A federal public-corruption task force used a wire tap and an undercover FBI agent to unravel a fraud scheme authorities say was orchestrated by two city employees and three co-conspirators.
A grand jury indictment unsealed Tuesday afternoon in U.S. District Court for the Southern District of Indiana brings the details of the alleged fraud at the Indy Land Bank into sharper focus. IBJ was first to report on a morning raid and arrests in the case and to detail the charges.
The eight-count indictment alleges Reginald Walton, an assistant administrator in the Department of Metropolitan Development, and colleague John Hawkins, another DMD employee and a former special assistant to Mayor Greg Ballard, abused their positions for their own profit.
Authorities allege Walton worked with Hawkins to transfer vacant or tax-delinquent residential properties from the city's Land Bank to not-for-profits run by co-defendants David Johnson, executive director of the Indiana Minority AIDS Coalition, and Randall Sargent, owner and president of New Day Residential Development.
The not-for-profit executives allowed their organizations to be used as "pass-throughs" to funnel properties to private investors in exchange for payments, the indictment alleges. Private investors, including co-defendant Aaron Reed, would pay kickbacks to Walton, who distributed a portion to Hawkins, investigators charge.
The arrangement allowed the buyers to exploit a loophole for not-for-profit buyers of Land Bank properties, bypassing a sealed-bid process and buying real estate for well below market value.
Authorities say Walton arranged the deals, and Hawkins appeared before city boards to seek approval.
Walton also was a silent partner with Reed in the for-profit Naptown Housing Group, allowing him to make money both for greasing the deals via his city post and by renting out or selling homes acquired from the Land Bank, according to charging documents.
One example of how the scheme worked involves a home at 3959 Carrollton Ave. The city's Land Bank sold the property to the Indiana Minority AIDS Coalition for $1,000 on Feb. 22, 2013, state records show.
Just a month later, on March 26, Johnson of the AIDS Coalition flipped the home for $17,500.
Federal prosecutors allege Reed paid Walton a $7,500 bribe in exchange for arranging the cheap sale to the not-for-profit group.
The five defendants each face three wire fraud charges. Each charge carries a potential penalty of 20 years in prison and a $1 million fine.
Walton also is charged with three counts of bribery involving an organization that receives federal funds, each of which could carry a maximum penalty of 10 years in prison and a $250,000 fine. Sargent and Reed are facing one count each of bribery.
Two of the charges spelled out in the indictment reference a sting by an undercover FBI agent. One is a wire-fraud count based on Walton's sending an email over state lines of a list of available Land Bank Properties to an undercover agent. A second charge, for bribery, alleges Walton accepted $500 in cash in January from an agent posing as an individual interested in buying real estate.
Two other charges make reference to phone conversations, suggesting the wiretap that authorities confirmed on Tuesday targeted Walton's phone. The wire-fraud charges reference text messages between Walton and Hawkins and a cell phone conversation between Walton and Reed.
The suspects made their first appearance in federal court midday Tuesday, where U.S. Magistrate Judge Denise K. LaRue read them the charges and explained their rights. The defendants were released pending trial.
The government is also seeking forfeiture of Walton's 2005 BMW 45I sedan and Yamaha motorcycle and Johnson's 2004 Volvo, along with cash sums equal to the proceeds of the scheme. The total illicit gain for all defendants was in excess of $100,000, authorities said.
The U.S. Attorneys Office said the investigation began after a tip from a confidential informant facing charges in an unrelated case.
Walton and Hawkins have been suspended without pay from their positions with the city, according to a statement Tuesday from Mayor Greg Ballard.
"I appreciate the work of federal officials in this matter, and my team will continue to assist them in this investigation," Ballard said in prepared comments. "The alleged acts of these two individuals do not reflect the dedication of the thousands of employees who work hard to improve our city every day."