Justice Dept. to Probe for Fraud in HUD : U.S. Attorneys Told to Check for Embezzlement in Sales of Real Estate

Atty. Gen. Dick Thornburgh on Thursday ordered a nationwide check by federal prosecutors of possible fraud in local offices of the Department of Housing and Urban Development following reports of embezzlement in foreclosure sales of property.

His directive was issued as a subcommittee of the House Government Operations Committee prepared to question Marilyn Louise Harrell, a Washington-area real estate agent who has acknowledged publicly that she diverted $5.5 million from HUD and gave large amounts to private charities.

She has said in appearances on radio talk shows and interviews with reporters that HUD auditors rarely checked up on her during the 26 months that she served as a closing agent in the sale of government-owned real estate.

U.S. Attorneys Alerted

Thornburgh directed all U.S. attorneys to review HUD operations in their regions to determine if there was evidence of fraud or embezzlement in the agency’s property sales, according to Justice Department spokesman David Runkle.

Federal investigations along these lines already are under way here, as well as in Baltimore, Dallas and Denver. New HUD Secretary Jack Kemp has suspended four officials in the Washington field office until he completes a sweeping review of operations under his predecessor, Samuel R. Pierce Jr.

Harrell, who has been dubbed “Robin HUD” by federal investigators, has freely admitted that she diverted proceeds from government sales to some of her favorite charities.

She has contended that she paid income taxes on the money she kept and was not called to account for the full sales proceeds until investigators from the HUD inspector general’s office began questioning her last November.

Earlier, a HUD supervisor reportedly discovered that she was placing funds from sales of government-owned properties into a private bank account and was keeping the interest payments for herself.

Harrell, 46, a Christian fundamentalist, has suggested that the government could recover the amount she gave to charity if other Christians would send $1 each to HUD. However, government sources believe that part of the estimated $5.5 million she diverted went for her personal expenses.

In another case, authorities were searching for a Washington attorney who also served as a closing agent for HUD. Investigators said they want to question him in connection with $3 million in government funds that is not accounted for.

The subcommittee on employment and housing, headed by Rep. Tom Lantos (D-San Mateo), has been conducting hearings on alleged abuses in the operation a HUD rehabilitation program. Several prominent Republicans earned large consulting fees by lobbying HUD for rehabilitation subsidies on behalf of private developers.

Although House Democrats clearly hope to gain political credit for exposing misdeeds during the Ronald Reagan Administration, a White House spokesman said Thursday that President Bush expects his appointee, Kemp, to “get it straightened out and turn the management around.”