Trollinger tells court he hid Pitt's interest

Tom Trollinger and Ernie Pitt, longtime friends, business partners and next-door neighbors, sat across a federal courtroom yesterday as Trollinger testified that Pitt had him buy some land to hide Pitt's conflict of interest in the deal.

Trollinger cleared his throat often as he admitted lying to federal investigators in the case, but he maintained that neither he nor Pitt were intending to defraud taxpayers of their money.

"My crime, if any, was just to conceal his interest," he said, referring to Pitt.

Trollinger, Pitt and Reid Lawrence, the former executive director of the Housing Authority of Winston-Salem, were indicted last year on wire- and mail-fraud charges stemming from a land deal in August 2003 in which East Pointe Developers bought the Lansing Ridge development at foreclosure, then sold the land to HAWS two days later at a steep markup.

Pitt was the chairman of the HAWS board at the time. He and Trollinger were partners in East Pointe. Several witnesses have testified that Pitt told them that he knew his position raised a conflict of interest if HAWS invested in the land.

Pitt is being tried this week in U.S. District Court on one count of wire fraud, two counts of mail fraud and three counts of money laundering. Like Trollinger, Lawrence has agreed to a plea deal. It's not clear if prosecutors will call on him to testify.

East Pointe Developers, Pitt and Trollinger's company, began to develop Lansing Ridge in the late 1990s. The development is off Carver School Road in northeast Winston-Salem.

Both men are prominent local businessmen. Pitt started The Chronicle, a weekly newspaper, and Trollinger owns Contract Office Furnishings. They began developing property after serving on a task force in the 1990s that searched for ways to redevelop the city's east side.

East Pointe sold Lansing Ridge to Wolfe Investments of High Point in 2002 because the development was taking up too much of their time, Trollinger testified.

Wolfe was supposed to finish the development and use money from housing sales to pay off a loan from a pension fund, and pay off a second mortgage that East Pointe had on the property to help Wolfe make ends meet.

When Wolfe fell behind on payments and the pension fund decided to foreclose, the possibility of foreclosure put the $183,000 second mortgage held by East Pointe at risk of being wiped out.

Trollinger said he bought the land for $285,000 at foreclosure to protect East Pointe's second mortgage and agreed with Pitt and Lawrence to hide Pitt's interest in the purchase. Then Trollinger transferred the bid in his name to East Pointe, and the company sold it to HAWS two days later for $414,000.

Trollinger said he transferred the bid to avoid some taxes. Pitt was upset that he did that, he testified.

Trollinger's signature is on the sale documents, not Pitt's, and Tonya Locklair, an attorney for HAWS, testified that Trollinger told her that he was East Pointe's only member. Pitt and Trollinger signed checks to each other a day after the sale to pay out the profits.

Pitt's attorneys, Mike Grace and Chris Clifton, showed witnesses yesterday several documents that note Pitt's connection to East Pointe. They have argued that the connection was common knowledge and that Pitt never intended to hide his involvement in the deal.

East Pointe borrowed about $450,000 in city money for development projects in the 1990s, and its proposals listed the company members. The proposals were approved by the Winston-Salem City Council (then called the board of alderman) and signed by city officials.

Mayor Allen Joines testified yesterday, acknowledging under questioning by Grace that he wrote three memos about East Pointe developments in the 1990s, when he was an assistant city manager.

Joines said he didn't know that Pitt was involved in the Lansing Ridge deal until months after the sale.

When federal housing officials discovered the conflict of interest and refused to let federal money be used, Joines called a meeting with Pitt, Lawrence and Locklair. Locklair testified Tuesday that Joines asked Pitt at the meeting if he benefitted from the sale and that Pitt said no. But Joines said he didn't remember asking that question.

He said that Pitt did not mention at the meeting his interest in the land or any profit he made.

The problems getting federal money were characterized as technicalities, Joines said.

Although Trollinger admitted lying to investigators, he said that part of the reason he was charged with lying was that he had misunderstood questions they asked him.

Trollinger said he agreed to the $414,000 price because Pitt and Lawrence asked him to honor the price that HAWS had negotiated with Wolfe Investments. The tax value is about $496,000.

"Did you feel like you were defrauding the housing authority in any way?" Grace asked Trollinger.

"No," he replied.

Trollinger declined to talk to a reporter as he left the courthouse with his attorney, David B. Smith.

The housing authority could have bid on Lansing Ridge at foreclosure, getting the property for far less than $414,000, according to testimony. And if it had missed the foreclosure auction, it had 10 days to make a higher bid, commonly known as an "upset bid."

But an upset bid by HAWS would have wiped out Trollinger and Pitt's investment in Lansing Ridge -- the second mortgage they held through East Pointe Developers.

Pitt made the motion at a meeting of the HAWS board in 2002 that allowed Lawrence to start negotiations to buy Lansing Ridge. Pitt gave several reasons why the land was needed, but he never mentioned his financial interest in it.

Both a former HAWS employee and a former consultant to HAWS testified yesterday that Lansing Ridge was not well-suited for the housing authority's needs. Buying it would have required federal housing officials to waive some of their guidelines to use the land, besides needing to disclose Pitt's conflict of interest, said the former consultant, Janet De Creny.

HAWS bought the land from East Pointe anyway, before asking for federal approval.

HAWS has yet to find a way to develop or sell it.

■ Dan Galindo can be reached at 727-7377 or at dgalindo@wsjournal.com.