The Harding Rules

The probers: Investigation commissioner Rose Gill Hearn (left) and U.S. Attorney James Comey (right) announcing charges against Russell Harding
photo: Keith Bedford

The day after its former president was charged with massive fraud, the board of the city's Housing Development Corporation met to consider policy recommendations to prevent any recurrence of scandal in its ranks. The panel adopted 78 separate procedural changes, including this seemingly obscure requirement: "[Any] search for records at [an] off-site storage facility should be conducted by at least two people."

You could call it an inside joke, except that no one was kidding and the recommendation was made and accepted with utmost seriousness. The proviso stems from one of former HDC president Russell Harding's more astonishing claims in response to a Voice Freedom of Information Law request for his records made two years ago. Harding had aides insist that the documents had been misplaced by a private vendor "in an off-site storage facility." Never mind that most of the records sought were current and there was no reason to have shipped them to storage and that, strangely, the agency didn't seem the least bit concerned about the loss.

Senior corporation officials, on Harding's instructions, advised the Voice that "efforts have been made to retrieve these records, however the records have not been located." Further attempts would be made, officials maintained. Another letter insisted that there was "nothing unusual about the use of off-site facilities as a cost-effective method for document storage and retrieval," and that "a senior HDC staff member was at that moment "searching for the records personally."

Russell Harding
photo: Keith Bedford

The lone forager who embarked on that bogus quest at the storage facility, however, was either Harding himself or his best pal and next in command, Luke Cusack, according to those familiar with the episode. And, as alleged in last week's six-count federal indictment, Harding—in a failed cover-up—had already ordered many of the requested records shredded and destroyed.

But, as with all of Harding's other misdeeds and the misuse of hundreds of thousands of dollars in official assets that took place under his three-and-a-half-year reign at the agency, who was going to contradict him? Not his staff. Not even board members who ostensibly outranked him. Harding was the one with clout, wired directly to City Hall—via his father, Ray, boss of the Liberal Party, and via his own close friends and traveling companions, Tony Carbonetti and Vinnie La Padula, the top aides to then mayor Rudy Giuliani.

Hence, adoption of the new formal rule that the next time records go missing, not one but two persons—a records access officer and another official—must be deputized for the search.

The inclusion of Harding's mishandling of the Freedom of Information requests in the federal indictment against him is the first time any public official has been so charged, according to Robert Freeman, the state official who is New York's most astute guardian of the public's right to information. "Certainly it sends a message," said Freeman, the executive director of the Committee on Open Government, a division of the New York State Department of State. "We don't lie about the existence of records."

That was the conclusion as well of Harding's successor, a veteran housing planner and straight-shooter named Chuck Brass, who took over from Harding last year and, confronted with renewed requests for records, promptly decided that the law should be obeyed and the documents released. Brass had credit card reports and vendor billings gathered and, in some cases, reconstructed. When he saw the evidence of Harding's plundering of the corporation's resources, he contacted the new Department of Investigation chief, Rose Gill Hearn. In turn, she alerted the equally new Manhattan U.S. Attorney, James Comey. Together, they announced Harding's indictment last week.

The board of directors of the housing corporation also ordered its own investigation, hiring a former prosecutor named Bruce Yannett, of the law firm of Debevoise & Plimpton, to conduct it. Last Tuesday, the board listened for more than 40 minutes as Yannett described his recommendations for policy changes in the wake of Harding's wreckage. It then voted to accept them, unaltered.

Many of the policies are the rudimentary good-business practices that would be assumed to have been in place already, but weren't: Salary and benefits for the president and senior executives must be approved by the board; loans to employees should be barred. The payroll must be approved and signed by two senior officers, not one, as was the practice under Harding, who goosed his own pay tens of thousands of dollars and awarded himself a steady stream of bonuses.

The board, henceforth, should take a "more active role" in reviewing the corporation's operating budget, the panel decided. It well might. Overall operating expenses, which do not include the multi-million-dollar housing bond deals the corporation puts together, doubled from $9 million to $18 million in the first six months after Harding's arrival.

The board also decided that, from now on, any waivers of existing policies must be in writing, and promptly reported to the board's audit committee. Actually, even under Harding, the Housing Development Corporation had clear guidelines and strictures regarding business entertainment and travel. It required finding "the most economical fare available" for air travel, spending only "reasonable and customary" amounts for business meals, and paying standard "conference hotel rate" for conventions. The rules also carried an exemption, however, granting the president the right to waive them if he saw fit. Harding blithely did so, flying first class and staying at the most opulent resorts. He was so secure in his own position that he never bothered to put his own waivers in writing, an abuse the new rule will try to prevent.

Similarly, detailed records must be submitted forthwith, reporting the business purpose of meals and travel. This was something Harding also did only when the spirit moved him. More significantly, the rules will also now require a formal notice at the bottom of expense statements—language with which all government and most private employees are familiar—that the signer does "hereby certify" that the accounting is accurate and truthful. It is language that prosecutors look for when pressing cases of fraud and false filings.

Harding was a great giver of parties at the expense of his agency. He threw a sumptuous $22,000 farewell for the former chairman of his board, Richard Roberts, when Roberts left the Giuliani administration in the summer of 2000. Invitations to the event directed guests to call Roberts's own office to confirm their attendance, but when questioned last year by the Voice, the former housing commissioner said he had no knowledge about who picked up the tab for the affair or what it cost. Roberts no longer returns calls regarding matters related to Harding, although he remains both chairman of the city's Health and Hospitals Corporation and under investigation by the U.S. Attorney's office.

Another party, a $1,542.12 event on June 7, 2000, at Morton's steak house, was listed as "prez housing dinner" on Harding's expenses. In fact, it was a bachelor party for a friend. Harding was well skilled at throwing such bashes. He charged $4,666 to the Exchange Club restaurant for a Christmas party in 1998; the following year he switched to Cipriani's posh 14 Wall Street, paying $5,812. He was back again in 2000, this time having his agency spend $9,525.

The agency henceforth should consider a new policy prohibiting any such events, urged Yannett, the board's outside attorney, noting that "city policy generally does not allow for such payments."

Nor will credit cards be allowed in the future, the board decided. One of Harding's first moves after being appointed by Giuliani in June 1998, was to sign the agency up with Diners Club, providing cards to himself, Roberts, and Cusack, as well as other top officials at the agency. Roberts used the card to charge thousands of dollars in meals at restaurants plus hundreds more at a New Orleans strip club.

In a divided vote, the board also agreed to add an in-house watchdog from the city's Department of Investigation. The investigation department will bill the corporation, and the cost of the oversight will be the subject of future wrangling. But like all the new safeguards adopted after Harding's rampage, the new monitor will be effective only insofar as staff believe City Hall is truly receptive to complaints of impropriety.

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