Land Bank corruption trial underway in Indianapolis

A bribery scandal that prompted federal agents to raid the City-County Building in 2013 is now playing out in a federal courtroom.

Opening arguments were delivered this week in the trial of Reggie Walton, Indianapolis' former assistant administrator of abandoned buildings, who is accused of cherry-picking lucrative properties for private developers in exchange for monetary kickbacks.

Walton faces counts of wire fraud, bribery and conspiracy to commit money laundering, three charges that combined could result in up to 50 years in prison, said Tim Horty, a spokesman for the U.S. attorney's office, which is prosecuting the case.

Walton ran the Indy Land Bank — a depository of abandoned properties which the city would acquire and cleanse of their delinquent taxes and liens in order to sell them back to private entities for redevelopment.

But over the coming days of what is expected to be a three-week trial, federal prosecutors will lay out a case that Walton used his position to pocket profits for himself and his partners.

The defense, meanwhile, will acknowledge that Walton made mistakes during his tenure, but didn't commit any federal crimes.

Walton is being tried along with alleged co-conspirator David Johnson, who prosecutors say served as a middleman in the kickback scheme. Johnson, the executive director of the nonprofit Indiana Minority AIDS Coalition, faces wire fraud and other charges in the joint trial. Both Walton and Johnson have pleaded not guilty.

Nonprofits run by Johnson and others were key to the alleged scheme, prosecutors say.

While private developers can only buy Land Bank properties at auction for their appraised value or higher, nonprofits can buy them at a discount — as low as $1,000 and no higher than $2,500 — designed to make it easier for neighborhood-oriented groups to redevelop blighted areas.

Walton would allegedly bundle and sell the most appealing properties to selected nonprofits, who would then flip them to private developers at a profit, spreading the earnings among the participants.

Walton and Johnson also are accused of preying on 14 home buyers who had fallen victim to a separate housing scam. The victims bought the homes from two women who claimed to own them, but didn't, and were later convicted of fraud.

The Marion County prosecutor's office had enlisted the city's help in assisting the victims. Some of the homes were already owned by the Land Bank, and the city agreed to sell them to the victims for $1,000. Others were offered a chance to buy other Land Bank homes for the same price.

But with Johnson's organization again serving as middleman, the victims were charged an additional $4,000 cash at closing, the indictment alleges.

Walton also is accused of directing city mowing business to contractor Mark Harsley in exchange for a promised kickback.

Since the indictments were released in May 2013, three others have pleaded guilty to taking part in the broader scheme.

John Hawkins, once a project manager for the Department of Metropolitan Development, pleaded guilty in June to wire fraud. Aaron Reed, a friend of Walton, pleaded guilty a short while later to wire fraud and bribery.

A middleman, Randall Sargent, president of the nonprofit New Day Residential Development, subsequently pleaded guilty to wire fraud and bribery, Horty said.

In a court filing, Sargent admitted to giving Walton a $500 bribe for his role in selling five homes to New Day for $2,500 each in March 2013. The homes were then sold to private developers for $10,000 each, a profit of $37,500.

The Land Bank, designed to serve on the front lines of the city's war on blight, snapped up more than 1,000 abandoned properties in the aftermath of the housing crisis. But what was meant to be a lifeline for distressed neighborhoods became a stain on the city when the federal indictments came down.

To restore public confidence, the Land Bank has since been placed under the authority of an independent board and rebooted under the name Renew Indianapolis.

Along with documents seized during a May 2013 raid of Land Bank offices, prosecutors are expected to present the jury with secret recordings of telephone conservations that they say Walton had with an undercover FBI agent in which kickbacks are specifically mentioned.

In his opening statement, Walton's attorney Michael Donahoe urged jurors to judge his client "on his actions, not his words." He said his client is guilty of "poor judgment" and ethical lapses, but not a crime.

"He embellished, he exaggerated, he was fast and loose with his words," Donahoe said, according to The Associated Press. "It was almost like a job interview. He was trying to impress people."

The Associated Press contributed to this report. Call Star reporter Brian Eason at (317) 444-6129. Follow him on Twitter: @brianeason.