St. Louis Area Developer and the Director of Community Development for the City of East St. Louis Indicted For Fraud and Bribery Offenses

Stephen R. Wigginton, United States Attorney for the Southern District of Illinois, announced today that HA ROLD N. ROSEN, age 79, of St. Louis, Missouri, and ARTHUR M. JOHNSON, age 61, of East St. Louis, Illinois, were indicted on January 21, 2011, by the Grand Jury in U.S. District Court for the Southern District of Illinois, East St. Louis Division. ROSEN was indicted for nine (9) counts of wire fraud. JOHNSON was indicted for three (3) counts, including: aiding and abetting two of ROSEN’S wire fraud offenses, and also for accepting benefits in connection with business conducted before the East St. Louis Community Development Office.

On January 24, 2011, JOHNSON surrendered and was arrested by federal agents. JOHNSON was arraigned in US District Court and was admitted to bail pending trial.

The indictment alleges that HAROLD N. ROSEN committed fraud in connection with his contract with the city of East St. Louis to construct a $5.6 million dollar low income, affordable housing project to be known as “Bowman Estates.” To obtain the construction contract, ROSEN lied about his background and experience, falsely portraying himself as a wealthy man with extensive experience as a developer. He supplied fictitious tax returns and bogus financial statements when he applied for loans, and he fabricated loan commitments and a financing contract to mislead the city and the East St. Louis Financial Advisory Authority (FAA) into believing that he had obtained more than $3.6 million dollars of private financing required as a pre-condition to the start of his construction project. Having deceived the city as to his financial wherewithal and supposed expertise as a developer, ROSEN then attempted to pass off considerably cheaper pre-fab modular housing manufactured in the State of Indiana in lieu of the promised on-site construction in East St. Louis that would have provided job opportunities to local construction workers. The indictment further alleges that ROSEN created phony invoices and lien waivers that were submitted to the city and the FAA in order to obtain reimbursement for expenses that he had not actually paid and was otherwise not entitled.

To improve his chances of successfully developing the Bowman Estates project, the indictment alleges that ROSEN provided benefits to ARTHUR M. JOHNSON, the director of the Community Development Department for the city of East St. Louis. JOHNSON acted corruptly by accepting cash payments from a representative of Kully Construction, LLC while he was responsible for overseeing a portion of the public financing for the project. Further, ARTHUR M. JOHNSON verified and approved a fraudulent $40,000 reimbursement to Kully Construction, LLC knowing that Kully Construction, LLC had not actually paid the $40,000 expenditure for which HAROLD N. ROSEN sought reimbursement. JOHNSON approved the expense because he had been promised employment with Kully Construction, LLC upon his upcoming retirement from the city.

The indictment alleges that ROSEN attempted to obtain more than $1.9 million dollars of public financing under false pretenses and that he was successful in actually obtaining more than $60,000 by fraud. The East St. Louis Financial Advisory Authority (“FAA”), a state agency that oversees East St. Louis city spending, is credited for saving the city from additional losses by successfully blocking the expenditure of public funds from August, 2008, through June, 2009, as well as by blocking payment of a fraudulent $40,000 reimbursement.

The crime of wire fraud is punishable by not more than 20 years’ imprisonment, a $250,000 fine, and not more than three years’ supervised release upon release from prison. Corruptly Accepting Anything of Value in Connection with Business Conducted Before the East St. Louis Community Development Office is punishable by 10 years’ imprisonment, a $250,000 fine, and not more than three years’ supervised release. However, the United States Sentencing Guidelines must be applied to the case and considered by the Court during sentencing.

The investigation was conducted through the Metro East Public Corruption Task Force by agents from the Internal Revenue Service, The U.S. Department of Housing and Urban Development, and the Federal Bureau of Investigation. The case is being prosecuted by Assistant United States Attorney Steven D. Weinhoeft.

An indictment is a formal charge against a defendant. Under the law, that charge is merely an accusation and the defendant is presumed innocent unless proven guilty.

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