Housing Boss Earns $1 Million to Run Shelters Despite a Troubled Past

Soon after Jack A. Brown III quit his job at a private prison company, his former employer accused him of fraud. A few years later, after Mr. Brown started a nonprofit to run halfway houses, a federal audit found that it had failed to deliver key services. The New York State comptroller concluded in another review that Mr. Brown had shown “a disturbing pattern of ethical violations.”

None of that history seemed to bother officials in New York City.

Since 2017, as homelessness has risen to record levels, the city has awarded more than $352 million to a nonprofit run by Mr. Brown to operate shelters. The money is meant to help homeless people regain their footing in life, but it has benefited Mr. Brown, too.

The nonprofit has channeled contracts worth at least $32 million into for-profit companies tied to Mr. Brown, allowing him to earn more than $1 million a year, The New York Times found. Millions more have gone to real estate companies in which he has an ownership interest. He has also hired his family members and given employees perks such as gym memberships and cars.

When Mayor Bill de Blasio came into office, he criticized a small group of landlords for charging the city exorbitant rates to house people in squalid rooms while doing little to curb homelessness. In 2017, the mayor pledged to open dozens of new shelters that would be managed by nonprofit groups. Their mission, he said, would be altruistic rather than driven by financial gain.

But four years after that change and an extraordinary infusion of city spending, homeless people still crowd shelters and set up camps on the street, while a new group of operators has figured out how to make money off their plight.

An investigation by The Times, based on hundreds of pages of legal filings, business records and tax documents, as well as interviews with homeless people, city officials and shelter employees, found that under the cloak of charity, executives at nonprofits have collected large salaries, spent their budgets on companies that they or their families controlled and installed relatives in high-paying jobs.

One landlord started a nonprofit that handed out millions of dollars to real estate and maintenance companies that he and his family owned. A Bronx shelter operator was charged earlier this year with laundering kickbacks through a consulting company run by his family. A former board member of another homelessness organization is under criminal investigation after the city said the group paid millions of dollars to a web of for-profit entities he secretly oversaw.

For years, Mr. Brown has personally prospered by running an organization to help the homeless.

In addition to serving as the chief executive of the nonprofit he founded, CORE Services Group, Mr. Brown started a security guard company that polices his shelters, a maintenance company that makes repairs in them and a catering company that feeds the residents, records showed. Mr. Brown heads each of them, collecting total compensation that tops $1 million. He is the highest-paid shelter operator in New York, according to a review of available records.

In one year alone, the for-profit companies that Mr. Brown ran spent more than $460,000 on gym memberships for employees, records showed.

Mr. Brown, 53, has profited in other ways: Along with partners, he owns two companies that have rented buildings to CORE, and his mother, sister, aunt and niece have all worked at the nonprofit, in addition to his brother, who has collected a six-figure salary.

At the same time, residents at one of the largest shelters in Mr. Brown’s operation, Beach House in Queens, said they lived with vermin infestations, creeping mold and violent fights in the hallways.

“A lot of money is going into this place,” said Annabelle Alexander, who lived in the Beach House shelter for more than a year before moving out last week. “But it’s not going to us.”

State and federal laws prohibit nonprofit organizations from engaging in many types of self-dealing, the practice of executives benefiting personally from their organizations without proper disclosure. But the line between permissible transactions and illegal behavior can be hazy, and nonprofit executives are rarely prosecuted for financial abuses.

In fact, executives at the groups that run shelters in New York are permitted to run profitable side businesses — all fueled by city money — as long as they reveal the information to the city and follow contracting rules.

This year, the city has directed $2.6 billion to nonprofits to operate homeless shelters, and officials already know they have a problem with some of them. Nine of the 62 groups that run shelters are on an internal city watch list for issues that include conflicts of interest and financial problems, according to records reviewed by The Times. All of them continue to receive city funding.

In February, after a Times investigation of a Bronx shelter operator, Mr. de Blasio ordered a sweeping audit of every nonprofit group in the city’s shelter system to examine conflicts of interest, spending and nepotism.

The city began the review this summer. Officials said they are aiming to complete it in the next few months, while acknowledging that in-depth audits can take more than a year.

Mr. de Blasio has said that most nonprofit organizations have hard-working staff members who follow the rules. But when problems do arise, the city prefers to work “collaboratively” with troubled nonprofits, rather than cut off funding and disrupt services, said Isaac McGinn, a spokesman for the Department of Social Services, which oversees city shelters.

“The actions of a handful of executives shouldn’t denigrate the work done by more than 60 providers, hundreds of shelters and thousands of dedicated frontline staff,” Mr. McGinn said in a statement.

In interviews, five current and former officials with the city Department of Social Services, all of whom spoke on the condition of anonymity because they were not authorized to discuss internal matters, said the city is loath to closely scrutinize the finances of nonprofit groups because it is so reliant on them to deal with the explosion in the homeless population.

About 77,000 homeless people live in New York City, a number that is expected to grow when pandemic eviction protections are lifted early next year. The city is under an unusual and decades-old court order to provide temporary housing to every homeless person, and there are a limited number of charities willing to do the work.

The city has known about some of Mr. Brown’s financial entanglements since 2017 but has continued to pay millions to CORE, even after flagging concerns about the organization’s spending in 2019 and requiring that the group hire a forensic auditor last year.

Last month, as The Times asked questions about CORE, the Department of Social Services instructed the nonprofit to close the for-profit companies and fold the services into the charity.

In a statement, CORE vigorously defended its track record and that of Mr. Brown. The group said it had tried to comply with shifting city rules. It said the for-profit companies were subsidiaries that were established because payments from the city often lagged, and other vendors had repeatedly bungled the work.

The nonprofit said it leased cars for some senior leaders to visit sites, and gym memberships were provided to staff members because the organization valued its employees’ health.

CORE also said Mr. Brown had disclosed all his financial interests to the city, and his salary was comparable with those earned by top executives at other similarly sized organizations.

“Jack Brown and CORE have served New Yorkers in need for more than a decade, despite the many financial and operational challenges involved in working with New York City’s notoriously overburdened homeless services system,” the statement read.

Mr. McGinn, the city spokesman, disputed CORE’s characterization of its actions, saying that the group had not been transparent about all its transactions or Mr. Brown’s salary.

At CORE’s Beach House shelter — one of 24 that the nonprofit operates, according to the city — residents said they believed city resources were being squandered. Rooms were infested with mice and cockroaches, they said. One resident, Peter Francesi, said he browsed through rental listings and applied for most apartments himself even though CORE has housing specialists on staff who were supposed to help people find their own apartments. Mr. Francesi said he also taught math classes at the shelter, for no pay.

“The city spends so much money,” Mr. Francesi said. “And this is all we get?”

Self-dealing and nepotism

While nonprofit groups now run most of the homeless shelters in New York City, they rely on for-profit companies to provide underlying services: landlords to rent buildings, management companies to handle paperwork, security guard companies to keep residents safe, caterers to deliver meals and maintenance companies to perform upkeep and repairs.

These services account for a major portion of the city’s spending on homelessness. And it is here where some nonprofit executives have found ways to enrich themselves.

Despite the promise that nonprofits would have a charitable mission, a number of top-ranking executives at groups running New York City shelters have come under scrutiny, and even criminal investigation, in recent years for using the organizations for their own benefit.

In the most high-profile instance, the city last year accused executives at Childrens Community Services, then one of New York’s largest homelessness organizations, of steering business worth millions of dollars to a number of vendors — including an appliance distributor, an unlicensed temp agency and a computer repair business — that were tied to a member of the nonprofit’s board.

The former board member, Peter Weiser, is now the subject of a criminal investigation, according to people familiar with the matter. Mr. Weiser, who has not been charged with a crime, and a lawyer for Childrens Community Services did not respond to requests for comment.

Last year, the New York attorney general’s office opened a criminal investigation into Jenny Rivera, then the chief executive of another group, Aguila, on suspicion of bribery and money laundering, according to a search warrant reviewed by The Times. As part of the investigation, authorities have examined a subcontractor that charged the nonprofit more than $225,000 in warehouse storage fees, according to invoices reviewed by The Times and a person familiar with the investigation. Ms. Rivera, who was fired from the organization, declined to comment.

In a statement, Aguila’s new chief executive, Raymond Sanchez, said the investigation showed “the need for better and smarter supervision of the sector to protect New York City’s vulnerable homeless populations.” The city said it has severed most of Aguila’s contracts, and the group will not operate any shelters by the end of the year.

Earlier this year, The Times showed that the chief executive of the nonprofit Bronx Parent Housing Network had awarded business to for-profit companies with ties to him and faced multiple accusations of sexual misconduct. After the story was published, federal authorities charged the executive, Victor Rivera, with taking kickbacks from contractors and paying the mortgage on his home by laundering money through a for-profit company run by his family. Mr. Rivera pleaded not guilty, and his lawyer declined to comment.

Those cases have been reported. The Times found many other examples of financial entanglements in the city’s shelter system that have not been previously revealed.

For about two decades, one Bronx landlord, Abraham Finkelstein, received millions of dollars from the city to house homeless people in private apartments that he owned with partners. When the city began to work mainly with nonprofit groups in 2017, Mr. Finkelstein shifted his approach.

A charity he had founded, New Hope Transitional Housing, began running homeless shelters. Just since last year, the group has won more than $60 million in city contracts, records show.

Although the organization said Mr. Finkelstein was no longer involved, the nonprofit group spent millions of dollars on companies tied to him, The Times found. Through limited liability companies, he has an ownership interest in three buildings in the Bronx that New Hope uses as shelters, collecting millions in rent each year. New Hope also paid $1.3 million to a for-profit maintenance company owned by Mr. Finkelstein’s nephew.

Mr. Finkelstein did not respond to requests for comment. New Hope’s president, Mark Ehrman, who used to work for one of Mr. Finkelstein’s for-profit companies, said Mr. Finkelstein resigned from the nonprofit board seven years ago and “has had no involvement or relationship since.” He said that the maintenance company was chosen because it was the most competitive bidder; the buildings owned by Mr. Finkelstein had long been used as homeless shelters, and New Hope just took over operations, he said.

Mr. McGinn, the spokesman for the Department of Social Services, said the agency was unaware of Mr. Finkelstein’s ownership of the buildings, which he said appeared to be a conflict of interest. The city did not know about the maintenance company’s ties to Mr. Finkelstein’s family either, he said, but there did not appear to be a problem with the contract.

The Times also found:

• A member of a politically connected Bronx family, Richard Izquierdo Arroyo, was convicted of embezzling money from a housing organization in 2010. Two years later, he was hired at NAICA, a Bronx nonprofit that receives city shelter contracts, and eventually became its chief operating officer. He is paid $423,000 a year by the nonprofit, which also employs his husband as a high-ranking executive.

  In a statement, NAICA said the organization gave Mr. Arroyo a second chance, saying that “his rehabilitation story should be embraced and celebrated” and that he had no access to the group’s finances. His husband was hired based on his qualifications, and Mr. Arroyo was not involved in the decision, the statement said.

• A Brooklyn-based charity was investigated this year after the city discovered that the chief executive, Matthew Okebiyi, who made more than $500,000 a year, supervised his brother, who worked as the chief finance officer. Mr. Okebiyi’s sister-in-law also sat on the nonprofit’s board.

  The city said it is directing the organization to fire the brother and restructure. In a statement, Mr. Okebiyi said his brother had extensive experience in accounting and had worked his way up in the organization.

• Urban Resource Institute, the largest domestic-violence shelter provider in New York City, gave a former executive more than $230,000 in no-bid consulting contracts several years after she left the organization, according to records and interviews. A spokeswoman for Urban Resource Institute said the former executive was the only one with “the unique skills, knowledge, experience and expertise” to do the work. In response to questions from The Times, the city said it was unaware of the potential conflict and would investigate.

The finances of the city shelter system are opaque and difficult to untangle. For more than a year, the Department of Social Services has refused to release the locations of shelters and the names of the groups that operate them. (The Times sued the city for the documents in June.)

Still, The Times closely examined Mr. Brown, whose dealings at CORE have not been previously reported, to demonstrate how many nonprofit executives follow the same playbook to personally benefit while city officials are slow to intervene.

A checkered history

In 2003, when Mr. Brown was a vice president at one of the largest private prison companies in the country, the group was involved in one of the biggest lobbying scandals in New York history. Mr. Brown testified in state hearings that the company had provided free personnel and vehicles to New York State legislators in exchange for millions of dollars in contracts.

The company was fined $300,000 for breaking lobbying laws, the largest fine imposed by the state at the time, according to state records. Mr. Brown was not criminally charged, and in a statement, CORE said Mr. Brown was “never accused of any wrongdoing.”

Soon after, a rival firm, Geo Group, acquired the company where Mr. Brown worked, retaining him as a vice president. Unbeknown to his employer, Mr. Brown quietly formed his own nonprofit organization, according to court documents and charity filings.

In 2009, as Geo Group was applying for a multimillion-dollar contract with the federal government to operate a halfway house in Brooklyn, Mr. Brown abruptly resigned. He then submitted a competing application for the federal contract through his new nonprofit organization, successfully underbidding Geo Group. The company sued Mr. Brown and his nonprofit for fraud, arguing that he had stolen confidential documents and duped his bosses, according to court filings.

Mr. Brown denied the allegations and sought to dismiss the case, but a federal judge found almost all his arguments were without merit. He ultimately settled the suit, with no admission of wrongdoing.

The federal contract, worth $29 million, was a windfall for Mr. Brown’s fledgling charity, Community First Services. The nonprofit was supposed to help people leaving prison with counseling, vocational training and drug rehabilitation services. But few of those services were delivered, a 2012 Times investigation showed.

The halfway house was run out of the basement of a rundown hotel; supervision was lax, drug use was common and services were threadbare. A federal audit later concluded that Mr. Brown’s group had failed to deliver on some of the terms of the contract. (A spokesman for CORE said that the federal government had renewed the deal, and the group still operated a halfway house in Brooklyn.)

In 2012, Mr. Brown vied for a state corrections contract, but the New York State comptroller’s office, which oversees the state’s finances, expressed serious concerns, citing Mr. Brown’s “disturbing pattern of ethical violations.”

Mr. Brown changed the name of his nonprofit to CORE Services Group to distance himself from the bad publicity, according to a deposition he gave in a lawsuit. He then set his sights on opening homeless shelters in New York — business he won readily. With the city money, CORE’s revenue more than doubled in 2017 to $23 million.

In response to questions from The Times about Mr. Brown’s history, officials with the city Department of Social Services said the agency was unaware of some aspects of his background when he applied to run shelters, blaming a “haphazard” contracting system that the de Blasio administration had inherited.

“These are old accusations that are being dredged up to question commonly used business and legal practices, as well as the integrity of a successful African American business leader,” CORE said in its statement.

In his applications to the city, Mr. Brown touted his company’s credentials as a minority-owned business, with staffers who had “an extraordinary depth of experience” in operating shelters. The nonprofit has spent heavily on lobbying in New York: more than $420,000 in the last two years, according to state filings.

Mr. Brown and his staff also cultivated relationships with local politicians, including Eric Adams, the Brooklyn borough president who is likely to be elected mayor in November. Since 2017, executives and employees at CORE and the related for-profit companies have contributed $8,700 to Mr. Adams, a Democrat.

After city officials announced that CORE would open a shelter in Crown Heights, Brooklyn, in 2017, residents who lived nearby complained that their neighborhood was overburdened and questioned CORE’s track record. Mr. Adams sided with CORE, encouraging residents to embrace the facility.

Evan Thies, a spokesman for Mr. Adams, said campaign contributions never affected Mr. Adams’s decision-making. He added that Mr. Adams supported the de Blasio administration’s plan to open shelters around the city and distribute them evenly in different neighborhoods.

At a series of contentious community meetings, Mr. Brown spoke passionately about the importance of opening the Crown Heights shelter.

“At the end of the day, everyone deserves a place to live,” he said.

Mr. Brown had another reason to push for this particular location: He was an owner of a company that would rent the building to CORE, according to city records. It was one of two rental companies tied to Mr. Brown that have worked with his nonprofit, records show.

The nonprofit said it paid rent to Mr. Brown’s companies because he had contributed his own money to the development of buildings used as shelters, and the city had approved the deals.

Since the Crown Heights shelter opened in 2017, more than $3 million in rent has gone to Mr. Brown’s company.

Moldy bacon and powdered eggs

As CORE grew, much of its spending went to outside companies to provide building security and food for clients. But the catering companies provided frozen meals that ignored dietary needs, and the security guards were “unprofessional and unreliable,” CORE said. The vendors also grew frustrated and threatened to cut off services because the city was slow to pay them, a common complaint among shelter operators.

Mr. Brown believed he could do a better job, three former employees said.

“Jack wanted to expand, and it was a smart business move on his end,” said Najjiyya Smith, a former CORE employee. “He wanted to keep that money in house.”

In 2017, Mr. Brown founded ProCORE, a security guard company; Flavor Foods, a catering company; and CORE Facilities Management, a maintenance company, according to articles of incorporation. He became chief executive of each one. In 2019, he collected $520,000 in salaries from these three companies, on top of the $529,000 he received from the nonprofit group, according to the forensic audit of CORE, which was reviewed by The Times.

At Beach House, more than a dozen residents interviewed by The Times criticized the services that CORE’s new companies provided. They said the caterer frequently served them moldy bacon, undercooked meatloaf and powdered eggs, leading to bouts of diarrhea and stomach cramps.

The security guards often slept on the job and failed to stop open drug use and violent fights, some said. Almost all the residents who were interviewed said they had developed coughs and breathing problems from mold and moisture that had seeped into their rooms.

“It’s hell in here,” said Tracey Covington, 58, who said she has lived in the shelter for about a year with her brother.

Bobby Brown, who said he has lived in Beach House for about nine months with his wife, said he was told CORE had specialists on staff to help him find a job and apply for affordable housing. But he said he has done almost everything on his own.

“It’s a big joke,” he said. “They don’t do nothing. And ain’t nobody holding them accountable.”

In statements, both CORE and the city said they had never received any formal complaints from clients claiming that the food had made them ill.

“The health and safety of our clients is CORE’s highest priority, and we take all resident complaints related to violence and drug use in our facilities seriously,” CORE said in its statement.

Nonprofit groups that receive city money are required to solicit at least three independent bids for most contracts in order to control costs. But CORE violated those rules, according to the auditor’s report. Instead, the companies founded by Mr. Brown were simply handed millions of dollars in business.

CORE said in its statement that it did not believe it had to seek bids for those contracts, under its interpretation of city rules.

Even after CORE was required to get outside bids last year, the companies tied to Mr. Brown still won the business, though they did not always offer the lowest price, according to city records. Executives at a rival catering company recently grew so frustrated after losing work to Flavor Foods that they filed a complaint with the city Department of Investigation, according to a person familiar with the matter. A department spokeswoman declined to comment.

Mr. Brown’s connections have helped his family members as well. CORE said in its statement that Mr. Brown’s relatives, including his brother and mother, were hired based on their qualifications and were not supervised by Mr. Brown.

“Out of more than 1,100 employees, only five are related to Jack Brown,” CORE said in the statement.

Mr. McGinn, with the Department of Social Services, said that the agency had not been aware that Mr. Brown’s family members were working for the nonprofit group.

In August, about two years after the city said it had first raised concerns about CORE’s spending, a top city contracting official told the organization he believed it was double billing the city because Mr. Brown was collecting a salary from both the charity and the for-profit companies for overlapping work, according to emails reviewed by The Times.

“Any potential double billing in violation of city policy is very troubling,” the city said in a statement.

Last month, as The Times was finishing this story, the city ordered CORE to close the companies altogether, citing the group’s repeated failures to follow rules. In its statement, CORE denied engaging in any double billing.

Still, the group has been expanding. It has won a $60 million contract to run a federal halfway house in Washington, D.C., and recently was on track to take over the operation of a public golf course in the Bronx through a contract with the city. This week, CORE pulled out of the golf course deal after it was reported in the local news outlet The City.

And despite years of concerns, Mr. Brown’s nonprofit has received $104 million in city funding for homelessness this year. It is one of the largest payments to CORE yet.

Michael Rothfeld contributed reporting. Susan C. Beachy contributed research.