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Even before tenant organizers and housing officials began warily eyeing Frank Palazzolo’s real estate operation, a different investigation was already wrapping up. In March 2002, two landlords operating out of Palazzolo’s Westchester headquarters pleaded guilty to criminal charges stemming from a scheme to pad rent rolls with emergency welfare payments intended to benefit their tenants.

One of the landlords was Eric Gladstein, who until early 2002 was an owner of 3569 DeKalb Avenue, where 8-year-old Jashawn Parker died later that year. The other was a woman named Deborah Pollock, who admitted to orchestrating an elaborate scam that funneled extra cash into owners’ coffers.

The funds were awarded to the landlords for an ostensibly worthy cause: Under a rent supplement program known as Jiggetts, for a 1988 legal case that claimed the low rent subsidies paid to welfare recipients were fueling the rise in homelessness, owners were given increased payments—often as much as double the existing rent—for tenants facing eviction.

In the scam version, however, landlords filed bogus eviction notices, which were then expedited by Pollock, who ran a nonprofit organization with a presence in Bronx Housing Court.

Pollock was well-poised to pull this off. She had close ties to top officials at the city’s Human Resources Administration, which oversees welfare programs. She was also 50 percent owner of two run-down Bronx apartment houses managed from Palazzolo’s Westchester offices and owned under the name of Palazzolo Management Corp.

Pollock and Gladstein’s roles were explained in a little-noticed 23-page report issued in April 2002 by the state’s welfare inspector general titled “Defrauding HRA.” Investigators, the report stated, identified 69 fraudulent Jiggetts applications submitted by Pollock on behalf of Gladstein and other landlords dubbed by investigators as the Palazzolo Group because they shared office space at the Westchester headquarters. All told, the landlords collected more than $11.3 million in the rent supplement money, even though their buildings were “replete with poor and unsafe conditions,” the report stated.

The scheme, investigators wrote, made tenants “pawns of landlords,” who moved them into the Jiggetts program only in order to hike rents collected from the city. At the same time, the owners faced some 15,700 city housing code violations in at least 59 buildings where the scheme was employed, according to the inspector general’s tally. Meanwhile, tenants “were denied their day in court,” the report stated, since they never got the chance to argue “that their landlords should make needed repairs before Jiggetts increases were paid.”

But like the rest of those who tried to untangle exactly how things worked inside Palazzolo’s headquarters, the investigators came up short.

When they attempted to interview Frank Palazzolo about his business dealings, they wrote, “he declined to answer our questions.” Current state welfare inspector general Sean Courtney, who authored the report and helped direct the prosecution of Pollock and Gladstein, told us that Palazzolo was polite but silent.

“We made an attempt to depose him,” Courtney said. “He asserted his Fifth Amendment rights and refused to answer questions.”

State attorney general Eliot Spitzer, whose office helped press the criminal case at the time, called the scheme “as cynical a crime as you can possibly imagine.” But neither Pollock nor Gladstein received jail time. Pollock was sentenced to a three-year conditional discharge plus 1,000 hours of community service and $100,000 in restitution. Gladstein was ordered to pay $40,851.

A few years later, however, New York City’s corporation counsel brought civil racketeering charges against Gladstein and Pollock, arguing that their fraud had shortchanged the city. In March 2006, they were found liable and ordered to pay $215,000 in damages. Court records show they anted up as ordered. It didn’t put any obvious dent in Gladstein’s lifestyle, however. Reporters found him walking outside his massive home in Armonk protected by large iron gates. He declined to discuss anything about his real estate practice with us. Pollock, who later moved out of the city, couldn’t be reached.