Housing Official and REAC Consultant Conspired to Defraud Government

Facts: A salary scandal involving a local PHA official led to a criminal investigation that exposed an alleged conspiracy to rig HUD site inspections. A trial court convicted the PHA’s director of modernization and the PHA’s paid consultant for “knowingly and unlawfully” conspiring to defraud the United States and its agency, HUD, a violation of 18 U.S.C. Section 371, which makes it a crime for “two or more persons [to] conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose.”

As required by regulation, HUD periodically inspects a randomly selected, “statistically valid sample of units” to help ensure that a site’s federally funded housing is “decent, safe, sanitary . . . and in good repair.” The Real Estate Assessment Center (REAC) performs these evaluations, though it usually has REAC-trained independent contractors do the inspecting. Getting a high inspection score (90 or above) meant the PHA would be considered a “high performer,” which meant fewer inspections (every two years rather than every year), less oversight, and more capital funding (a 3 percent annual increase). The PHA was designated a “high performer” in three consecutive inspections—in 2007, 2009, and 2011.

The PHA’s consultant was paid to consult on how to handle the REAC-inspection process. And using his REAC-inspector status, he accessed the REAC database and software, figured out the sample of units to be inspected, and passed the information on to PHA officials, allowing PHA employees to get those units ready before the inspectors performed the inspection.

A jury found the PHA’s official and its consultant guilty as charged and a judge later sentenced the director of modernization to three months in prison, plus one year of supervised release, and the consultant to six months in prison, followed by one year of supervised release. The consultant and the housing official appealed, claiming that the conspiracy law is unconstitutionally vague and there was insufficient evidence to support a conviction.

Ruling: The First Circuit Court of Appeals upheld the lower court’s judgment.

Reasoning: The court rejected the the consultant and official’s argument that Section 371’s “defraud” clause bans only those conspiracies to deprive the government of property and money by dishonest schemes. Defrauding the government under Section 371 means obstructing the operation of any government agency by any “deceit, craft or trickery, or at least by means that are dishonest.” Therefore, the conspiracies need not aim to deprive the government of property or money, because the law is written “broad enough . . . to include any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any [government] department.” The statute’s aim is to protect the government, and deceit can impair the workings of government even if the conspiracy doesn’t take the government’s property or money.

In addition, the court concluded that the evidence sufficed for a reasonable jury to conclude that the conspiracy did target a legitimate HUD function—namely, assessing the physical condition or habitability of the PHA’s federally funded sites. Even though the PHA fixed units “throughout the year and not just in preparation for the inspections,” the consultant’s claim that any conspiracy didn’t “affect” or “undermine” the PHA’s “quality control” is wrong, because the evidence shows maintenance work on other units had “slowed down.” And the consultant’s claim is irrelevant because, as the government correctly noted, “the crime did not consist of having shabby housing units but of conspiring to keep HUD from accurately assessing them.”

• U.S. v. Morosco, May 2016