IG bolsters Acton on 40B profits

ACTON - The state inspector general has found that developers allegedly used affordable housing in Acton to pad their profit margins, in the latest chapter in a wide-ranging, four-year probe.

In the latest findings, Inspector General Gregory W. Sullivan accused developers of having provided inadequate or "conflicting or contradictory" information, including grossly overstated costs and understated profits, in a Chapter 40B project on Main Street.

"Any monies that are due the town of Acton, we plan to recover," Acton Board of Selectmen chairwoman Lauren S. Rosenzweig said last week in response to Sullivan's report.

Under state law, developers are re quired to limit their profits from Chapter 40B projects to no more than 20 percent, and turn over any profits that exceed that to the local community.

James D. Fenton, one of the developers in Acton, declined to discuss the accusations. Diane L. McGlynn, attorney for Fenton and partner Michael J. Jeanson, said she had no comment either.

Sullivan's investigation has been welcomed by Boston suburbs that have been inundated by bids to build Chapter 40B affordable housing while shackled by the state law from regulating it.

If Sullivan's accusations prove true, the communities involved could receive hefty reimbursements. The money could help them construct more affordable housing, local officials have said.

Chapter 40B, enacted by the Legislature in 1969, allows developers to skirt many local zoning requirements in communities that have not met the state-mandated 10 percent affordable-housing threshold, if the developers set aside a portion of the development for such housing.

Launched in 2004, Sullivan's investigation already has found financial irregularities in 40B developments in five of 10 communities. Four of the five subsequently filed lawsuits against the developers, and one of them, Wakefield, recently settled its case for $500,000.

Acton, Billerica, and Reading are among the communities in which Sullivan alleged in separate findings that developers had exceeded a profit margin of 20 percent, the maximum allowed under Chapter 40B.

Similar irregularities in an Arlington project will be exposed in another report due out this month, according to Jack McCarthy, senior assistant inspector general. McCarthy said that the office is also preparing to shine a light on a Sudbury development, but that it might take several more months.

In Acton, Sullivan reviewed the construction costs and sales profits at the 12-unit Crossroads Development at 244 Main St. In 2006, he had alleged that the developers overstated expenses by $600,000 and understated profits by $50,000. The net result of the adjustments was a total profit percentage of 57 percent, meaning the town was owed $763,000, Sullivan said.

Sullivan pointed to a discrepancy in profits from the selling and reselling of Unit 4. Fenton and Jeanson first sold the unit to another company they owned for $250,000 - less than the pricetags of $299,000 to $335,000 for the other units. Then, the developers resold Unit 4 for $300,000. Sullivan said the $50,000 earned on the flip should have been disclosed as part of the developers' profit.

Sullivan also said the developers inflated costs by using site development, brokerage, and construction management contractors owned by or related to them. Sullivan said the lack of arms-length relationships meant the developers could overstate their expenses.

In a letter to McGlynn dated June 19, Sullivan elaborated on the earlier report. He said the hourly labor and equipment rental rates claimed by the developers are "significantly exaggerated" - by 152 percent and 222 percent, respectively.

Sullivan also accused the developers of failing to keep time sheets while building the project and creating them three years later, in early 2007.

He said his office "identified numerous instances of conflicting or contradictory information" in the reconstructed "daily job reports" as compared with daily diaries kept by a site supervisor on the job.

For example, on June 16, 2003, he said, reconstructed reports show four employees on the Acton site for eight hours, while the diary indicates three worked at another site owned by the developers in Boxborough.

Another accusation concerns fill dug out of the Acton site and trucked to Boxborough for use at that project. Sullivan said the developers charged the Acton project for the costs of trucking the fill, but should have counted it as revenue.

McCarthy said the letter provides answers to questions asked by developers about the 2006 report, but does not alter the $763,000 owed to the town. "We still stand by that original number," he said.

In October 2007, Acton filed a lawsuit against Fenton and Jeanson, charging them with breach of contract, fraud, unfair and deceptive trade practices, and civil conspiracy.

The complaint, filed in Middlesex Superior Court, requests the reimbursement owed under Chapter 40B. The town also asks for multiple damages and attorney fees under Chapter 93A, a consumer protection law.

The developers filed an answer that said that before approving the project, the town never conducted an audit, and that "no true audit has been performed on the Crossroads project." They also argued that the town relied on information from a probe by the inspector general that was politically motivated.

"The IG has publicly stated that he intends to modify the existing 40B legislation and is engaged in an active campaign in doing so," the brief says.

McGlynn declined to comment on the pending case.

Fenton and Jeanson figured in an earlier lawsuit. In 2004, the town of Boxborough received almost $1.2 million in a settlement from the two developers for inflated costs for the 48-home Boxborough Meadows. Boxborough was not included in Sullivan's probe.

Billerica also has a pending court action against the Chapter 40B Salisbury Hill project developers. Reading received $17,000 from developers of the Sumner Cheney project before the inspector general's report estimating the town was owed $500,000, McCarthy said. The settlement precluded a lawsuit, he said.

Connie Paige can be reached at cpaige@globe.com.