SPECIAL REPORT/by Jack Meyers, Maggie Mulvihill and Jonathan Wells
Tuesday, December 19, 2000 Boston Herald

First in a two-part series.

The director of the MBTA Retirement Fund received thousands of dollars in apparent kickbacks from a convicted racketeer who landed $7 million in loans from the pension fund.

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John J. Gallahue Jr., executive director of the $2 billion MBTA Retirement Fund, allowed the racketeer, Francis K. Fraine, to pay for at least $8,000 worth of construction work on his new home in Milton, according to records obtained by the Herald and sources familiar with the arrangement.

Fraine also was extensively involved in arranging and supervising virtually all aspects of what has become a major overhaul of Gallahue's house at 191 Lyman Road.

Fraine's work at Gallahue's home began in October 1998, just three months after Gallahue orchestrated the first of a series of loans to Fraine's companies that eventually totaled $7 million. Fraine's work on the house continued into this year.

Records related to Gallahue's home renovations show Fraine paid for work done by two heating and air conditioning contractors, was billed for the architectural drawings for the project, and arranged and supervised other work at Gallahue's house.

``Frank coordinated all the work'' at Gallahue's house, said a source familiar with Fraine's role.

The apparent kickbacks are likely to raise the stakes for Gallahue in ongoing investigations by the FBI and Massachusetts Attorney General's Office into corruption at the MBTA employee pension fund.

Those probes were triggered by a series of Herald stories in September which revealed the pension fund's multimillion dollar loans to Fraine, a convicted felon, and detailed Fraine's ties to the organization of notorious South Boston crime boss James J. ``Whitey'' Bulger.

Fraine is best known for plotting the devastating Symphony Road arson fires in the 1970s and then testifying against his co-conspirators after the state agreed not to indict him. In 1979, Fraine was convicted of racketeering in connection with an arson fire in Ohio.

It was also reported in the Herald stories that Fraine returned a disputed $100,000 down payment to Gallahue's then-girlfriend after Gallahue arranged the first loan from the MBTA Retirement Fund for $1.9 million.

If it is determined that the apparent kickbacks influenced actions taken by Gallahue, both he and Fraine could face charges for bribery, fraud and corrupt payments.

Gallahue's receipt of apparent kickbacks may also violate the fund's own code of ethics, which prohibits fund employees from accepting anything of ``substantial value'' from anyone doing business with the fund. ``Substantial value'' is defined as $50 or more.

Violation of that code ``shall be grounds for immediate termination of the relationship between the violator and the Fund,'' the code reads.

As executive director, Gallahue is paid $180,000 a year to manage the pension fund's day-to-day operations and make recommendations to the six-member MBTA Retirement Board on how to invest employee retirement money.

Gallahue did not return Herald phone calls yesterday. A spokesman for the board, Alan Eisner, said, ``The board has no knowledge of that information and as a result has no comment.''

Reached through his lawyer yesterday, Fraine declined comment.

However, a source close to Fraine said Gallahue has not reimbursed Fraine for any of the work done on his house. In one instance, the source said, Fraine sent a bill to Gallahue for some of the work, but the executive director never responded.

Right from the start, Fraine was in charge of the ambitious expansion and renovation project Gallahue began on his home shortly after he bought it in October 1998.

On Oct. 20, just five days after Gallahue closed on the property, it was Fraine who signed the Boston Gas work order necessary to connect the house to the utility's pipeline.

Over the next few weeks, Fraine made arrangements for DiLorenzo Corp., an Everett contractor which works for Boston Gas, to install the new gas line. Records show that on Nov. 9, 1998, Fraine received a phone message from someone at DiLorenzo Corp. which read: ``Re: 191 Lyman St. Call to schedule appt to install gas service.''

Two days later, Fraine got another message from the same company: ``Wants to schedule gas service install for Lyman St. He'd appreciate a call.''

Once the connection between the street and the house was finished, another contractor, Hughes Mechanical of Quincy, installed the gas furnace, hot water heater, and dryer at Gallahue's house. But the MBTA Retirement Fund boss did not pay for that work.

Instead, in December 1998, Laurel Development, a company controlled by Fraine, paid Hughes Mechanical for the work on Gallahue's house.

On Dec. 2, Fraine signed a $3,000 check from Laurel Development's BankBoston account to Jeff Fantasia of Hughes Mechanical and noted that the payment was for ``Gallihue's (sic) (Milton).''

Eight days later, Fraine wrote a second $3,000 check to Fantasia, again with a notation on the memo line indicating it was payment for work on Gallahue's house.

And records show that Fraine paid for more work at Gallahue's house.

An accounting entry for one of Fraine's companies, Kirstin Corp., lists a payment to Cold Flow Heating and Air Conditioning of $978.70 on Sept. 10, 1999. The work performed by Cold Flow is identified as ``Gallihue (sic) house.''

In February of this year, the Cambridge architect who designed the second-floor addition to Gallahue's house billed the work to one of Fraine's companies, according to an invoice obtained by the Herald.

The invoice from architect Niles O. Sutphin, dated Feb. 29, 2000, is titled ``J. Gallahue Residence Renovation/Addition'' and seeks payment of $832 for the following professional services:

``Visit to project site - measure existing building and photograph; Design new 2nd Floor Addition to include new M. Bedroom/Bath and 2 additional BRs; Produce preliminary architectural plans #A-0; #A-1 through #A-4, dated 2/24/2000.''

The description of services ends with, ``Revise plans after Fraine review of design with Gallahue.''

The bill is addressed to Adam Corp. to the attention of ``Mr. Frank Fraine.'' Adam Corp. was the first of several Fraine-controlled companies to receive loans from the MBTA Retirement Fund.

The Herald reported in September that it was Fraine's Adam Corp. that received the $1.9 million loan in July 1998 for a 20-unit condominium project at 111 West Eighth St. in South Boston.

Three weeks after he deposited the pension money, Fraine used $85,000 from Adam Corp.'s account to finish paying back Gallahue's then-girlfriend, Anne F. Holloran, on a soured real estate deal.

Now records show that many of the same contractors Fraine hired to work on the MBTA pension fund-backed South Boston project also did work on Gallahue's personal residence.

``All of the people working on Gallahue's house are subcontractors on Fraine's projects,'' said one source familiar with Fraine's dealings.

Sutphin has been Fraine's architect of choice since the 1980s. For example, he drew up plans for Fraine's development projects with Whitey Bulger's convicted money launderer, Kevin P. O'Neil, as well as Fraine's projects financed by the MBTA Retirement Fund.

Hughes Mechanical and Cold Flow Heating and Air Conditioning worked on both Fraine's West Eighth Street project and Gallahue's Milton home, sources said.

Two other contractors, Barry Mullally and Michael D. McNally, pulled building permits on 191 Lyman Road and are the general contractors on Gallahue's $60,000 renovation.

Mullally and McNally did interior work on the South Boston condo project, according to a source.

Coming tomorrow: More apparent kickbacks to another MBTA pension official.

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