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by Ãƒâ€šÃ‚Â© Michael E. Salla, PhD
Wednesday, Apr. 29, 2009 at 12:54 AM
In 1989 Catherine Austin Fitts became Assistant Secretary for Housing in Department of Housing and Urban Development (HUD). She began to notice money was not properly tracked as it moved between different HUD departments and there was a lack of proper accounting mechanisms to deal with discrepancies in revenue indicated fraud at an alarming level.  She attempted to put in place some credible financial tracking mechanisms to identify where the money was going and to identify the responsible individuals and HUD departments, but after 18 months on the job she was suddenly fired by the Bush administration. Fitts was told the day after she left that her financial reforms through ‘place-based financial accounting and statements’ would also be terminated.
Fitts subsequently created her own investment company, Hamilton Securities Group that used specially created computer software for tracking financial flows in the mortgage industry. In 1993, Hamilton Securities Group won a contract with HUD to manage its 0 billion portfolio. As a result of its innovative computer tracking of finances called ‘Community Wizard’, Hamilton Securities saved Federal Taxpayers billion and according to Fitts "took the world's breath away."  Carolyn Betts, a former Hamilton Securities employee said:
The HUD field office people went absolutely crazy when they saw it. You could go in with a pointer on a map and get to information on expenditures by each HUD program. It was a pretty beautiful program and would have become unbelievably powerful. 
Fitts’ innovative program was so successful that it was earning special attention from Congressmen with one chairman of an oversight committee in October 1997 favorably commenting on the "eye-popping" results.  Fitts’ program had the potential to revolutionize the way in which large multibillion dollar portfolios were managed. Vice President Al Gore's Reinventing Government Initiative gave her firm the Hammer Award for Excellence in Re-engineering Government. Fitts innovation also came to the attention of powerful individuals who viewed it as a threat to existing way in which finances were tracked in HUD and other federal government agencies that apparently allowed corporations to reap large profits from government inefficiency.
Fitts’ pioneering work came crashing down around her in June, 1996 when a qui tam (whistleblower) suit was brought against her firm by a rival HUD contractor John Ervin who alleged Fitts committed fraud against HUD to the tune of .8 million. According to the Federal False Claims Act, a qui tam suit has 60 days to be investigated before a federal judge has to reach a conclusion on the substance of the suit and unseal the qui tam so that the defendant can respond to the allegations. Instead, the HUD Inspector General together with the federal judge in charge of the case took four years before another judge decided the allegations lacked substance, unsealed the qui tam, and dismissed the suit in July 2000.  In the meantime, Fitts’ firm was subjected to 18 audits and investigations, multiple subpoenas for thoupooppooppooppoops of documents, not paid money owed to it by HUD while the ‘investigation’ was underway, subjected to media leaks and a smear campaign that frightened away potential investors, and ultimately raided by Department of Justice agents in 1998. The raid effectively destroyed the Community Wizard program and put an end to Hamilton Securities’ efforts to survive the legal onslaught that involved steep legal costs. At the end, Fitts company went bankrupt, Fitts was emotionally exhausted, but continued to fight for her reputation, repayment from HUD, and exposure of wrong doing by the HUD Inspector General in allowing the qui tam law suit to proceed for four years on a ‘fishing expedition’, while simultaneously leaking false information. 
After her experiences in both working with HUD as an employee (1988-1989) and as a contractor (1993-1997) and observing at first hand the chronic state of finances that could not be accounted for under normal accounting rules, Fitts concluded that HUD was being run as a ‘criminal enterprise’:
In the summer of 2000, a member of the staff for the Chairman of the Senate appropriation subcommittee (with jurisdiction over HUD …) confided to me that they believed that HUD was being run as "a criminal enterprise." I responded that I "did not disagree." Reaching that conclusion was a long time coming. It took many years of experience implementing practical and sound reforms to the FHA mortgage system, only to have the system reject any and all efforts to have it become anything other than an integral part of a significant mortgage bubble and a pork and slush fund operation. 
The fraudulent movement of finances through HUD were made possible by poor auditing standards that enabled as much as tens of billions of dollars to go annually missing.  In a March 2000 report, the HUD Inspector General, Susan Gaffney, reported a high number of ‘adjustments’ that had to be made to account for billion that could not be located in 1999:
At the time we discontinued our audit work, a total of 42 adjustments totaling about .6 billion had been processed in this manner to adjust fiscal year 1998 ending balances. An additional 242 adjustments totaling about .6 billion, were made to adjust fiscal year 1999 activity. 
Gaffney argued that the ‘adjustments’ were caused by HUD’s difficulties in reconciling different computer systems. An unnamed official within HUD dismissed the idea of the adjustments being solely problems associated with different computers systems:
Everything that has transpired at HUD is not an accident, and it sure isn't a computer glitch. When you take the different material violations of the most basic financial-management rules and compare them to the time and effort put in to have first-rate systems, it is impossible to explain it as anything other than significant financial fraud. 
Such fraud would not have been possible without collusion at the highest level, the Director of HUD, Mario Cuomo. Confirmation that the missing billion for 1999 was known to Cuomo was disclosed by the unnamed source in HUD:
The losses could be far greater than billion, but they don't know for sure because the audit isn't completed. Secretary Cuomo is a very smart control freak, so it's ludicrous to think that he doesn't know what is going on. 
Confirmation that losses from HUD were an endemic problem rather than peculiar to 1998 and 1999 comes from the General Accounting Office of Congress that released a report in 2003 stating that in January 2003, “for the 12th year in a row, the HUD OIG [Office of Inspector General] cited the lack of an integrated financial-management system as a material weakness in its audit of the department's financial statements.”  In short, billions of dollars were annually missing from HUD and no one knew where the money was going.
Fitts analysis of the fraudulent movement of funds through HUD, her initial firing as an Assistant Secretary, subsequent difficulties her company had with HUD  , indicated that she had stumbled on to one of the strategies used by the CIA to generate its secret black budget. Fitts ultimately came to the conclusion that HUD was being run as a money laundering operation to fund black projects.  The sums for HUD alone, billion for 1999, were far greater than the official .5 billion annual estimated budget of the CIA that came from DoD appropriations. Missing funds from HUD, the participation of the HUD Director in permitting the funds to go missing, and the difficulties suffered by Fitts, point to the CIA being behind the missing HUD funds. The CIA is the only government agency that has the legal authority to co-opt Federal Agency Directors in permitting billions of dollars to go missing from or laundered through their budgets for transfer into a ‘black budget’. It is worth investigating the destruction of Fitts company, Hamilton Securities Group to identify any CIA fingerprints in covering up the secret transfer of HUD funds into what will be argued to be the CIA’s ‘unofficial’ black budget.
The individual who brought the lawsuit against Fitts, John Ervin, has been described as “notorious for filing nuisance lawsuits and "bid protests’.”  His small mortgage investment firm apparently had, according to one inside source, “up to 17 in-house personnel working full time on mountains of paperwork regarding this and other cases.”  Ervin may simply have been a small time contractor with a chip on his shoulder from losing the HUD mortgage contract to Fitts’ company. However, the large number of legal cases his firm was involved in suggests he may have been simply a front for more powerful actors threatened by Hamilton’s Securities who wished to cripple it through a damaging court process. More revealing was the behavior of the federal judge in charge of Fitts’ case that eventually presided over the case. According to court transcripts, the initial judge had indicated in 1996 that it would be inappropriate to extend the seal [on the qui tam] without evidence and that unless evidence was produced he would not extend the seal again. The case was then transferred to Judge Stanley Sporkin of the District of Columbia’s District Court. According to Uri Dowbenky, Sporkin “managed to illegally keep a qui tam lawsuit sealed for almost 4 years. That could be a ‘judicial’ record.”  Sporkin had given multiple 60-day extensions to further investigate the allegations that he claimed were not limited to the False Claims Act limit of 60 days that applied to Department of Justice investigations, since the HUD Inspector General had independent subpoena power and chose to continue the investigation.  Extending the qui tam in this highly dubious manner meant that it was kept sealed thus preventing Hamilton from responding to the allegations, and thus prolonged an elaborate ‘fishing expedition’ that would financially exhaust Hamilton Securities.
A significant background fact about Judge Sporkin was that he was the General Counsel for the CIA (1981-86) before being appointed as a federal judge to the District of Columbia District Court by Ronald Reagan in 1985.  Sporkin’s CIA background and the continued extensions of the qui tam case that had questionable legal standing and which was finally unsealed and dropped by a new Federal judge appointed to the case after Sporkin’s retirement in 2000 point to a CIA covert program to destroy Hamilton Securities. One conclusion that emerges is that Fitts company was targeted since it threatened to undermine and even expose the way the CIA secretly extracted congressional appropriations from or laundered funds through HUD and other government agencies.  The CIA was using its unique legal status of being able to lawfully transfer Congressional appropriations or ‘laundered money’ through other federal government agencies, to fund projects administered by the intelligence community, and to destroy any individual or company that threatened to reveal such a process.
The wide extent of chronic auditing irregularities for most government agencies suggested that it was not just HUD that was used by the CIA as vehicle for siphoning money into its ‘unofficial’ black budget. A Senate Committee on government reform investigated the auditing practices of federal government agencies in 2001, and the Committee Chairman, Senator Fred Thompson, released a report that found that ineffectual auditing practices were endemic and led to billions of dollars going annually missing from most government agencies.  Rather than restricting itself to the appropriations through the DoD (the ‘official’ black budget), something Congress was aware of and tolerated, the accounting irregularities of many government agencies were possible evidence that the CIA was accumulating a sizable portion of the ‘actual’ black budget from other government agencies.
See also: http://www.sourcewatch.org/index.php?title=CIA.
Read Dr. Salla's full article at: http://www.scoop.co.nz/stories/HL0401/S00151.htm
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