Probe of HUD chief heats up

In February 2004, a lobbyist named Scott Keller joined Housing Secretary Alphonso Jackson as his deputy chief of staff. Over the next three years, Keller became Jackson's indispensable man -- his "right arm," insiders say -- at the Housing and Urban Development Department. In January, President Bush nominated Keller to be HUD's assistant secretary for congressional and intergovernmental relations. But his nomination languished in the Senate, and Keller resigned from the department in August.

Keller, 37, resumed his lobbying career and says he left HUD under his own steam to provide for his family. But at the same time, sources say, the former Jackson aide has emerged in recent months as a central figure in the government's criminal investigation of the HUD secretary. In one instance, Keller played an important role in a decision by the Housing Authority of New Orleans, or HANO, which is controlled by HUD, to award a $127 million redevelopment project to a team that included an Atlanta company, Columbia Residential. That firm has significant financial ties to Jackson: It owes him between $250,000 and $500,000 "for past services," according to the HUD secretary's public financial disclosure reports.

Separately, according to people familiar with the investigation, federal agents are closely examining whether Keller aided Jackson in arranging lucrative housing work for two of Jackson's close friends. One of them got work at HANO, and the other received a contract to manage the Virgin Islands Housing Authority. Last month, a federal agent served a search warrant at Keller's home in Alexandria, Va., the sources said.

Keller declined to comment for this story. But two months ago, he suggested in an interview that the investigation was much ado about nothing. Maybe so, but the fact is that Jackson now faces the biggest crisis of his career. Investigators from HUD Inspector General Kenneth Donohue's office, FBI agents, and Justice Department prosecutors are examining whether Jackson lied when he testified that he never intervened in HUD contracting. During an earlier inquiry, Jackson declared under oath to HUD investigators in July 2006 that he did not "mess" with contracts. And testifying in May before the Senate Appropriations Subcommittee on Transportation, Housing and Urban Development, and Related Agencies, the HUD boss said, "I don't touch contracts."

Jackson declined, once again, to comment on the investigation. In an e-mail response to questions from National Journal, his spokesman, Jerry Brown, wrote: "It really isn't necessary for you to submit your questions to us. Our position has not changed."

Investigators are casting a wide net in their pursuit of evidence, and new details about the inquiry emerged recently. Several senior HUD officials and current or former executives at HANO have been questioned by investigators. Prosecutors have used a grand jury subpoena to obtain records from some of these people, according to sources familiar with the inquiry.

Orlando Cabrera, the outgoing assistant secretary for public and Indian housing, was among those questioned. When contacted by National Journal, Cabrera acknowledged that investigators had interviewed him. "I have been questioned as a witness," he said, "and I have been told that I am not a target of the investigation." Cabrera and Jackson are not on speaking terms. HUD insiders say that the secretary was angry with Cabrera for speaking to investigators and considers him "a snitch." Cabrera will be leaving his post on January 4.

Sent Packing

Investigators now appear to be focusing on Jackson's ties to William Hairston, a stucco contractor from Hilton Head Island, S.C., where Jackson has a vacation home. Hairston was paid more than $485,000 for working as a construction manager at HANO during an 18-month period that ended in June. In interviews earlier this year, Hairston told National Journal that Jackson had helped him land the work in January 2006.

In the early morning of November 28, a HUD investigator served a search warrant at Hairston's residence in Hilton Head, according to three people familiar with the matter.

More details about the Hairston controversy at HANO have emerged in recent days, and they are not flattering to Jackson. Last year, current and former housing officials said, a senior HUD official who was detailed to HANO to serve as executive administrator was pulled back to headquarters in Washington after he urged that Hairston be let go. The official, William Thorson, refused to sign a $167,858 contract awarded to Hairston in July 2006.

The contract was approved by C. Donald Babers, another senior HUD official assigned to serve as HANO's only board member. According to an account that Babers gave to other housing officials, Jackson called him to complain that HANO was not paying Hairston. One person said that Babers recounted how Jackson had screamed at him over the phone and "read him the riot act."

Thorson, a respected career HUD official, later wrote a memo for review by Babers and other executives at HANO. According to people familiar with the memo's contents, Thorson made these points: one, HANO was legally liable to pay Hairston because the contractor was, in fact, working at the authority; and two, HANO already had a construction manager, so it didn't need Hairston and should send him packing.

Thorson didn't get what he wanted; instead, he was the one who was sent packing. Cabrera, his boss in Washington, instructed Thorson on November 10 of last year to report back to headquarters. Cabrera told him, according to an account provided to National Journal, that Jackson wanted Thorson "back home" for multiple reasons, including the brouhaha over Hairston. Thorson returned but decided to take early retirement six weeks ago, officials said.

Both Thorson and Babers have been questioned by federal investigators. Thorson's memo was among the records he turned over to them, according to people with knowledge of the matter.

Taking Care of Business

The investigators' interest in Keller became apparent when a HUD special agent served a search warrant at Keller's Alexandria home last month, according to several knowledgeable people. It was not clear what records were seized, but there is no indication that Keller is a target of the investigation.

Keller, who met Jackson in 2001, lobbied HUD as a private consultant before joining the department in early 2004. In the wake of Hurricane Katrina and pressure to bring displaced residents back to New Orleans, Keller became heavily involved in HANO's business.

HANO was actually under Cabrera's control, but Jackson brushed him aside on June 2, 2006, and installed Keller as his point man at the troubled housing authority. Camille Pierce, who is Jackson's chief of staff, notified Cabrera of Jackson's decision in a memo. She wrote that Jackson had promised New Orleans Mayor Ray Nagin that the secretary would take charge of an effort to restore public housing units badly damaged by Katrina. To that end, Pierce wrote, Jackson had decided to name Keller "as the point of contact for HANO within the department."

Keller was very much hands-on, often traveling to New Orleans and meeting with HUD-appointed officials who ran HANO as well as city leaders worried about the deplorable state of public housing. But Keller also played a central role in dealing with issues that affected the business of Jackson's contracting friends at HANO.

One case stands out. Keller was smack in the middle of the HANO decision to award the $127 million redevelopment project to the team that included Columbia Residential -- the Atlanta firm that owes Jackson at least $250,000, according to his latest financial disclosure report. The Columbia Residential team plans to restore the St. Bernard public housing project, which has been shuttered since Katrina.

Two months ago, in written responses to questions from National Journal, Jackson said through an aide that he had recused himself from HUD matters having "a direct and predictable effect on the ability or willingness" of Columbia Residential to retire its debt to him. Jackson, who listed himself as a "partner/consultant" for Columbia Residential, is owed the money under a separation agreement with the company. The secretary's aide also said that Jackson was not part of the four-member HANO panel that picked the Columbia Residential team or the developers for two other projects.

As it turns out, however, Keller not only helped choose the panel but also served as a member. The other panel members were another senior HUD official from Washington, a HANO official, and an executive from the Fort Worth, Texas, housing authority. Legal and financial advisers assisted the panel in the selection process.

According to three people with intimate knowledge of the selection process, Keller strongly favored the Columbia Residential team's proposal. Margaret (Peg) Stone, a private financial adviser who is now retired, sat in on the discussions and recalls that Keller promoted Columbia Residential's plan "from the beginning." Stone said: "He certainly liked them a lot.... He advocated strongly for the best solution to the project, which he thought was Columbia Residential." She said that Keller expressed the view that the competing proposal from a New Orleans developer, who had been a controversial figure among the city's public housing residents, would not fly.

The Wrecking Ball

In the end, the Columbia Residential group narrowly edged out the competitor, HRI & Partners Development Team. Stone said that Keller attended the first meeting of the selection panel in January, and spoke by phone at the final meeting in February. Her account was confirmed by two others familiar with the discussions.

In an interview with National Journal in October, Keller insisted he did not participate in, or influence, the final selection of Columbia Residential. Keller has told associates he was not aware of Jackson's ties to Columbia Residential until recently.

The St. Bernard project will include 900 mixed-income apartments, two charter schools, and restoration of three nearby golf courses. The development partners are Columbia Residential, the Bayou District Foundation, and a charity. Noel Khalil, the owner of Columbia Residential, has not returned phone calls seeking comment.

Gerard Barousse, a New Orleans real estate executive who manages the Bayou District Foundation, said he was aware that Khalil had "former dealings with Mr. Jackson" when Columbia Residential was brought in as a partner. But, he said, "we did not bring Khalil in because he had ties to Jackson." The quality of the Khalil firm's work won the day, Barousse said.

If HANO has its way, it won't be long before St. Bernard meets the wrecking ball. Last month, the housing authority awarded a $9 million contract to Columbia Residential and the Bayou foundation to arrange for the demolition of the project to make way for the new development. In a last-ditch attempt to block the demolition, four of St. Bernard's displaced residents filed suit this week against HUD and HANO in U.S. District Court in Washington. The suit cites Jackson's financial ties to Columbia Residential and says, "Nothing in the record of the selection panel indicates that the members were aware of this potential conflict of interest or addressed it in their deliberations."