Published: Wednesday, 12 Aug 2009 | 11:30 AM ET

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The Waterfront Commission of New York Harbor, created in the 1950s to break the mob’s grip on the docks, became its own bastion of lawlessness, employing some of the same corrupt, self-serving methods as the gangsters it was supposed to pursue, investigators said Tuesday in a scathing report.

Top officials at the $11-million-a-year bistate agency divided spoils, helped cronies evade the law and thwarted security provisions meant to safeguard the port against terrorism, according to the report by the New York State inspector general, which capped a nearly two-year investigation in 2007 and 2008 that the commission had sought to block in court.

AP New York Harbor

As a result of the findings, virtually the entire executive staff has been ousted — with the New Jersey commissioner, Michael J. Madonna, a former police officer and union representative, dismissed last week, the commission revealed. The former New York commissioner, Michael C. Axelrod, who was also faulted for abuses, was not reappointed after his term ended last year.

New leadership was put in place starting last year.

“It was an utter disaster when we stepped in,” the inspector general, Joseph Fisch, said in an interview, calling the state of affairs then “a remnant and continuation of the old waterfront.”

Largely unscrutinized for more than half a century, the commission is a throwback to days when the gun and the knife ruled the nation’s shipping lifeline and a screenwriter named Budd Schulberg, who died last week, captured the violence and heroics for a film that became a classic, “On the Waterfront.”

With 100 employees and offices in Lower Manhattan, Brooklyn and Port Newark, the commission, created in 1953, licenses the 52 companies now operating on the waterfront and maintains a registry of nearly 6,500 longshoremen and other workers.

The 61-page report, deploring a “complete breakdown of the commission’s audit and enforcement functions,” found that the commission’s general counsel, Jon Deutsch, later fired, masterminded a scheme to conceal a convicted felon’s ownership of a company so he could continue to operate on the waterfront. It also found that federal antiterrorism grants were misused or could not be accounted for, calling for further investigation by the Department of Homeland Security.

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Mr. Deutsch, reached at home, said he had not yet read the report. Later, his lawyer, Lawrence S. Lustberg of Newark, called the inquiry “a witch hunt,” saying Mr. Deutsch had “persuasively rebutted every single one of the allegations” and had been denied a look at the draft. But Mr. Lustberg declined to cite any specifics.

The reported failings ranged from the critical to the comical. The report said the commission — often stalemated by differences between the two $43,500-a-year commissioners — abandoned background checks on the longshoremen who unload ships and the stevedoring companies that employ them, creating a critical breach in the nation’s security web. Instead, the report said, commission detectives spent their mornings parked in the commissioners’ designated parking spots in Lower Manhattan, guarding them from interlopers.

It portrayed the agency as a patronage-laden favor bank where staff members took cars for personal use, a boat that was bought with federal money to fend off a “waterborne attack” was used primarily to ferry V.I.P.’s during Fleet Week, and friends got friends jobs with high salaries and little work.

One detective failed his entry exam twice, for example — until Commissioner Madonna himself slipped him the test, the report said, and he ended up turning in the highest score in the history of the commission.

The detective later lied under oath about the matter and tried to get colleagues to falsely back him up, the report said. adding that the matter had been referred to the Manhattan district attorney for further investigation. Mr. Fisch said new leadership under the current New York State commissioner, Ronald Goldstock, a director of the New York State Organized Crime Task Force from 1981 to 1994, and a new executive director, Walter M. Arsenault, a former Manhattan homicide prosecutor, had implemented changes. “The commission investigated by the inspector general clearly no longer exists,” Mr. Arsenault said.

No one answered the phone at Mr. Madonna’s home in New Jersey. The inspector general wrote that Mr. Madonna “acknowledged that many problems existed in the agency, but refused to accept any responsibility,” placing the blame on commission staff members. Mr. Axelrod did not respond to a message left at his Long Island law office.

The waterfront was long notorious. The longshoremen’s union was once known as the “pistol local” because of frequent gunfire and murders, wrote Thomas A. Reppetto in his book “American Mafia: A History of Its Rise to Power” (Henry Holt, 2004); on rumors that one or another informer was about to squeal, high New York politicians suddenly dropped re-election plans.

In 1953, with Washington calling the port “a national disgrace,” President Dwight D. Eisenhower signed enabling legislation for a Waterfront Commission of New York Harbor “to investigate, deter, combat and remedy criminal influence in the Port of New York and New Jersey.”

But who, over the next half a century and more, was watching the Waterfront Commission?

No one, the inspector general reported. Only once in its more than 55 years was the agency examined — in 2005, when the New York State comptroller audited its hiring practices. But little came of it

The investigation, generated by an employee complaint, was referred to the inspector general’s office in May 2007 by Gov. Eliot Spitzer. His successor, David A. Paterson, who appointed Mr. Fisch, authorized expansion of the inquiry in cooperation with the office of the New Jersey governor, Jon S. Corzine.

Commissioner Madonna fought the investigators’ subpoena, until a federal court forced compliance, the report said.

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“The most egregious instances of misconduct” were committed by the general counsel and former licensing director, Mr. Deutsch, who was “plagued with conflicts of interest” before being dismissed last October, the report said. It said he covered up the drug-related arrest of a former state senator’s son who was hired for a stevedoring job and intervened on behalf of a friend’s father, Albert Cernades Sr., a longshoremen’s union official later indicted in a federal inquiry.

And, it said, Mr. Deutsch “fashioned a scheme” to allow a felon, Frank Cardaci, who had been convicted of federal charges of illegal domestic sales of goods intended for foreign shipment, to hide his ownership of a waterfront warehouse by placing it in his wife’s name.

It also found that none of the 53 stevedoring companies supervised by the commission had been granted permanent five-year licenses, as required, and that payroll audits of them were as much as 14 years behind.

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