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Conflicts and Fraud
Friday, December 24th, 2010
Robert Wechsler
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 an article in the New Haven Register this week, in 2009 a company owned by the wife of the fire marshal of Hamden, CT filed a complaint with the local court, seeking payment for services rendered to a condominium association in Hamden.
A Concealed Agent
The association filed a counterclaim. 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 the ethics board page, 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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According to court documents cited (and linked to) by an article in the New Haven Register this week, in 2009 a company owned by the wife of the fire marshal of Hamden, CT filed a complaint with the local court, seeking payment for services rendered to a condominium association in Hamden.
A Concealed Agent
The association filed a counterclaim. 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 the ethics board page, 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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