Conflicts and Fraud

Anonymous

Fri, 12/24/2010 - 03:55

City Related

If "conflict of interest" were a cause of action, what would it be? A
matter right in the small city next to my town answers this question,
and gives a new angle by which to view conflicts.

According to court documents cited (and linked to) by <a href="http://www.newhavenregister.com/articles/2010/12/20/news/metro/doc4d0ed…; target="”_blank”">an
article
in the New Haven Register this week</a>, in 2009 a company owned by the
wife of the fire
marshal of <a href="http://en.wikipedia.org/wiki/Hamden,_CT" target="”_blank”">Hamden, CT</a>
filed a <a href="http://www.scribd.com/doc/45641864/Pull-Stations-vs-Whitney-View-Palmer…; target="”_blank”">complaint
</a>with the local court, seeking payment for services rendered to a condominium association in Hamden. 
 
A Concealed Agent 
The association filed a<a href="http://www.scribd.com/doc/45641964/Whitney-View-Counterclaim" target="”_blank”">
counterclaim</a>. It argued
that the fire marshal acted as the "concealed agent" of his
wife's company, while "purporting to act as a public official." 
 
This is a fascinating way to look at a conflict of interest. When an
official has a conflict, and does not withdraw from a matter, he may
purport to be acting as an official, but he will be seen by others as
being a "concealed agent" of whoever it is he has a special
relationship with, whether it be his brother, his wife's company, his
business partner, or himself. 
 
When he says that a fire alarm system does not meet code requirements,
this is taken at face value. But when it turns out that his wife runs a
fire alarm company that he recommends, that is, when it turns out that
he has an ongoing
conflict of interest, all of a sudden his statement becomes
questionable. And the politicians who oversee him become untrustworthy
themselves, to the extent they know what his wife does. It is not in
the local government's interest for its officials to be seen as
"concealed agents," or for an official's superior to allow this to happen. 
 
When the fire marshal says that, if the fire alarm system is not
replaced, he will shut down the condo building, he is seen as using the
authority of his position to protect the building's residents. When it
turns out that his wife will benefit, it suddenly appears to be an
abuse of authority, a misuse of office. 
 
What if he did not recommend his wife's company? Just the fact that he
is forcing people to update their fire alarm systems in a small city,
where there is a limited number of local companies qualified to do the
work, means that his wife's company would get a portion of the
additional business he creates. It would still put into question his
orders to put in new alarm systems, especially when the old ones work. 
 
The Fraudulent Side of Non-Disclosure 
The counterclaim accuses the fire marshal of "fraudulent concealment" of
the relationship between himself and the company's owner. And following
on the characterization of the fire marshal as a "concealed agent," he
is further accused of fraudulently stating that the alarm system did
not meet code requirements, fraudulently stating he would "work with"
the
defendant to supervise the interviewing and selection of a company for
the association's benefit, fraudulently stating that drawings had to
filed with the city, and fraudulently depriving the association of
substantial sums of money. 
 
In short, non-disclosure of a conflict is, in the government ethics
context, an ethics violation, but in other contexts it is fraud. And non-disclosure of a significant conflict is sometimes part
of a bigger con-game, as it alleged to be here. Remember that "con-game" is short for "confidence game." Fraud and government ethics both involve taking advantage of, and then undermining, the trust we place in others. 
 
The Con-Game 
For those interested, here are some of the aspects of the alleged con-game. Remember those drawings that were required to be filed with
the city? According to the counterclaim, "the unnecessary requirement
of furnishing architectural drawings with
each bid was so economically prohibitive that most prospective bidders
were constrained to drop out of the process." This is a typical
way of rigging the specifications in favor of a particular company. To add
insult to injury, allegedly the drawings were never filed with the
city. Only the winning bidder would have known there would actually be
no extra expense. 
 
In addition, the fire marshal allegedly attended the association's
annual
meeting, where he "stated to all of the condominium owners that the new
alarm system was needed and that if they did not vote to approve the
project he would personally see a judge the next day and obtain a court
order to shut down the building." Then he recommended that the
association hire his wife's company. This is a one-two punch few people
could stand up against, even if they knew it was his wife's company he
was recommending. 
 
The frosting on the cake of the "concealed agent" argument is the fire
marshal's
alleged demand of payment when the work had been completed. This was
the first thing he allegedly did that went beyond what anyone could
conceive to be his government role. 
 
When I graded Connecticut's municipal ethics codes back in 2004, Hamden
got a score of 3 out of 10, one of the worst for municipalities of its
size. There was no change when I did an update in 2007. I could not
find the ordinances online at the Hamden website, and there is no link to the ethics code on <a href="http://www.hamden.com/content/43/87/1732.aspx" target="”_blank”">the ethics board page</a>, but it is likely that
it has not improved its ethics program. This would be a good time for
ethics reform. It will be interesting to see how the ethics board deals
with this matter. 
 
Robert Wechsler 
Director of Research-Retired, City Ethics 
 
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