Housing and Urban Development Secretary Samuel R. Pierce Jr. has decided not to take action against Jayne H. Gallagher, a high-ranking department official, although an internal investigation found she improperly omitted more than $300,000 in debts from her financial disclosure form, according to a report of the inquiry.
Pierce said he based his decision on advice of the HUD inspector general and the results of the IG's investigation into whether Gallagher, director of the office of public affairs, should have reported debts incurred when she and two business partners defaulted on more than $1 million in federal and New York state loans, the investigation report said.
The Office of Government Ethics said that debts larger than $10,000 should be reported on financial disclosure statements federal officials are required to make each year, but "if the omission was due to ignorance or inadvertence, then Gallagher should be given the opportunity to amend the form," according to the IG's report.
"We are working with her accountants and counsel" to amend Gallagher's past financial disclosure reports and a new statement, which is due May 15, HUD general counsel John J. Knapp said this week.
In two financial statements -- filed in January 1984 and in May 1985 -- Gallagher listed two bank loans, totaling between $65,000 and $150,000, noting the loans were not being paid because they were "still in litigation," according to the investigation report. She did not list an Internal Revenue Service lien for $37,028.95 against her New York home for unpaid withholding taxes for her company employes because she is contesting the amount in negotiations with the IRS, the report said.
"I'm obviously pleased" by Pierce's decision, Gallagher said last week. "It supported everything I said in the beginning." The IG report noted that she has denied "any wrongdoing in connection with her involvement" in Concrete Elements Corp.
Gallagher was treasurer and one-third owner of Concrete Elements Corp., a New York concrete-manufacturing company that went out of business in September 1981 only nine months after it was founded and without doing any business. The HUD inspector general report said no payments were made on two loans for more than $510,000 and five interest payments were made on two other loans of $550,000.
All of the loans were foreclosed. The Economic Development Administration, part of the Department of Commerce, guaranteed a $275,000 loan, and the New York State Job Development Authority backed a $240,000 loan for Concrete Elements, according to the IG report. The additional $550,000 in loans was guaranteed by the federal Small Business Administration.
Nassau County, N.Y., courts have ordered Gallagher to pay a total of $391,594.18 to two New York banks that made loans to her company. She has not yet complied with the order, the report said. The amount of the court-ordered payment could be reduced by proceeds from sale of the Haverstraw, N.Y., Concrete Elements plant, equipment and 22 acres of land.
Although the SBA has a potential buyer who "might" pay $1.5 million for the property, "It does not mean that the judgment against Gallagher would be released, as proceeds from the sale are applied first to accrued interest, penalty and real estate taxes, which are extensive in view of the amount of time that has transpired since default," according to the HUD report. The SBA has paid the Bank of New York $489,650 under the terms of its guarantee of the two loans totaling $500,000 to Concrete Elements Corp.
The $275,000 loan guaranteed by the Economic Development Administration was secured by equipment reportedly worth $300,000, but which sold for only $1,100, the report said.
Gallagher said that negotiations with the IRS resulted in a lower tax bill of about $16,000, and that she had paid $8,848 in 1981. The IRS garnished Gallagher's HUD salary last summer, and has collected $7,626.50. An IRS official said the agency has not made a final decision as to whether Gallagher's tax debt has been completely paid, according to the investigation report.
Reports that "false statements" were made on loan applications sparked an investigation by the Commerce Department inspector general. The probe is for administrative purposes only, because the statute of limitations on criminal prosecution has expired, the HUD report said. An FBI probe of "circumstances surrounding the SBA-guaranteed loan" was closed, also because the statute of limitations had run out.
The Commerce Department "can neither confirm nor deny any ongoing criminal investigation," Randy West, the agency's inspector general, said in a telephone interview.
When he was asked if the department would try to collect the Economic Development Administration debt under a 1982 law, West would say only that, when the government is owed money, "We will pursue whatever legal means are available to recoup money owed us." The Debt Collection Act authorizes federal agencies to deduct money owed them by federal employes from the workers' salaries.