The managers hired to rehabilitate and run the Pumpkin Hill apartments in Laurel misappropriated at least $50,000 from the federally subsidized project in the months before the apartments were condemned last year, according to records and former company officials.

The officials involved in the apparent irregularities at Pumpkin Hill were assigned by the project's management firm, Multi-Family Housing Services, in April 1978 to transform the rundown complex into a tenant-managed cooperative.

Instead, records and interviews with project officials show, Pumpkin Hill deteriorated under Multi-Family's management as repairs were ignored, federal regulations were routinely violated, and project funds were improperly diverted.

An investigation by The Washington Post revealed three instances in which Multi-Family managers apparently misused money intended for tenants or for needed repairs:

In one case, two Multi-Family employes took a $10,000 payment to renovate two of the project's buildings in October 1978, kept part of it, and used much of the rest of it to purchase construction materials that they used for an unrelated renovation job at another apartment complex. The repairs at Pumpkin Hill, the two employes said, were never completed.

In another instance, Multi-Family managers diverted at least $20,000 from a government-controlled escrow fund for project equipment and repairs to pay off bills to creditors.

Finally, the officials withdrew and spent $25,000 from an escrow account for tenants' security deposits, in apparent violation of state law.

Department of Housing and Urban Development officials are now auditing Multi-Family's financial management at Pumpkin Hill, and are expected to complete their investigation by the end of January.

Multi-Family, a Washington-based firm created in 1977 to manage federally-subsidized projects and convert them into cooperatives, has managed a number of other projects in the Washington area, including three others in Prince George's County.

All the Multi-Family employes implicated in the misappropriations have since left the company. The firm's current property manager, James J. Brown, said yesterday that "a lot of allegations have been made and we will wait to see which are true." He said Multi-Family is cooperating with HUD auditors.

At Pumpkin Hill, renamed South Laurel Mutual Homes, interviews and records obtained by The Washington Post revealed a chaotic record of management by Multi-Family between April 1978 and June 1979.

The apartments that Multi-Family controlled were condemned by Prince George's County inspectors last January as unfit for human habitation. Shortly afterward the owners of the project, including developer Ralph Rocks, deeded the property to HUD to prevent mortgage foreclosure.

By that time the project owed more than $200,000 to creditors, according to company employes and federal officials. A large part of this sum -- at least $100,000 -- eventually had to be paid by HUD, officials said.

Rocks hired Multi-Family in April 1978 under an agreement to turn ownership of the project over to a cooperative in five years, provided that Multi-Family succeeded in turning the project around.

This plan never got off the ground. And several months after beginning work, the employes assigned by Multi-Family to manage Pumpkin Hill began to take drastic -- and apparently improper -- steps to cure woeful financial problems.

In late July 1978, for example, Aaron J. Roach, the project's property manager and Multi-Family's ranking official at Pumpkin Hill, asked HUD if he could use $69,952 from a HUD-controlled project account for repairs and the purchase of new refrigerators, smoke detectors and other equipment for the apartments.

HUD officials approved the request. But Roach said in an interview that he did not use the money as he said he would. About $22,000 of the money, he said, was put in the project's operating account to help pay bills.

At about the same time Multi-Family began to allow tenants into Pumpkin Hill whose incomes were higher than government regulations allowed. Federal eligibility forms for these tenants were never submitted to the government, and they were charged the same lower rates as the tenants who qualified for subsidies, according to Multi-Family employes.

Finally, in October, Roach and his deputy, Robert E. Lum, took $25,000 out of the escrow account for tenants' security deposits and put it in the project operating accounts to make up losses. A copy of the $25,000 check they wrote, dated Oct. 20, 1978, was obtained by The Washington Post.

Maryland law prohibits the removal of funds from such escrow accounts unless tenants are being assessed for damage to apartments.

Roach, who no longer works for Multi-Family, said the money was removed to pay some of the project's debts, including a $78,000 bill to Pepco.

Asked about the $25,000 transfer, Roach said: "Sure it was illegal, I knew it was illegal. But I had to weigh the situation . . . it was either that or have the lights shut off for 600 people."

Roach said that the $25,000 transfer was listed on the finance reports for October 1978 that Multi-family submitted to HUD. However, the reports for two of the three sections of Pumpkin Hill managed by Multi-Family list no such transfer. The third report could not be found in HUD files, and HUD officials said they knew nothing of the transfer.

In another incident in the fall of 1978, Roach awarded a $10,000 renovation contract to M.B.L.M. Inc., a firm owned by his deputy, Lum.

The $10,000 was to be paid in stages, with $3,000 held out until the job was finished. But M.B.L.M. received the entire amount even though some of the repairs were never made, and the construction materials purchased for the job were used at another housing project, according to Lum and records.

Lum said in an interview that he had turned the job over to Joseph Jablonski, another Multi-Family employe, who in turn paid him $1,500 of the $10,000. Lum said he kept this sum to help cover any taxes his company might have to pay. Jablonski, however, said that Lum Kept $3,800 for himself.

Whatever repairs were done were the work of the regular maintenance crews of Multi-Family at Pumpkin Hill. Jablonski said that these men were working for him on their off-hours.

Lum added, however, that occasionally the men worked on Multi-Family's time, even though the repairs were not Multi-Family's business.

Lum and Jablonski agreed that a substantial amount of materials supposedly purchased for the repair work was taken to an unrelated housing development where they had a second repair job.

Both men denied responsibility for taking the materials, which included aluminum siding, paint and plywood boards.

Lum said he had nothing to do with the work on either project. But Jablonski said: "I helped take the materials because Lum was my supervisor and you do what your supervisor says."

Meanwhile, the work on the two Pumpkin Hill buildings was never completed, and both were condemned in February 1979, four months after the men were paid for the renovation work. CAPTION: Picture, Condemned and boarded up, these two units of the Pumpkin Hill apartments were scheduled to be repaired with $10,000 that was diverted to another location. By Gerald Martineau -- The Washington Post