Quarter-Billion-Dollar RICO Scam Alleged in L.A. & Glendale Housing Developments
LOS ANGELES (CN) - News that emerged from a divorce action led Los Angeles to sue Advanced Development Investment and others for $210 million, in a RICO complaint that alleges they defrauded the city for 17 years by overbilling for low-income housing projects, then secreted ill-gotten gains in India. Glendale filed a similar complaint, for another $33 million.
Los Angeles claims ADI, Ajit Development & Investment, Pacific Housing Diversified, and six people, including the companies' shareholders, officers, directors, agents and employees, profited from the RICO conspiracy for years, fraudulently getting money and loans from the city's Affordable Housing Trust Fund (AHTF), which includes state and federal money for development of affordable housing.
The defendants in the Superior Court complaint are Advanced Development Investment Inc., Ajit Development & Investment Inc., Pacific Housing Diversified Inc., Salim Karimi, Jannki Mithaiwala, Ajit Mithaiwala, Ulhas Jain, Ajeet Shah, Mamta Dhurandhar, California City Lights LLC, and SADI LLC.
In its 55-page complaint, the city says that from December 1992 to October 2009, it solicited competitive bids for development, construction and/or rehabilitation of 15 AHTF projects, and ultimately awarded all of them to the defendants.
Total AHTF funding for the projects was $29.8 million, while development costs were $182.6 million, according to the complaint.
On their face, the projects proceeded as expected, with the developers routinely submitting documentation for payment of construction costs and to qualify for tax credits.
But in October 2010 the city learned that all was not as it seemed. The realization came from news reports about the divorce of two defendants, Salim Karimi and Jannki Mithaiwala, according to the complaint.
The Los Angeles Superior Court appointed a receiver, David Pasternak, who took sole possession of the parties' shares of stock in the defendant companies. Soon afterward, "the receiver learned that ADI and PHD may have significant unpaid tax liability and that ADI [Advanced Development Investment] and PHD [Pacific Housing Diversified] had been operating for years without any legitimate accounting system," according to the complaint.
Pasternak hired a forensic accounting firm, Crowe Horwath, which concluded that the defendants had engaged in "pervasive fraud, horribly deficient record keeping, deficient banking operations, destruction of records to conceal fraudulent construction invoicing, [and] misappropriation of funds," the complaint states.
Pasternak has told the Superior Court that "ADI, PHD and each of the individually named defendants ... engaged in a pattern and practice of conspiracy to defraud the City of Los Angeles of low income and affordable housing funds through submission of fraudulent construction draws, invoicing and cost certifications which inflated construction costs bill as compared to actual costs," according to the complaint.
The city says the receiver is still trying to determine whether hundreds of millions of dollars or tax credits and other tax benefits were improperly claimed by investors in the projects.
In the Glendale lawsuit, the same defendants are accused of defrauding the city's housing authority of more than $33 million in the development of four affordable housing projects, between 2005 and 2010.
"Through the submission of fraudulent and inflated budgets, invoices, certifications, and draws, as well as falsified accounting records, waivers, and other loan documents, the defendants for their personal gain stole and misappropriated millions of dollars from the more than $33 million expended in subsidies by the Housing Authority for the Glendale Housing Developments," according to Glendale's complaint.
Glendale sued the same defendants as Los Angeles, and also sued Tina Mithaiwala, Metropolitan City Lights, Glendale City Lights, Metro Loma and the Vassar Project.
Glendale also sued Manta Dhurahdhar, which may or may not be a misspelling or respelling of the Mamta Dhurandhar sued in the L.A. complaint.
The cities seek special, general, consequential and treble damages, a true accounting of all money received by the defendants and return of the money, and injunctive relief on claims of fraud, deceit, negligence, breach of contract, false and unfair business practices and breach of constructive trust.
Los Angeles is represented by Deputy City Attorney Deborah Breithaupt; Glendale is represented by Charles Slyngstad with Burke, Williams & Sorenson of Los Angeles.