HPD “included concrete measures that would monitor all construction project managers’ activities and strengthen oversight of their record keeping, such as HPD conducting an independent review of inspection report data, project managers’ filing their arrival and departure times for every inspection site, and attending mandatory DOI corruption prevention lectures.”

DOI says HPD has implemented some—but not all—of its recommendations. “It's still a work in progress,” the spokeswoman said.

Meanwhile, at The Daytona ...

The scandal involved six clusters of HPD sites—three in Brooklyn, two in the Bronx and one in Queens—encompassing 91 apartments. The Alexander Avenue Cluster that linked Villalona, Rodriguez and Walters was the smallest, with only four buildings. All four looked tidy and sound during a quick tour last week, and with only 13 open housing-code violations on the cluster's 40 apartments, city records suggest the interiors are in decent shape, too.

Sandra Erickson, who manages all four buildings, says she was brought in after the arrests when Enterprise, the tax-credit syndicator on the deal—responsible to the investors who've bought the low-income housing tax credits that helped finance it—“encouraged there to be a replacement of the management.” There have been no issues with the construction of the building, she says. Every year Enterprise and HPD do separate physical inspections and a check on the incomes of every tenant to make sure the building still qualifies for subsidies.

“With that type of oversight by HPD and the tax-credit syndicator, it'd be hard for the building to go downhill,” Erickson said. “It's kind of hard for anything to slip by.”