Modesto councilman's firm benefitted from sale of apartment complex

August 3, 2011 

Modesto City Councilman Joe Muratore and his business associates are in hot water over their involvement in a federally funded housing program.

At Wednesday's council meeting, Mayor Jim Ridenour said federal inspectors and city staff had determined that a sales commission paid to Muratore's real estate firm violated the conflict of interest rules of the Neighborhood Stabilization Program (NSP).

In addition, a "notice of conflict of interest violation" was issued last week to Trinity Ventures RE II, which is co-owned by Muratore's business partner Ryan Swehla and contractor Scott Monday, the mayor said.

In January, Trinity Ventures used a loan from the city program to buy a 28-unit apartment complex on Tully Road to renovate it for affordable housing. The seller paid a $62,500 sales commission to Benchmark Commercial Real Estate Services, which managed the NSP rental properties for Trinity.

Muratore and Swehla are co-owners of Benchmark. Elected officials are not supposed to influence government decisions that give them a financial benefit.

Muratore said he has tried to recuse himself from all council decisions on NSP issues. He said the loan to Trinity didn't come before the council for approval.

Ridenour said the violation was "of serious and significant concern to the city." The city demanded that the sales commission be returned and has barred Trinity from further involvement in the NSP program.

The funding allocated to Trinity Ventures has been frozen. Trinity returned the $62,500 to the city Tuesday, the mayor said.

It was the latest bombshell for a program fraught with allegations of conflicts of interest, mismanagement and squandering of taxpayer funds.

For three months, the Office of the Inspector General of the Department of Housing and Urban Development has been auditing how funding was spent on NSP projects, including many of the properties developed by the Stanislaus Community Assistance Project.

Because of the issues regarding Trinity, Ridenour said he has asked top HUD officials for a thorough audit of the city's NSP projects. The city has worked with 10 for-profit and nonprofit developers in spending most of the $33 million in federal funding to convert foreclosed dwellings to housing for people with low to moderate incomes.

If HUD officials agree, the expanded investigation into whether inappropriate transactions or management occurred will take six to nine months, Ridenour said.

Alerting attorney general

The council also approved Councilman Garrad Marsh's request to alert the state attorney general about the city's concerns that SCAP possibly misappropriated public funds. Officials also will ask the Stanislaus County civil grand jury to investigate the city's program oversight.

Councilman Brad Hawn also said he wants to bring in outside management help to ensure proper operation of the program.

Councilman Dave Lopez and speakers from the audience had sharp words for SCAP. Lopez called for SCAP's board of directors to fire Executive Director Denise Gibbs and her husband, Development Director Joe Gibbs.

SCAP has incurred wrath since spending $7.5 million in funding to develop 20 homes and duplexes and a 31-unit apartment complex, and then allowed employees or family members to occupy homes. Some of the homes were given extravagant improvements.

Modesto resident Emerson Drake blasted Ridenour for delays in investigating whether rules and regulations were violated. The public has the right to know the answers before the November election, he said.

Ridenour challenged a Bee report Wednesday that the city's independent auditor was being pulled from the investigations. City Manager Greg Nyhoff decided Monday to pull a contract with Moss Adams from Wednesday's agenda and two councilman said the firm wasn't right for the job.

But Ridenour fumed he wants the auditor to conduct a probe concurrent with the OIG review.

Since the mayor asked Moss Adams in June — without council approval — to investigate whether SCAP employees were eligible for the housing, the city, Moss Adams and SCAP have disagreed about what the audit would entail, officials said.

According to Marsh, Moss Adams has said it can't deal with issues pertaining to HUD regulations, so he sees no reason for the audit costing $30,000 or more. The city has expected SCAP to pay for the auditor's time.

After Wednesday's council meeting, Nyhoff said Moss Adams could be used to investigate certain issues that the OIG probe doesn't cover.

Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or (209) 578-2321.

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