Probes focus on HUD chief's role in contracting decisions

For several months, a federal grand jury, Justice Department prosecutors, the FBI, and the HUD inspector general's office have been investigating Alphonso Jackson.

From the time that HUD began managing HANO's affairs in February 2002, Jackson took a hands-on approach. He installed , a longtime HUD contractor who had worked at two public housing authorities, as HANO's receiver. Miller had known Jackson when the latter ran the D.C., housing authority in the 1980s, but he says they were not close friends.

By all accounts, Housing Secretary Alphonso Jackson is a tough, hands-on manager who gets what he wants. "He's not flying at the 50,000-feet level," says a former senior official in the Housing and Urban Development Department. "He is definitely into the weeds." Yet when it comes to dealing with contracts at HUD, Jackson insists he never gets involved -- "I don't mess" with contracts, he said in a sworn interview with federal investigators last year. But his record as secretary, and as deputy secretary before that, suggests otherwise.

Behind the scenes, Jackson has helped to arrange lucrative contract work running into the hundreds of thousands of dollars for friends and associates who went to work at HUD-controlled housing authorities in New Orleans and the Virgin Islands, according to people familiar with his actions. Indeed, one of Jackson's good friends, Atlanta lawyer Michael Hollis, appears to have been paid approximately $1 million for managing the troubled Virgin Islands Housing Authority. Before landing at the authority, some sources said, Hollis had no experience in running a public housing agency.

Jackson's past efforts to aid his friends are causing him no end of headaches. For several months, a federal grand jury, Justice Department prosecutors, the FBI, and the HUD inspector general's office have been exploring Jackson's role in contracting decisions at the housing department. According to people familiar with the investigation, federal agents are focusing on Jackson's relationship with one friend in particular, William Hairston, a stucco contractor from Hilton Head Island, S.C.

In interviews several weeks ago with National Journal, Hairston acknowledged that Jackson had helped him land a lucrative job around January 2006 at the Housing Authority of New Orleans, or HANO. HUD and a former HANO official have said that Hairston was paid about $485,000 for working as a construction manager at HANO during an 18-month period. As it turns out, new information uncovered by National Journal suggests that Hairston was paid even more than that. HSD, a Georgia company that was affiliated with Hairston, was paid $186,280 under a direct contract with HUD, federal procurement records show. A HUD document identified Hairston as a representative of HSD.

Federal investigators are digging deep into Jackson's relationship with Hairston, a sometime golfing buddy of the secretary's. According to the people familiar with the inquiry, federal investigators are also reviewing allegations that Hairston did work on Jackson's vacation home in Hilton Head. Investigators recently questioned at least one Jackson associate on that issue; National Journal could not confirm the allegations.

Apart from Hairston, investigators are exploring the circumstances under which HUD awarded management contracts for the Virgin Islands authority, the sources said. The grand jury is seeking information on Hollis and on a HUD contractor that initially employed him in the Virgin Islands, according to a copy of a grand jury subpoena obtained by National Journal. Hollis refused to answer questions about whether Jackson had aided him.

Jackson, 62, declined to answer a list of detailed written questions submitted to Jerry Brown, his press spokesman. The questions covered Jackson's relationships with several people and his role in decisions to award them HUD-related work. Brown said that the secretary would "have no comment until the investigation is concluded." Asked if Hairston had worked on Jackson's Hilton Head home, Brown said, "We have no comment."

Jackson's problems appear to be largely of his own making. Last year, in a speech to a group of minority real estate executives in Dallas, he bragged about how he had once killed a contract award because the contractor had criticized his friend President Bush. Jackson soon apologized, saying he had made up the story, but HUD's inspector general, Kenneth Donohue, launched an investigation.

In the end, the matter proved a big embarrassment but did not appear to create any legal problems for Jackson. In a lengthy report, Donohue said that his investigators found "no direct evidence" linking political favoritism to HUD contracting awards.

Jackson's testimony during that investigation, however, and later statements before a Senate committee could prove troublesome. In a July 24, 2006, interview with Donohue's office, the secretary denied, under oath, intervening in contract awards. On May 3, moreover, he told the Senate Transportation, Housing and Urban Development, and Related Agencies Appropriations Subcommittee, "I don't touch contracts." Those denials are at the heart of the current probe. Simply put, investigators are exploring whether Jackson lied when he said he did not get involved in HUD contracting. Federal criminal investigators would not comment on their inquiry.

Like Jackson, others caught up in the inquiry are not talking. His former deputy chief of staff, Scott Keller, was among several close Jackson associates who refused to be interviewed or respond to e-mail questions from National Journal. According to people familiar with the investigation, Keller is considered very knowledgeable about Jackson's role in both the New Orleans and the Virgin Islands contract awards under investigation. In fact, Keller, often described within HUD as Jackson's "right-hand man," was the principal HUD contact with the Housing Authority of New Orleans before resigning in August. Separately, Hairston, the Hilton Head contractor, did not respond to recent e-mail questions and telephone messages.

Jackson has worked in housing and community development for decades. He is given high marks for his dedication to promoting economic development and pushing for affordable housing for the poor. He ran public housing authorities in St. Louis, Washington, D.C., and Dallas before going into the private sector in 1996. A Texan and a longtime friend of Bush's, Jackson became HUD's deputy secretary in June 2001. He moved into the secretary's chair at the sprawling $35.2 billion agency in March 2004.

The following account, dealing with Jackson's role in the New Orleans and Virgin Islands contract awards, is based on information from current and former housing officials, other sources, and government documents. At least four associates of Jackson have benefited from contracts awarded at the New Orleans and Virgin Islands housing authorities. Both agencies have been long troubled and are under HUD's supervision.

A Falling Out in New Orleans

George Miller

The secretary, however, would soon have a close associate in a key management post at HANO. Jackson, according to people familiar with his actions, arranged for an old friend, Lori Moon, to serve as Miller's deputy receiver. Although Miller stayed for only six months, Moon began a long, and lucrative, run as a top official at the New Orleans housing agency. "It could very well be true," Miller said in an interview, "that Mr. Jackson told me about her."

Moon and Jackson had worked together on public housing issues for many years, and she is considered a first-rate public housing manager. She worked for Jackson at the housing authorities in St. Louis, Washington, and Dallas. When Jackson left the Dallas Housing Authority, Moon became the agency's executive director.

In New Orleans, Moon did not contract directly with HANO or HUD when she went to work at HANO in early 2002. Initially, she was part of Miller's receiver team. After Miller left, Moon approached yet another public housing expert, Nadine Jarmon, to help manage HANO. Moon then went to work for Jarmon. HANO records show that Moon was well paid for her expertise -- reaching $215 an hour at one point. In 2004, according to HANO records, Jarmon's company paid her $264,000.

Moon has been questioned by federal agents and is not under investigation, according to an associate. She has been told that she is only a "witness," the associate said. But Moon knows a lot, and the federal investigation could well force her and Jackson to take sides against one another -- something that could spell trouble for the HUD secretary. Because Moon, it turns out, played a central role in selecting William Hairston to work at HANO. She also arranged the hiring of a company, Columbia Highlands, whose part-owner, Noel Khalil, has financial ties to Jackson.

In an interview, Moon said that she, not Jackson, selected Columbia Highlands, based in Atlanta, to work for HANO as a development and construction manager. She said that Khalil had done superb construction work for the Dallas Housing Authority when she was the chief executive there. Public records show that Moon brought Columbia Highlands into HANO in September 2002 under a small procurement contract that was not bid and lasted only three months. The company later won a competitive bid for long-term work and was paid $3.3 million through March of last year.

Khalil also runs another company, Columbia Residential, an Atlanta housing development firm. Before joining HUD, Jackson was a "partner/consultant" for Columbia Residential, according to his spokesman, Brown. Jackson's public financial disclosure reports show that, under a separation agreement, Columbia Residential owes him $250,000 to $500,000 "for past services." In an August 2001 memo, Jackson recused himself from HUD matters having "a direct and predictable effect on the ability or willingness" of Columbia Residential "to satisfy its obligation to compensate me for prior services rendered."

Earlier this year, HANO awarded a $127 million competitive contract to a team, including Columbia Residential, for redevelopment of the St. Bernard public housing project, which has been closed since Hurricane Katrina struck New Orleans in August 2005. In written responses to National Journal last month, Brown said that Jackson was not part of the panel that selected the Columbia Residential team and that he played no role in picking the panel members. Internal HANO records show that the Columbia Residential team barely won the evaluation, nosing out a competitor, 68 points to 67 points.

In the interview with National Journal, Moon said that Jackson and other HUD officials never told her about Jackson's financial ties to Khalil. Had she known, she said, she would not have selected Columbia Highlands for management work at HANO. Perhaps more damaging, Moon also strongly disputed some of the information that Brown provided to NJ last month about Jackson's role in selecting Hairston, his friend and South Carolina contractor, as a construction manager at HANO.

Brown's account, which downplayed Jackson's role in Hairston's hiring, said, "During a conversation with the secretary on the status of rebuilding in New Orleans after Katrina hit, Ms. Moon said she was in desperate need of a construction manager because there was a severe shortage of reputable local contractors, which is why Ms. Moon asked if the secretary knew of anyone outside the region. The secretary thought about it and asked a staff member to pass the names of three construction managers to Ms. Moon. William Hairston was one of the names."

But Moon said in an interview that the secretary's office gave her only one name -- Hairston, who was then, she said, affiliated with the Georgia company HSD.

People familiar with what happened next said that Moon rejected a proposal from HSD to work at HANO. A person close to the situation said, "The proposal that came was not something we could really use." Moon, according to this account, told Jackson's top aides that she could not use Hairston. But Jackson's aides continued pressing, essentially asking Moon, according to this account, "Can you use [Hairston] in any capacity?" Finally, she relented. Hairston became a subcontractor for another firm, NKA Contractors, the company that Moon worked for and that was owned by her close associate Nadine Jarmon.

From January through April 2006, Jarmon paid Hairston $93,755, but she and Moon did not always see eye-to-eye with him. Indeed, in the spring of 2006 Hairston angered Jarmon and Moon by reporting to HUD headquarters that he had cut costs at HANO by more than $14 million in only a few months. "We were mad that William [Hairston] went to D.C. behind our backs," Jarmon said in an interview, "and claimed that we weren't doing the job." Jarmon and Moon were soon out of the picture at HANO. Moon had expressed a desire to move on, and Jarmon's contract was not renewed.

Hairston acknowledged in an interview in early October that he had clashed with Moon but said, "I was there because they needed someone with construction experience."

After Moon and Jarmon left HANO, Hairston remained on the job. On June 13, 2006, HUD awarded a no-bid, $561,280 contract to HSD for "construction oversight services," according to the Federal Procurement Data System, the government's online repository of contract information. Within two months, that contract was canceled, but HSD was paid $186,280, according to the government database. About the same time, public records show, HANO awarded a contract to Hairston's South Carolina concern, Hairston Construction Services. In total, HANO paid Hairston $392,000 for his work, which ended in June 2007.

Why did Jackson push for Hairston? He "was concerned that construction was not happening quickly enough after Katrina and, frankly, he wanted to help his friend," says one person with intimate knowledge of Hairston's dealings at HUD headquarters. "He thought this guy Hairston could manage it, and he wanted him on board in New Orleans. That's pretty much it."

Virgin Islands Connections

Hairston is not the only Jackson friend whose dealings with the HUD secretary are under scrutiny. A federal grand jury subpoena obtained by National Journal shows that investigators are also examining contract awards at the Virgin Islands Housing Authority based in St. Thomas -- specifically, no-bid work handed to Michael Hollis, the prominent Atlanta lawyer, entrepreneur, and Jackson friend.

The subpoena demanded that a witness produce, among other material, "all original documents or records" related to "Michael Hollis individually or in his corporate capacity" and "Smith Real Estate Services," an Atlanta firm that also worked at the Virgin Islands authority and employed Hollis as a special adviser, beginning in 2004.

How much money HUD paid to Hollis and Smith Real Estate Services is not clear. When asked to produce the contracts and payments to Hollis and the Smith concern, HUD's press office directed National Journal to file a request under the Freedom of Information Act. That request is pending. Meanwhile, information in the Federal Procurement Data System indicates that Hollis was paid about $1 million as the executive administrator of the housing authority. Smith Real Estate Services appears to have received about $3.5 million for working at the housing authority. NJ could not determine what the Smith firm paid Hollis.

Pamela Smith, the company's president, did not respond to questions about Hollis, Jackson, or the amount of money her firm had received for working at the authority. But in an e-mail to National Journal, her attorney, Ralph Caccia, wrote that her company had "completely complied" with federal rules governing contract awards. He also said that Smith "will cooperate fully with" the federal investigation "and respect its confidentiality."

HUD took over the financially struggling Virgin Islands Housing Authority in 2003. Federal investigators, it was learned, are examining information that Jackson, through his top aides, helped Hollis land his initial work in the Virgin Islands with Smith Real Estate Services. One knowledgeable source said that a top Jackson aide, Scott Keller, made it clear to others within HUD that "Mr. Jackson wanted Hollis" assigned to the Smith Real Estate Services contract. Hollis, this person also said, was not reticent about mentioning his ties to Jackson.

HUD officials, speaking with the guarantee that they would not be identified, said there was no indication that Hollis had any experience running a public housing agency before arriving in the Virgin Islands. He got on-the-job training, they said, working under the Smith Real Estate Services contract. HUD officials later gave Hollis a direct contract to serve as executive administrator in February 2006. In announcing his appointment, HUD noted in a press release that Hollis had worked as an adviser to the Smith company. "As a result," the release said, "Hollis is knowledgeable of [the housing authority] and its many challenges."

Hollis's lucrative contract with HUD was first reported in May in The Virgin Islands Daily News. The newspaper said that HUD had paid Hollis $450,000 last year, or more than four times the salary of his predecessor. The paper also reported that the contract allowed Hollis to claim $62,000 every six months for meals, airfare, lodging, and other expenses. The story did not link Hollis to Jackson. However, less than two weeks later, HUD replaced Hollis with a career department employee.

When reached in Atlanta, Hollis had little to say. The founder of the now-defunct Air Atlanta, the country's first African-American jet airline, Hollis declined to answer most questions, including how he had obtained the HUD work. He said he had negotiated his contract with Orlando Cabrera, a senior HUD official, and "people on his procurement staff." Asked if Jackson was instrumental in helping him line up the HUD business, Hollis said that question should be directed to Cabrera. "That is all I am going to say on that," he declared.