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Black Economic Union of Greater KC under federal investigation

Former BEU Board Chair claims corruption
Posted: 10:30 AM, Sep 26, 2019
Updated: 2019-09-27 00:04:00-04
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KANSAS CITY, Mo. — A Kansas City nonprofit with the mission of promoting economic development in the city's urban core is now under federal investigation.

A 41 Action News Investigation reveals federal officials are looking at how the Black Economic Union of Greater Kansas City spent tax dollars.

At the center of the investigation is the historic Lincoln Building, one of the crown jewels of the city's 18th and Vine District, and specifically how BEU spent - or did not spend - money on the building prior to selling it to attorney Henry Service in 2017.

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"I can confirm the Office of Inspector General (of the U.S. Department of Housing and Urban Development's Office of Inspector General) did sit down and talk to me and I can confirm that I've got information that the FBI is looking into that organization," Service said in an interview.

The BEU is one of dozens of non-governmental agencies which receive funding through the city. In BEU's case, the city money in question comes from the federal community block grant program . The program gives money to cities - with relatively few strings attached - to help improve communities. Oversight of the funding is done through a combination of local and federal officials.

The 41 Action News Investigators obtained a series of emails between Special Agent Joseph Lorek from HUD and Stuart Bullington, the now former assistant director of Kansas City's Neighborhoods and Housing Services Department.

In an August 2018 email, Lorek asks Bullington for an accounting of all federal money given to BEU.

Bullington responds by sending a 2014 contract between BEU and the city to improve the Lincoln Building.

The original contract included $100,000 of federal money, with $75,000 of those funds budgeted to upgrade the elevator.

According to Service and former BEU Board Chairman William Harris, no elevator work was ever done.

In a document dated Oct. 10, 2017, Harris claims $69,000 was given to a small roofing contractor to fix the elevator in the Lincoln Building.

In the document, Harris wrote the contractor “clearly is not qualified to do such technical work which requires a license and the elevator never got fixed."

The last city permit currently posted for the Lincoln Building elevator expired on Aug. 1, 2014, roughly six weeks before the contract was signed to upgrade the elevator.

On Sept. 18, 2014, John A. Wood - in his then-capacity as assistant city manager and director of the city's Neighborhoods and Housing Services Department - signed the federal money contract with BEU.

When the 41 Action News Investigators asked Wood why the city would agree to give money to fix the elevator and five years later, still hasn't inspected it after the permit ran out, he replied, "I don't know. I actually haven't been in the building myself in a long time."

Records show the city gave BEU two contract extensions to complete work on the Lincoln Building.

The first extension, in February 2015, gave BEU an additional $71,500 for that purpose.

Despite two contract extensions the city gave BEU to complete the work, it wasn't finished by September, 2016.

"We determined that the project wasn't going to be completed in a timely fashion and so we basically terminated the contract," Wood, who now serves as director of the Neighborhoods and Housing Services Department, said.

An e-mail from Bullington to Lorek shows BEU spent less than $24,000 of the $100,000 in federal money and less than $39,000 of the $71,500 in Kansas City sales tax money fixing up the Lincoln Building.

Wood says HVAC duct work was done for businesses on the west side of the Lincoln Building and city receipts show carpeting work was done on the third floor of the building.

Despite Harris' claim that BEU gave $69,000 to an unqualified contractor to the fix the elevator, Wood says the remaining funds were not given to BEU and re-purposed.

But federal investigators are questioning the money BEU did spend.

City records also show BEU submitted an invoice, as part of the Lincoln Building renovations contract, for $833 paid to Prosperity Electric for wiring charges.

The invoice shows Prosperity Electric had the same Lincoln Building address as BEU, which owned the building at the time, but no suite number; Only a listing of "second floor" was included.

Missouri state records show Prosperity Electric dissolved in February 2019.

The 41 Action News Investigators asked Wood if it's a potential red flag to hire a contractor in the same building BEU owns with no specific address in that building.

"I would question that," Wood said.

"Why doesn't the city know where all the money that's been allocated?" Service said. "Where is it?"

During his campaign for Kansas City Mayor, the 41 Action News Investigators asked Quinton Lucas those same questions. Prior to the election, Lucas served as a council member in Kansas City's third district, which includes the 18th and Vine District.

"We'll track down any money the taxpayers have put into projects, make sure it's responsibly spent," Lucas said at the time.

Harris claims tens of thousands of dollars of the organization's money were funneled from BEU to other organization leaders for their own personal benefit.

The accusations come in a now-dismissed eviction case current Lincoln Building owner Henry Service filed against BEU in March, 2018.

A judge ruled Harris' accusations inadmissible as evidence because a BEU attorney was not notified prior to Harris, the former BEU board chairman, being questioned.

In that court document - which Harris signed under oath and is still part of the public court record - it states, "Illegal wire transfer took place. There are no source documents, contracts, orders or other to show where that money went."

According to Harris' testimony, former BEU Director Marvin Lyman and long-time BEU advisor Vewiser Dixon - Dixon's wife Cathy Brodhurst is currently BEU's interim director - siphoned BEU money to Dixon's private business.

Harris states in the court record, "They were talking about paying property taxes and mowing vegetation on all the vacant lot properties Vewiser owns for his upcoming real estate development. Marvin used the term "development costs," not for a BEU development, but for Vewiser Dixon's development."

Harris also claims in the court document that Dixon threatened to kill him if Harris revealed financial improprieties taking place within BEU.

In an email response to the 41 Action News Investigators, Dixon called Harris' accusations against him "false, unfair and unwarranted."

When asked for further comment, Dixon said his attorney had advised him not to comment on the matter further.

Harris also states in the court record other BEU leaders forged his name on fraudulent board resolutions and misrepresented his participation in other organization matters.

In addressing Harris' claims, Lyman said in an email response to the 41 Action News Investigators there was "no malfeasance or illegal activity by me."

The 41 Action News Investigators asked Wood if he believes there's some type of malfeasance with BEU or the city based on the open federal investigation.

"I don't know," Wood said.

"I think it would be irresponsible for me to talk about ongoing investigations and issues so I'll pass on that," then-candidate Lucas said.

Former BEU Board Chairman Chester Thompson spoke about fixing up the Lincoln Building in a YouTube video recorded at that building in 2012.

"We had to put about a million dollars in refurbishing this building," Thompson said.

Reached by phone, Thompson said a lot of hard work was put into the building. By the time Thompson retired as board chair in March 2016, Thompson claimed the BEU owned the Lincoln Building free and clear.

According to Harris' court statement, former BEU director Lyman took out a $400,000 loan for the building in May 2016 just months after Thompson left.

According to Harris, BEU's board neither voted on nor approved the loan - a violation of the organization's policies, rules and procedures. Harris also claims that loan was concealed from him in his role as board chairman.

After receiving hundreds of thousands of tax dollars to fix up the Lincoln Building, including roughly $387,000 in federal stimulus money, $171,500 in federal and city money, and after securing the $400,000 loan, court records show BEU sold the Lincoln Building to Henry Service for $750,000 in 2017.

"For the life of me, I can't explain why they did what they did," Wood said in describing the sale.

Thompson said he was not happy with the sale, adding, "The Lincoln Building didn't get handled the way it should've when I left."

Harris also opposed the sale and said Lyman and BEU Treasurer Charles Parker lied to him about the the sale's purpose.

"I was the only one who argued vehemently against the sale of the organization's greatest asset and iconic home for decades," Harris stated in the court testimony. "I was told that the BEU only had two months before it would face foreclosure and not enough income to pay its utilities. I then documented by email enough cash resources BEU has to carry us for the next eight months. They ignored that and moved forward with the sale and without a lawyer."

Reached by phone, Harris declined comment about his accusations in the court record.

The 41 Action News Investigators were unable to reach Parker for comment.

The 2016 federal income tax record for BEU, called a form 990 for non-profit groups exempt from income tax, shows BEU's total net assets were more than $1.6 million at the end of that year.

That same tax record shows salaries and other employee benefits rose from $7,540 in 2015 to $79,361 in 2016.

And the tax record shows mortgages and loans BEU owed rose from $42,648 in 2015 to $492,244 in 2016, which may reflect the $400,000 new loan.

Court records show after the sale of the Lincoln Building, BEU sued Service to try to get the building back.

"We've settled the litigation. I'm the 100 percent owner of the Lincoln Building and that's the way it should be," Service said.

Kansas City records show BEU has a long and frequently troubled history over the last 20 years.

In 2003, former BEU Director Sylvester Holmes pleaded guilty in federal court to embezzling $33,000 of the organization's money.

City records show in the 10 year period from 1999 through 2008, Kansas City gave more than $5 million in funding to BEU.

And those same city audit records show BEU had accounting issues every one of those years, including two years when BEU failed to submit a timely report for the auditor's review.

In budget year 2008 for example, 44 agencies received $100,000 or more in funding from the city or pass-through dollars.

BEU was one of only two agencies not to submit its financial reports and internal control analysis for the city auditor’s review on time.

The auditor notes in that report, “When agencies do not report recent information on their financial condition and accounting and internal control structures, it’s not available to elected officials, the city manager or monitoring departments”.

In the city auditor's Dec. 31, 2003 report, it states "BEU paid a contractor without the contractor submitting invoices for approval. The contractor had control of the account and periodically transferred money out of the account. BEU paid the contractor in excess of actual expenses incurred. Payments were not supported by invoices or other documentation. BEU appears to have made duplicate payments to contractors."

The same audit report says another BEU contractor had complete and unlimited access to the agency's bank account containing Community Services Block Grant funds which is federal money.

The report says, "the contractor could draw down funds from the agency at any time. The contractor generated its own invoices and paid itself from the agency's account without agency personnel involvement. The contractor authorized all payments during the fiscal year from the program fund. Three times BEU drew down Community Services Block Grant funds in excess of their immediate requirements in violation of federal rules and regulations."

Also in the same report it states, "BEU's former executive director's name remained on an account for the agency's Community Service Block Grant until December, 2004. The former executive director was terminated in March 2003."

Despite these red flags, the city continued to fund BEU.

Most recently, the 41 Action News Investigators obtained invoices showing Kansas City's Neighborhoods and Housing Services Department gave roughly $214,000 in funding to BEU from 2012 through 2016, but nothing since the contract to refurbish the Lincoln Building was canceled in 2016.

"It's not something that I would've done. I wouldn't have stood for it," Wood said.

While Lyman declined the 41 Action News Investigators request for an on camera interview, he did say by phone and e-mail that BEU has done a lot of good work in the community, such as building low income housing, during the past 50 years.

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Those projects included the Basie Court and MLK Village Apartments.

But audit records show BEU had multiple accounting problems from 2004 through 2006 with the city's Housing and Economic Development Finance Corporation or HEDFC.

HEDFC operates as a bank with federal money used to fund low-income housing projects.

That bank had so much trouble, a federal judge took control of it away from the city for eight years before Wood was able to get it back on track.

In his 2012 YouTube video, Chester Thompson talked about BEU's debt on those housing projects when he took over the organization in 2007.

"We found that BEU was in terrible trouble, just a mess," Thompson said in the video.

Court records show BEU still has 11 active liens against it for unpaid bills dating as far back as 27 years.

HEDFC, Bank of America and the U.S, Economic Development Administration are among the agencies and businesses which have filed long standing active claims against BEU.

The 41 Action News Investigators went to current BEU board member Martinez Denmon's home to ask questions about BEU.

Speaking from an upstairs window, Denmon said, "Get off my property."

The only BEU associate who agreed to speak on camera is Takishia Ford.

Ford says she's a paid intern and has served as a receptionist at BEU's Lincoln Building office in the past.

She also says Special Agent Lorek has interviewed her as part of his ongoing investigation, specifically asking her about BEU.

"He wanted access to their financial records, the property records, things he has no business having access to," Ford said.

The 41 Action News Investigators, on multiple occasions over several months, have gone to BEU’s office in the Lincoln Building seeking comment.

According to Ford, BEU has that office in the Lincoln Building rent free for five years as part of the undisclosed settlement of the organization’s lawsuit with Service.

However, the office has been closed.

According to Service and other tenants, it’s rare the office is used at all.

A sign now on the window of the office reads, “To mail carrier from BEU, please hold all mail in the post office. Do not distribute mail in the building, thank you.”

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The 41 Action News Investigators have also reached out to other BEU leaders, including current interim Director Cathy Brodhurst.

Instead, BEU's attorney sent an email stating no one would meet with the 41 Action News Investigators.

The email also states BEU is in good standing, self-sustaining, successfully maintaining its current assets and continuing to pursue its mission of economic empowerment for minorities in the Kansas City area.

It also says, “The BEU maintains an office in the Lincoln Building. The BEU understands Mr. Service is in the process of hiring a property manager for the building. Once the property manager is in place, the BEU expects to have a more consistent presence at its office in the Lincoln Building."

Service confirms he’s in the process of hiring a property manager for the Lincoln Building.

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