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L.A. accuses housing developer of 'pervasive fraud,' seeks $182 million

April 25, 2011 | 12:13 pm

This post has been corrected. See the note at the bottom for details.

The city of Los Angeles has filed a lawsuit seeking $182 million from a developer of affordable housing, accusing it of engaging in “pervasive fraud” as it obtained city funds to build 15 apartment buildings across the city.

In documents filed Thursday, city officials said Los Angeles-based Advanced Development and Investment overstated the cost of its residential buildings by as much as 30% as it obtained $29 million in city funds for new buildings in Echo Park, Koreatown, South Los Angeles and other neighborhoods.

The city’s lawyers said ADI, whose projects are already the subject of a federal investigation, destroyed records and refused to turn over documents after the City Council issued 108 subpoenas seeking documents on the company’s billing process.

“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 City Atty. Carmen 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 Monday.

Until the amount of fraud is determined, city officials have called on a judge to force ADI to place $182 million in a trust.

City officials learned of possible wrongdoing in October after The Times reported that a court-appointed receiver had identified “potential fraud and criminal activity” at ADI’s projects in Glendale and elsewhere. That receiver, attorney David Pasternak, uncovered those issues as a result of a divorce case involving Salim Karimi, the company’s former president, and his wife Jannki Mithaiwala, the daughter of the company’s founder.

Thomas Mesereau, the attorney for Karimi, said he had not seen the city’s lawsuit but denied any wrongdoing by his client. “He did not commit any crime or do anything unethical or unprofessional at any time,” Mesereau said.

Last fall, Pasternak produced a report that warned that ADI had submitted fraudulent bills to the cities that financed their projects and had failed to keep proper records on more than $650 million that flowed through its checking accounts.

A subsequent Times investigation found that ADI and its subcontractors had given more than $400,000 in campaign money to state and local officials, including at least $165,000 to candidates for office in Los Angeles over a decade. Four subcontractors told The Times that they were pressured by ADI executives to contribute to politicians and felt they risked losing future work with the company if they said no.

The lawsuit, which was also filed against ADI’s construction arm, Pacific Housing Diversified, offered some examples of what it described as overbilling. In Koreatown, an ADI subcontractor submitted a $75,600 invoice for glass work at a Harvard Circle residential project. ADI’s invoice, however, said the work cost $190,000, according to the lawsuit.

In Historic Filipinotown, an ADI subcontractor said it had provided $50,000 worth of framing at the project known as The Mediterranean. A falsified version of the invoice said the work cost $396,000, the lawsuit contends.

For the record, 1:58 p.m. April 25: An earlier version of this post said the city attorney's lawsuit was filed Friday. It was filed Thursday.


Document: Read the full lawsuit filed against ADI

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-- David Zahniser and Jessica Garrison at Los Angeles City Hall