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L.A. sues low-income housing developer, alleging 'racketeering' and 'huge fraud'

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  • L.A. sues low-income housing developer, alleging 'racketeering' and 'huge fraud'

    City lawyers say ADI inflated its bills on more than a dozen public housing projects, costing the city an estimated $30 million to $180 million, and destroyed or falsified records. Glendale has also filed suit.

    The cities of Los Angeles and Glendale have filed fraud lawsuits against one of the region's biggest developers of low-income housing, revealing new details about how the politically connected firm allegedly misappropriated public money.

    When Advanced Development and Investment Inc. used $2.6 million in L.A. housing funds to build apartments known as The Mediterranean, the company reported spending $396,000 for framing. The real cost, according to a lawsuit filed late last week, was $50,000.

    In East Hollywood, where the developer built Harvard Circle using $3.9 million in city funds, the company reported $190,000 for glasswork. The city contends that work cost $75,600.

    And so it went, according to the suit, in 15 low-income projects paid for with $29 million in city funds over roughly a decade: ADI allegedly reported much higher construction costs than it actually incurred, pocketing the difference. Lawyers estimate that the city could be on the hook for losses between $30 million and $180 million.

    The city of Glendale, from which ADI received roughly $34 million since 2005 for four projects, also filed suit, accusing the company of millions of dollars more in fraud.

    The allegations against ADI came to light last year as a result of a divorce case involving the company's president, Salim Karimi, and Jannki Mithaiwala, the daughter of the company's founder, Ajit Mithaiwala. The judge appointed a receiver who examined the company's books and reported that he had discovered "potential fraud and criminal activity."

    ADI has built more than 50 projects in California. In addition to getting money from cities such as Glendale and L.A., the company has received millions of dollars in tax credits awarded by the state to firms that build low-income properties.

    The U.S. attorney in Los Angeles has also opened an investigation.

    Thomas Mesereau, the attorney for Karimi, said he had not seen the Los Angeles lawsuit. But he said his client "did not commit any crime or do anything unethical or unprofessional at any time." In the past, a lawyer for Ajit Mithaiwala has also denied that his client committed crimes.

    After The Times reported on the alleged fraud, L.A. City Council President Eric Garcetti asked City Atty. Carmen Trutanich to take action, saying that he was concerned that "fraud may have been perpetrated against the city."

    The Times' investigation found that L.A. officials collected more than $165,000 in campaign contributions from ADI and its subcontractors. Some of those subcontractors told The Times they had been pressured to give by ADI managers.

    City Ethics Commission records indicate that Garcetti received $500 from ADI — far less than several of his colleagues. Mayor Antonio Villaraigosa received at least $28,000 from ADI and its subcontractors between 2003 and 2008. Councilman Ed Reyes, whose district has 18 ADI projects, got more than $18,000 between 2001 and 2004.

    Trutanich's office launched an investigation and filed a 49-page lawsuit accusing the developer of "pervasive fraud," saying that the company had overstated costs by up to 30% at buildings across the city.

    The city's lawyers said ADI destroyed records and refused to turn over documents after the City Council issued 110 subpoenas seeking records of the company's billing.

    "We've alleged that they created false documents, made false claims, withheld documents they were required to provide, and then transferred those moneys overseas to prevent the city from recovering those funds," said William Carter, head deputy for Trutanich.

    "It's your classic racketeering activity and … the loss is anywhere between $30 [million] and $180 million. It's a huge fraud upon the city," Carter said.

    Until the amount of fraud is determined, city officials have asked a judge to force ADI to place $182 million in a trust. Carter said the city could be on the hook for that amount if the complicated financing deals fall apart.

    The receiver appointed in the divorce proceeding, David Pasternak, has continued to investigate the company's activities.

    Last fall, Pasternak hired building inspectors who visited each of ADI's affordable housing projects and found an array of problems, including cracked stucco; leaky roofs, windows and pipes; exposed wiring; and stairwells that reeked of human urine. Some were in extremely poor condition for their age, inspector James Montgomery wrote in one report to Pasternak.

    At Harbor City Lights, one of the 15 projects built with city money, inspectors found cracks in the stucco exterior "due to improper construction techniques and or poor quality of construction materials," according to documents filed in court. At Manitou Vistas, an apartment building that opened in Lincoln Heights last year, inspectors found railings with peeling paint and decks with leaks in them.

    Similar flaws were found at ADI projects in Los Angeles that did not receive city funds, but did receive tax credits. In Winnetka, inspectors found water stains from a leak in a community room. In North Hills, they found roaches and mice. And at Mission City Lights, a 46-unit building that opened in 2002, they saw roaches in the empty apartments and rotted subfloors in the hallways.

    Montgomery, the inspector retained by Pasternak, was especially baffled over flooding at an underground garage at Huntington Hacienda apartments in El Sereno. "The lower garage … is a mystery to me," he wrote. "I found evidence of flooding, but it should be fixable. Maybe the repair cost was more than ADI's management was willing to pay so they just locked the doors and ignored it."

    Los Angeles officials noted in their lawsuit that they would never have discovered the alleged fraud if not for the divorce case that caused the receiver to be appointed.

    The couple is now trying to terminate Pasternak and have the court force him to relinquish control of the companies.

    http://www.latimes.com/news/local/la...,1471394.story
    Facts do not cease to exist because they are ignored. -- Aldous Huxley
    Two things are infinite: the universe and human stupidity. -- Albert Einstein

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