FIVE PEOPLE ASSOCIATED WITH FIRMS RECEIVING $52 MILLION IN HUD FUNDS INDICTED ON CHARGES OF DIVERTING FUNDS IN FIVE STATES

Five people associated with companies that received over $52 million in Department of Housing and Urban Development rental assistance subsidies from 1990 to 1997 have been indicted on charges alleging they fraudulently diverted some of the HUD funds, HUD Secretary Andrew Cuomo, Attorney General Janet Reno and U.S. Attorney Zachary W. Carter of the Eastern District of New York announced today.

The amount of HUD assistance allegedly diverted from eight low-income apartment developments in five states owned by Blackstone Realty Management Co. of New York City remains under investigation, but it is believed to total at least $2 million.

The eight low-income developments owned by Blackstone, which have a total of about 1,000 apartment units, are: Lowe Avenue Terrace Apartments in Chicago; RAC Gardens Apartments in New York City (Brooklyn); Hawthorne Apartments in Newark, NJ; Wade Manor Apartments in Jersey City, NJ; Lockwood Plaza Apartments and Providence New City Apartments, both in Providence, RI; and Maclay Street Apartments and Maclay Street Apartments, Phase II, both in Harrisburg, PA.

Three owners of Blackstone and two employees of a contractor working for Blackstone were indicted by a grand jury last week in U.S. District Court in Brooklyn. They are: Abraham Taub of New York City (Queens); Abraham Woldiger of Monsey, NY; David Abrahamson (also known as David Asp) of Silver Spring, MD; Bella Schon (also known as Barbara Schon) of New York City (Brooklyn); and Joseph Sochaczewsky (also known as Harry Schwartz) of New York City (Brooklyn). Woldiger, Taub and Abrahamson are owners of Blackstone, and Schon and Sochaczewsky are employees of a contractor associated with Blackstone.

"Landlords who pocket federal funds end up shortchanging their hardworking tenants," Reno said. "By working together with HUD, we can cut down on these violations."

"These indictments show the success of the coordination and teamwork that exists between HUD, the Justice Department and U.S. Attorneys' offices as we work together to ensure the highest standards of integrity in HUD programs and to protect taxpayer dollars," Cuomo said. "We are moving forward aggressively to wipe out waste, fraud and abuse involving HUD funds."

Cuomo and Reno launched a Get Tough partnership last March to crack down on landlords who abuse HUD programs to enrich themselves while failing to provide safe and decent housing for the poor. The joint efforts of HUD and the Justice Department have been focused on filing civil and criminal charges where warranted against such landlords.

Blackstone established limited partnerships between 1990 and 1992 to purchase the eight low-income apartment developments. Blackstone also established companies that provided maintenance and repair services for the apartments.

Complaints filed by the Justice Department accuse Woldiger, Taub, and Abrahamson of illegally taking thousands of dollars each month in HUD Section 8 rental subsidies that should have been used to operate and maintain the apartments. The three owners are accused of skimming the HUD funds by devising a plan to have their contractors overbill Blackstone for repair work on the apartments.

Workers who performed the repair work were allegedly paid salaries that were far less than the labor charges reported by the owners to HUD. Schon and Sochaczewsky are accused of involvement in creating phony invoices as a way of misappropriating funds.

The indictments arose from a joint investigation of Blackstone by the FBI, the U.S. Attorney's Office in the Eastern District of New York, HUD's Office of General Counsel and HUD's Inspector General.

Each defendant was indicted on charges of conspiracy, equity skimming, theft from programs receiving federal funds, and obstruction of federal audits. If convicted of the charges against them, each of the five defendants faces a maximum sentence of five years in prison and a $250,000 fine on the conspiracy, equity skimming and obstruction counts, and 10 years in prison on the theft count.

A civil complaint has also been filed by the U.S. Attorney's office asserting that the five defendants submitted false claims to HUD in violation of the False Claims Act and HUD contracts. The civil complaint seeks three times the losses HUD allegedly suffered due to Blackstone's activities, plus civil penalties of $5,000 to $10,000 for each false claim allegedly made to HUD. The civil complaint also seeks to have seven of the apartment developments owned by Blackstone (excluding the one in Chicago) turned over to the U.S. government.

Both the criminal and civil complaints allege similar wrongdoing by Blackstone and the five defendants. Examples of the false invoicing scheme alleged in the civil complaint include:

• Blackstone allegedly recorded payments of $3,948 to Old Heritage, a contractor, for 13 toilet repairs in one apartment over a two-month period.

• Blackstone allegedly created false invoices with labor charges of $35 per hour. HUD found that the worker had actually been paid only $11 per hour.

• Blackstone allegedly created a false invoice of $128 to repair a towel rack in an apartment. HUD found that a broken broom handle had been installed in the resident's apartment instead of a towel rack.