CUOMO ANNOUNCES $1.5 MILLION SETTLEMENT BY HOUSTON LANDLORD ACCUSED OF MISUSE OF FUNDS

WASHINGTON - Housing and Urban Development Secretary Andrew Cuomo today announced that HUD will recover nearly $1.5 million from Herbert J. Zieben and two of his corporations in Houston, TX, after guilty pleas were entered in an equity skimming case in U.S. District Court in Texas.

As part of the settlement of criminal and civil charges against Zieben and the companies, he agreed to repay HUD $1.4 million. As part of the plea agreement, the two corporations will repay HUD $82,060. Sentencing is scheduled for later this month, and the corporations still face possible fines of up to $500,000.

Cuomo said that Zieben and his two companies - HJZ, Inc. and Zieben Interests, Inc. - participated in a wide-ranging scheme to defraud the government by misusing funds allocated for the five multi-family projects Zieben owned in the Houston area. All five projects had HUD-insured or HUD-held mortgages.

"HUD's days as a mugging victim are over," Cuomo said. "Anyone who tries to rip off this Department will be caught and punished to the full extent the law allows. We have zero tolerance for waste, fraud and abuse."

A HUD Equity Skimming investigation conducted by the Ft. Worth District Office of Inspector General found that:

• Over $80,000 of project funds used to pay for repair and remodeling expenses were based on invoices altered to show that the materials were delivered to and the work was performed at the five various apartment developments. The work was actually done on the owner's residence or for some of his other businesses.

• The owner created excessive payrolls, failed to deposit funds in project accounts, and used funds to pay for repairs at a mobile home park - a separate rental business with a HUD-held mortgage.

Equity skimming takes place when landlords pocket money that should be used for their mortgage payments and to keep their apartments properly maintained. This can cause properties to deteriorate, and vacancies and crime to increase. It often leads landlords to default on their mortgages.

Since mortgages of HUD-assisted housing are insured by HUD, the Department gets stuck with the bill for the unpaid mortgages and for building repairs when a landlord defaults. If no enforcement action is taken, the landlord can walk away with big profits, abandoning responsibility for the project.

The Houston investigation was conducted as part of the white collar crime focus of the Operation Safe Home initiative that was created in 1994 to attack crime in public and assisted housing.

In addition to combating fraud in publicly funded housing, Safe Home has been responsible for executing more than 1,900 search warrants and making more than 15,600 arrests. Operation Safe Home has seized more than $29 million worth of illegal drugs, more than 2,100 weapons, and over $4.6 million in drug money.

Under the initiative, HUD works along with the Justice Department, Treasury Department and the Office of National Drug Control Policy in cooperation with state and local law enforcement agencies and public housing authorities.

In addition, Cuomo launched a "Get Tough" initiative to crack down on waste, fraud, and abuse in HUD programs in March 1997 in partnership with the Justice Department.

A recent report on HUD's Get Tough Initiative found that:

• HUD dramatically increased the number of debarment actions against bad landlords to 122 in 1997 - an increase of over 300 percent from 1996, when just 30 landlords were subject to debarment action that stopped them from doing business with federal agencies for varying numbers of years.

• HUD and the Justice Department worked with the HUD Inspector General's Office, the Treasury Department and state and local governments to nearly double the number of civil cases and settlements resulting in recoveries against landlords of HUD-assisted housing last year. The number of such cases grew to 46 in 1997 - up from 24 in 1996.

• HUD and the Justice Department recovered nearly $25 million in money owed to HUD by landlords as a result of the above actions in 1997 - up from about $18 million the year before.