By Jared Chausow
By Katie Toth
By Elizabeth Flock
By Albert Samaha
By Anna Merlan
By Jon Campbell
By Jon Campbell
By Albert Samaha
As a result, some of the scheme's little fish are now facing more charges than the big fish, a Long Island investor named Francis Boccagna.
The complex scheme featured the illegal "flipping" of old brownstones at inflated prices, causing higher mortgages to be issued than the market demanded. Sixteen people have been arrested, some of them for allegedly receiving kickbacks from Boccagna.
The case is in both state criminal court in Manhattan and in U.S. District Court in Brooklyn. However, Boccagna himself faces only one chargefalsifying business recordsin state criminal court. And he is not currently facing charges in U.S. District Court, while some of the small fry he allegedly paid off are.
Daniel Castleman, chief of the investigation division for Manhattan District Attorney Robert Morgenthau, won't confirm that Boccagna is what federal prosecutors in the case are calling the unnamed "cooperating witness," who explained the details of the scheme to them.
Prosecutors say investigations are continuing, and Castleman says it's premature to talk about whether "big fish were used to get small fish or small fish were used to get big fish" in the case.
"Wait until all the cards have been played," says Castleman. "Some people may face additional charges here [in Manhattan] and there [in Brooklyn]."
In addition, state Attorney General Eliot Spitzer has brought suit against some people in the alleged scheme, in an attempt to recover some of the millions of dollars he says were illegally obtained.
The case revolves around HUD's 203(k) loan program, in which individuals receive loans for both purchase and rehab of small buildings, such as brownstones. Investors such as Boccagna aren't allowed to use the program, but federal and state prosecutors allege that he and other Long Islanders at a mortgage lending company, a law firm, an appraisal firm, and several nonprofit groups conspired to illegally obtain the loans.
On Dec. 13, Morgenthau's office announced the arrests of those charged in the scam. The D.A.'s office said the schemes "resulted in mortgage defaults on more than $70 million in loans guaranteed by HUD involving more than 250 properties" in the city and on Long Island.
Morgenthau's prosecutors say in court papers that Boccagna himself sold 162 of the properties to nonprofits for a grand total of $52 million in loans.
Seven of the 16 were arrested on related federal charges. Court papers filed by the Eastern District U.S. Attorney's Office rely heavily on an unnamed "cooperating witness" who laid out the scheme to HUD Special Agent Danny Min. Assistant U.S. Attorney Jim Tatum refuses to identify the witness, who is referred to only as "CW-1."
However, the federal papers do document a scheme in which a company owned by CW-1 purchased a building at 3 West 119th Street on June 15, 1999, for $100,000 and sold it for $285,000 two days later to a Long Island nonprofit organization called the Family Preservation Center.
The same transaction is used by Morgenthau's office as a prime example of the scheme. The D.A.'s documents identify the June 15 purchaser as a "Boccagna company" and say "Boccagna sold the property to FPC for $285,000."
Boccagna's attorney, Richard H. Rosenberg, wouldn't tell the Voice whether his client is the feds' star squealer. "I have no comment on any aspect of the case," says Rosenberg. Tatum won't identify CW-1, but he calls the scheme "a masterful plan," and says prosecutors benefited by having someone inside the scheme explain it to investigators.
As laid out in government documents, it was masterful: In the case of the building on 119th Street, FPC supposedly paid $41,000 of its own money at closing to seal a HUD loan for $365,000. As Morgenthau's office notes, the money actually came from Boccagna. And as the federal papers indicate, officials of FPCincluding ex-New York Knick guard Sam Stithreceived a kickback of $5000. According to prosecutors, the bulk of the money from the loan was split among investors like Boccagna, along with lawyers, a vice president of a Long Island mortgage company, and a few others.
The same scheme was repeated hundreds of times during 1998 and 1999, prosecutors say.
Morgenthau's office says Stith accepted more than $100,000 in kickbacks overall.
The first people to blow the whistle on the scheme were Cordell Cleare, an aide to Councilman Bill Perkins, and Frank Brodhead, at the time a lawyer with the private housing activist group West Side SRO Law Project. They were aided, it turns out, even by some of the downtrodden tenants in one of the Harlem buildings purchased by the alleged scamsters. The scam first surfaced during what appeared at first to be just an illegal eviction of tenants from a single-room-occupancy building at 58 Edgecombe in Harlem. But Brodhead, with the help of other activist lawyers, started putting pieces together and detailed the scam in a spring 1999 tenant-rights newsletter, and reporter Kemba Johnson wrote about it that fall for City Limits magazine.