Mount Vernon Mayor Ernie Davis is the target of a federal investigation into how he obtained the money to buy more than $1 million worth of residential properties in four states, federal law enforcement sources told Newsday.
Investigators from the FBI and the IRS Criminal Division are probing three nonprofit funds Davis established, as well as payments he received from rental properties -- including two in Manhattan, sources said. Davis owns residential properties in New York, North Carolina, Virginia and Florida, records show.
The 74-year-old mayor shrugged off the investigation, insisting he has done nothing wrong.
"I've paid my taxes," he told Newsday during a phone interview Sunday. "All the money in the funds is there or accounted for."
Davis has not been subpoenaed, but he has hired high-powered lawyer Jeremy Temkin, a criminal tax specialist who is a partner in the firm Morvillo-Abramowitz, which represented Martha Stewart in her insider trading case.
A spokesman for U.S. Attorney Preet Bharara declined to confirm or deny whether his office is investigating Davis. Law enforcement sources told Newsday that the U.S. attorney's public corruption unit is leading the inquiry, but no timetable has been set for the matter to go before a grand jury.
Investigators have interviewed several tenants who live at the two properties Davis owns in Manhattan, sources said, adding that they are attempting to determine whether Davis failed to report as income rent paid in cash by some tenants.
Davis confirmed that he bought a brownstone on West 141st Street in Harlem in 1978 and that he purchased a Sylvan Terrace town house in Washington Heights, Manhattan, in 2001. New York City records show that Davis owns both properties, with each housing about a dozen residents.
A tenant at the Sylvan Terrace complex told Newsday that Davis is a good landlord, noting that there have been no problems with the buildings.
"He's a good person; that's all I know about him," said Leslee Smoke, 61, who has lived in Sylvan Terrace since 2011. She said he hasn't increased her rent, which she said she pays by check, since she moved in.
She said she hasn't been contacted by federal authorities.
One tenant, Davis said, did pay him in cash -- $500 a month -- but the mayor said he claimed it on his tax returns.
"Whether tenants paid by check or by cash, I reported all rental income," he said. "I actually have lost money on those two buildings due to rising fuel costs, real estate taxes and utilities."
The married father of two grown daughters earns more than $209,000 from his mayoral position and a state pension.
In addition to the two Manhattan properties, a waterfront condominium in Yonkers and his family home in Mount Vernon, records show Davis owns:
• A 2,000-square foot, single-family home in Matthews, N.C., a suburb of Charlotte, where Davis grew up, that he bought for $249,000 in April 2008.
• A condo in Delray Beach, Fla., that was purchased in his and his wife's names for $180,000 in 2009.
• A two-bedroom condominium in Virginia Beach that he bought in 1988 for $68,900.
Davis owes $4,255 in taxes dating back to 2010 on his Water Grant Street condominium in Yonkers. At a tax certificate auction in August, an unidentified investor picked up the lien on his property, which Davis must repay -- at 12 percent annual interest. It isn't clear whether he has paid that off.
In addition to the property purchases, federal investigators are probing at least three nonprofit funds established by Davis.
The Ernest D. Davis Endowment Fund, set up in 2001, totals about $49,000 and lists the mayor's Mount Vernon residence as its mailing address. The nature of the fund could not be determined and Davis declined to discuss it.
The Ernest Davis Scholarship was established by Davis in 2002. More than $80,000 was collected from 2002 to 2004. The most recent financial statement shows $42,420 was in that fund as of 2004.
The Mount Vernon Disaster Relief Fund was formed in 2006 in the wake of Hurricane Katrina. About $12,000 was raised and $1,500 was given to a woman who relocated to Mount Vernon after the 2005 Category 3 hurricane killed at least 1,833 and devastated the Gulf Coast region. The fund now has $11,167 in it, records show.
Davis contends that he wasn't authorized to write checks from any of the funds. He said the disaster relief fund's board members and registered agents -- including Nichelle Johnson, the city's corporation counsel, and Thomas Terry, the commissioner of the city's Department of Management Services -- were in charge of the checkbook.
Johnson said Monday that she had been in contact with federal investigators since two former secretaries of the disaster relief fund -- Dulce Lima and Ruby Lohse -- received federal subpoenas last week. She declined to elaborate or comment on the investigation by the IRS into the relief fund.
"Am I aware that subpoenas have been issued to city employees? Yes," she said. "Am I at liberty to discuss that? No."
Terry did not respond to repeated requests for comment.
The Scholarship Fund's board members in 2004 -- Mary E. Fleming, John Maddeo and Barry McCormick -- were authorized to write checks from that fund, Davis said. The fund paid out a little more than $12,000 to six students, records show. Neither Fleming, Maddeo or McCormick could be reached for comment.
The investigation is not the first time federal agents have probed Davis' administration. In 2007, as he was running for re-election, the FBI raided City Hall, including Davis' office, as part of a corruption probe into the Department of Public Works.
DPW Supervisor James Castaldo and reputed mobster Alberto Tranquillo were convicted and sentenced to federal prison for conspiring to bilk the city of more than a $1 million in a trash removal contract.
No charges were brought against Davis, but he lost the primary a few months later, ending his 12-year tenure as mayor. Davis was re-elected to the city's top job in November 2011.
He called the current investigation into his finances a "misuse of power" by federal authorities.
"Something smells bad here," he said. "I'm just trying to figure out where the hell this is coming from."