HUD Gives Up with Fitts

Article excerpt

Following an Insight story exposing a possible political vendetta, HUD dropped its five-year investigation of Hamilton Securities, finding no evidence of wrongdoing.

The Department of Housing and Urban Development (HUD) has closed with prejudice a nearly five-year investigation after finding no evidence of wrongdoing by Hamilton Securities Inc., a now-defunct government-mortgage portfolio seller owned by Catherine Austin Fitts. The decision of HUD's Office of the Inspector General (OIG) to close the case followed by weeks an investigative cover story by Insight that explored details of this affair many inside both HUD and the Justice Department regarded as a political vendetta against Fitts (see "Thankless Task," May 21).

The Fitts affair resulted when a streamlined mortgage-selling program she pioneered in 1995 and 1996 ended bloated contracts awarded for decades to firms that suddenly stood to lose millions. Fitts had found an efficient way for the government to unload hefty loan portfolios instead of managing them, and apparently some who had profited on the old deal set out to get her.

Insight discovered that despite the flamboyant allegations of wrongdoing levied against Fitts personally, and against Hamilton Securities, the Justice Department's Criminal, Civil and Antitrust divisions determined there was no evidence of wrongdoing. The FBI and the Securities and Exchange Commission came to the same conclusion, Insight learned. Only HUD's OIG, led by Inspector General Susan Gaffney, pursued Hamilton and Fitts in conjunction with its "bounty hunter," John Ervin, who heads Ervin & Associates, a firm that just happens to specialize in HUD mortgage-loan portfolio management.

Despite five years of digging and legal harassment that drove Fitts and her company to the wall, OIG kept the case open in hopes that the "stained blue dress" alleged metaphorically by Ervin would emerge. It never did. Once Gaffney quit in late spring after finding no wrongdoing, Insight has learned, the case quickly was closed with approval from the highest levels at HUD.

It began as a qui tam case filed by Ervin. He accused Hamilton Securities and Fitts of fraud and conspiracy associated with an alleged bid-rigging scheme in two multibillion-dollar mortgage-portfolio sales held by HUD. A preliminary finding by a HUD OIG audit team affirmed that the complicated sales program was a well-managed success that recovered upwards of 70 cents on the dollar. It saved taxpayers more than $2 billion by unloading costly mortgage loans held by HUD and managed by private firms such as the one belonging to Ervin. …

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