In early 2010, officials at Baltimore's public housing agency noticed a few thousand dollars had gone missing — transferred without authorization to the bank account of a man who rented his Northeast Baltimore home to a low-income tenant, according to a federal indictment unsealed Monday.
The agency confronted the landlord, a convicted bank robber named DaRen Kareem "D" Gadsden, the indictment says. And though he denied any wrongdoing, he agreed to pay $1,400 to help cover the agency's loss.
The story might have ended there. Instead, federal prosecutors allege, a far larger fraud scheme was ramping up involving Gadsden and three others. By the time it ended a few months later, $1.4 million had been stolen from the Housing Authority of Baltimore City, the indictment says.
The agency says it was fully reimbursed by Bank of America after discovering the scheme. It issued a news release Tuesday stating that agency accountants identified the fraud during "routine reconciliation" of its books and that officials notified both the agency's inspector general and the bank.
Executive Director Paul T. Graziano made a similar point in July after two of the defendants, William Alvin Darden and Keith Eugene Daughtry, both of Washington, were indicted. "The bottom line is, we have a system, and this proves that it worked," Graziano said at the time.
The superseding indictment unsealed Monday names Gadsden, of Upper Marlboro, and another defendant, Tyeast "Peaches" Brown of Suitland.
"The $1,399,700 stolen from the Baltimore Housing Authority was supposed to be used to provide housing, not to line the pockets of criminals," Rod J. Rosenstein, the U.S. attorney for Maryland, said in a statement.
If convicted of bank fraud conspiracy, each of the four defendants could be sentenced to 30 years in prison and a $1 million fine. Gadsden is also charged with aggravated identity theft and evidence tampering. His lawyer declined to comment; attorneys for the other three could not be reached Tuesday.
In 2005, a jury convicted Gadsden of bank robbery and aiding and abetting a bank robbery, finding that he served as the getaway driver when a 1st Mariner Bank branch in Annapolis was robbed. He was sentenced to two years in prison, records show.
By 2009 Gadsden had become a landlord under the Section 8 rental program, now the Housing Choice Voucher Program. He was able to obtain the housing authority's bank account information because he was a landlord, the agency says.
Spokeswoman Cheron Porter said felons are not disqualified from being Section 8 landlords. She said Gadsden had bank transfer privileges through his bank, PNC, that let him withdraw rent directly from a housing authority account. She likened it to the way some people allow a utility company to deduct monthly charges from their checking account.
Gadsden was confronted when he withdrew too much, leading to the $1,400 repayment in two installments in May and June 2010. By then, the indictment alleges, Gadsden and other defendants were preparing to carry out the larger plan that resulted in the $1.4 million theft from July to September that year.
Porter said the agency's confrontation with Gadsden could not have alerted them to the larger alleged fraud because, as outlined in the indictment, the defendants transferred money into the account of a fictitious company called Keith Daughtry Contracting LLC.
"They were two different names," she said. "We would have no idea they were connected."
After getting hold of the housing authority funds, the defendants "drained" the stolen money in various ways, the indictment says: by putting it on debit cards in the names of other individuals, transferring it to other banks and making withdrawals at ATMs and bank branches in the Washington area.
The Federal Bureau of Investigation says the type of fraud that prosecutors allege in this case is a growing problem.
The FBI reported last year that it was investigating more than 400 reported cases around the country in which people had made unauthorized electronic transfers from the bank accounts of businesses and organizations. Those cases involved the attempted theft of more than $255 million and the actual loss of about $85 million.
"The number and sophistication of malicious incidents has increased dramatically over the past five years and is expected to continue to grow," Assistant FBI Director Gordon Snow told members of the House Financial Services Subcommittee in September.
Snow said victims of fraudulent transfers have included businesses, local governments and school districts, including a Pennsylvania school district that discovered more than $450,000 missing from its bank account; a New York school district that reported having $3 million transferred out of its bank account and two trucking companies that lost about $115,000.