Upstate Mayor and 2 Officials Are Indicted in Loan Scheme
By KIRK SEMPLE, NY TIMES, September 1, 2004

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GOSHEN, N.Y., Aug. 31 - The mayor of Middletown, the city's economic development director and a city judge have been indicted on charges of conspiring to direct more than $140,000 in federal urban development loans to the mayor for his personal use.

The 55-count indictment unsealed on Tuesday accuses Mayor Joseph DeStefano, Middletown's mayor since 1994, Judge Richard Guertin of City Court and Neil Novesky, the city's director of economic development, of defrauding the government, conflict of interest, official misconduct and conspiracy.

In one transaction, a business owner used a Department of Housing and Urban Development loan to pay $40,000 rent to his landlord, who happened to be Mr. DeStefano, the Orange County district attorney, Francis D. Phillips II, said in an interview. The mayor's interest in the property was not disclosed in the loan application, Mr. Phillips said.

Mr. DeStefano was also charged separately with tampering with public records and falsifying business records. A tampering charge - the most serious in the indictment - carries a maximum prison term of seven years, Mr. Phillips said at a news conference at his office in Goshen.

Mr. Novesky was accused of overseeing the loan grants and the loan paperwork, and Judge Guertin was accused of drafting the documents that gave the mayor money from some government loans, Mr. Phillips said. At the time of the transactions, Judge Guertin served as both the lawyer to the City of Middletown and as Mr. DeStefano's private lawyer.

Mr. DeStefano was named in 52 of the 55 counts, while Mr. Novesky was named in 23 counts and Mr. Guertin was named in seven.

"They're nonsense charges," Mr. DeStefano, a Democrat, said in a telephone interview on Tuesday evening. "There was no money ever given to me or loaned to me. Every transaction that did take place did so with counsel and with full disclosure, and we're going to be able to show that going back to 1997."

He said the indictment was politically motivated and accused the Republican Party of conspiring with the district attorney to force him out of office and wrest control of the city from the Democratic Party.

A telephone message left at the office of Mr. Novesky was unanswered, but in a statement distributed by his office and published on the Web site of The Times Herald-Record of Middletown, he called the charges "outrageous" and said they were an "attempt to embarrass me, my family and my office."

Efforts to reach Judge Guertin by telephone were unsuccessful.

The indictment was based on seven commercial HUD loans, stretching from 1997 to 2004, for Mr. DeStefano's landlord and for tenants on commercial property the mayor owned, according to Christopher P. Borek, the chief trial assistant district attorney in Orange County. The loans were administered through Mr. Novesky's office, the indictment said.

Mr. Phillips said the loans were intended for economic development "to encourage businesses to open, operate, buy equipment, to revitalize the downtown area of the City of Middletown."

According to Mr. Borek, one transaction involved a $100,000 loan that was granted to a landlord who had signed an agreement with the mayor allowing him to determine how the money would be used.

But the law forbids the mayor to benefit from transactions that are administered by a person he appoints - in this case, Mr. Novesky, officials from the district attorney's office explained.

Neither the indictment nor the district attorney revealed whether Judge Guertin and Mr. Novesky derived financial gain from the transactions.

The three officials were arraigned on Tuesday in Orange County Court and released. They hugged and shook hands in the courtroom, according to The Times Herald-Record, which first reported on Tuesday that the indictment would be unsealed.

The indictment came four months after the police and federal agents raided City Hall and seized financial records.

Mr. Phillips said that the indictment emerged from an investigation that began in the inspector general's office of the Department of Housing and Urban Development. The matter was referred to Mr. Phillips's office, which was joined by the New York State Commission of Investigations, which had been conducting its own inquiry into the matter since 2000, Mr. Phillips said.

The district attorney denied that the indictment was politically motivated. "Obviously, that's not what I do," he said.

Mr. DeStefano was indicted in 1989, while he was an alderman on the city's Common Council, in an investigation into illegal gambling. He was cleared of the charges.