Retirement Board Says No to Restitution in McLaughlin Case

April 30, 2014
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The Chelsea Retirement Board issued part of a long-awaited decision on the pension proceeds from former Chelsea Housing Authority (CHA) Director Michael McLaughlin – and the conclusion was that the CHA was not entitled to restitution from McLaughlin’s pension contributions.

The move immediately angered those from the CHA and some tenant leaders, but Retirement officials said they could not under the law rule that restitution could be granted in the case.

The amount was some $250,000 of which is McLaughlin’s own contributions over a period of several decades. CHA had argued that McLaughlin’s portion should be directed to them so they could make needed repairs to CHA properties that had been neglected due to McLaughlin’s fraudulent activities during his tenure.

He was sentenced to three years in prison last summer in Federal Court for falsely reporting his income.

“The federal court last summer and the Retirement Board both looked at this issue and decided that the law for restitution didn’t apply here,” said Board Chair Joe Siewko. “Believe me, if the court could have applied the law for restitution they would have. He was recommended one year in prison and got three. We didn’t believe we could apply the law either. I am confident the board made the right decision.”

That said, the state Public Employees Retirement Administration Commission (PERAC) is scheduled to have its Board review the Chelsea Retirement decision one week from today, May 8.

A request for comment from PERAC was not immediately returned.

Those on the side of the CHA and its tenants will be watching that review carefully.

CHA Board Chair Tom Standish said his Board hadn’t discussed the matter officially, but he found the Retirement Board’s decision to be an insult.

“Speaking for myself as a chairman, we’re very disappointed and frankly shocked by the reasoning that flies in the face of common sense and reward a felon with $250,000 as opposed to giving that money back to the people who need it – the residents of the CHA. It just defies imagination…That money ought to be returned. The person who was entrusted with serving the public and residents saw his own gain as more important than the people and the Authority he served. It’s pretty simple…They’ve split hairs that don’t exist.”

However, for the Retirement Board, it wasn’t so simple.

The Board pored over documents and heard arguments at monthly City Hall meetings since last summer. Numerous executive sessions – some lasting more than an hour – were held. The central point of it all was to find out if the official crime – falsifying a federal document by misreporting his salary – qualified under the law for restitution from a pension.

A report issued by the Board two weeks ago indicated they believed it did not.

“The Board unanimously concludes that the charges of falsifying a record in a federal agency matter, under the factual circumstances investigated by the Board, fall outside of the category of criminal actions which would allow the Board to order the payment of restitution as a result of the member having being found responsible for violating [federal law],” read the ruling. “The Board finds that restitution is not a natural consequence of being found accountable/guilty for having falsified a record in a federal agency matter under the facts and circumstances made available to the Board.”

Also cited prominently were the contracts containing McLaughlin’s true pay that were approved by the former CHA Board.

The 12-page report did find room for sympathy towards the arguments of the CHA and its tenants, but also reiterated that the law just doesn’t allow taking personal pension contributions and turning them over to an allegedly aggrieved agency.

“A desire to maintain the ‘goose which lays the golden eggs’ and avoid unnecessary inspection or undue inquiry relating to his salary, could have been a sufficient motive to act as he did,” read the report. “Clearly, whatever his motive, the concern to avoid detection was merited by the Member. As a direct result of the efforts performed by reporters at the Boston Globe, once the terms and conditions of his employment contract came to light, [McLaughlin’s] goose was cooked. The Board finds the nefarious conduct which Mr. McLaughlin stands convicted of having committed, despicable. Nevertheless, the Board is constrained by the parameters of [state law].”

Siewko said the Board was very deliberate and worked slowly to make sure the law was applied correctly, as much of this is very new territory for any Board.

“This was the first branch of a two-branch issue,” he said. “It was a long process. We were very thorough. We listened to a lot of arguments and reviewed a lot of documents. I don’t think anyone can say we didn’t given them a fair shake.”

As mentioned above, there is a second branch to the pension issue for McLaughlin. While the above matter related to restitution from his personal contributions, the other part relates to the overall forfeiture of his pension. The law in that case is a little simpler – in terms of deciding whether the crimes committed were associated with the office and position that he held.

If it is determined the crimes were connected to both office and position, only his $250,000 in personal contributions will be returned, interest free.

However, with McLaughlin in prison, having a fair hearing on that branch has been very difficult to hold.

“The frustration I have with the law is it doesn’t direct us about what we do if he is incarcerated,” said Siewko. “Do we go ahead with a hearing without him under protest and does that open us up to a civil suit? It’s frustrating.”

Hearings on that piece of the puzzle will likely commence in the coming months at regularly scheduled Board meetings.

After the PERAC review next month, more clarity will exist on what the final decision is on restitution. PERAC could stand by the decision of the Board, or it could remand the decision back to the Board for further review.

Sidebar –

Sources have indicated to the Record that movement in the second federal case against Michael McLaughlin might be coming in mid-May, perhaps on May 12.

In the second federal case against McLaughlin, he and former CHA Director of Modernization James Fitzpatrick and a former federal housing inspector, Bernard Morosco, are charged with rigging federal inspections of Housing Authority properties so as not to reveal the truly deplorable conditions that existed.

Sources said that McLaughlin could be pleading guilty to the charges of Conspiracy to Defraud the United States on May 12.

Attorneys for McLaughlin in the case, Liam Scully, did not return a request for comment.

However, Fitzpatrick’s attorney, Syrie Fried, indicated that her client would not be taking a plea deal on May 12.

There was no information immediately on Morosco, who is from upstate New York.


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