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October 2016


How to Become a Bounty Hunter

Robin Hood in Reverse — A $1.1 Million Scam


By Greg Stejskal

In 2005 Female Jones (not her real name), an indigent woman living in public housing in Ann Arbor, Mich., discovered she wasn’t eligible for federal housing assistance. The reason she wasn’t eligible was because it appeared she was already receiving “Section 8” voucher payments. Jones wasn’t aware of receiving any assistance. So it was assumed that there was a bureaucratic snafu, but an investigation revealed something far more nefarious.

Section 8 vouchers are so-called because they are authorized under Section 8 of the Federal Housing Act of 1937, part of the New Deal legislation designed to help people suffering the effects of the Great Depression. In 1974 the Housing Act was amended to create the Section 8 voucher program. Low income people would be eligible for vouchers that would pay a percentage of their rent in approved housing facilities. The money for the program would be provided by U.S. Department of Housing and Urban Development (HUD), but the program would be administered by the state and local public housing agencies.

There was only a limited amount of funding available. So not all eligible people would receive vouchers. In Michigan a waiting list existed and waits of 3-6 years were not uncommon.

Greg Stejskal

Greg Stejskal

The voucher payments were made directly to the indigent tenants’ landlords to minimize the opportunity for fraud. Housing voucher agents working for the state prepared the application forms for the indigent applicants. These agents obtained background information and determined whether the applicants met the eligibility requirements.

Female Jones’ caseworker determined that she was enrolled in the Section 8 program, and voucher payments were being sent to Washtenaw Payee Services, a company that appeared to receive Section 8 payments on behalf of several landlords in Washtenaw County. Because the woman was unaware of the payments, and they were not being received by her landlord, the caseworker reported the problem to the Michigan State Housing Development Authority (MSHDA).

MSHDA’s initial investigation indicated there might be some fraudulent activity. As the Section 8 program is federally funded, they reported their concerns to the FBI, and a joint FBI/MSHDA investigation was begun.

Although Washtenaw Payment Services (WPS) appeared to have an office with a street address, it turned out to be a private mailbox service which is often a red flag in a fraud investigation.

The bank records for WPS were obtained via subpoena. Those records showed that WPS was formed in 1990 when LaToya Cotton filed business papers with Washtenaw County and opened a bank account. Since 1994, about 11 years, WPS had been receiving Section 8 voucher payments ostensibly for landlords of low-income tenants enrolled in the program.

The striking thing was the founder of WPS, LaToya Cotton, was a Michigan housing agent responsible for enrolling prospective low-income applicants for Section 8 vouchers. But even more troubling, it didn’t appear that any money had been paid from the WPS account to any landlords on behalf of the Section 8 enrollees.

LaToya Cotton became a Michigan housing agent for MSHDA in 1994. Very soon thereafter she concocted her scheme.

Prior to becoming a housing agent Cotton had setup the WPS account for a legitimate purpose. But after becoming an agent and enrolling applicants for the Section 8 program, she designated WPS as the recipient for some of the applicants’ landlord payments. When the WPS applicants were approved for Section 8 payments, Cotton didn’t tell them they had been approved. Rather, she told them they were not approved, or that they were on the waitlist. None of those enrollees were ever aware that they had been approved for Section 8 payments.

In September 2005, the FBI obtained a search warrant for Cotton’s office. The records seized revealed that during the 11 years that Cotton was a housing agent, she enrolled 100s of Section 8 applicants. Of those applicants she designated WPS as the recipient of landlord payments for about 40 of the enrollees. Cotton would periodically change the WPS enrollees, removing some and adding others. At the time her office was searched, she had eight enrollees whose voucher payments were going to WPS.

All of the money paid into the WPS account was used by Cotton for personal expenses. Over the 11-year period of the fraud, the total amount paid into the account was $1,051,701. She purchased cars, went on vacations. In April 2004, Cotton purchased a 5,237 square foot home for $830,000.  MSHDA figured that the amount embezzled by Cotton could have subsidized housing for 50 families for more than four years.

In January 2006, in front of US District Court Judge Patrick Duggan (The father of current Detroit Mayor Mike Duggan – ironically the mayor has been trying to turn Detroit around after it has been racked by years of public corruption.), Cotton pleaded guilty to a federal indictment charging her with theft from a federally funded program.

Judge Duggan in May 2006 sentenced Cotton to three and a half years incarceration, three years supervised release and ordered her to pay $1.1 million in restitution.  (Cotton’s house was forfeited and sold with the proceeds used to pay a portion of the restitution.)

At the time I was quoted as saying, “She (Cotton) was living in a mansion and there were low-income people on the Section 8 waiting list. It was Robin Hood in reverse.”


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