December 9, 2012

The Affordable Housing Racket

Filed under: Probable Cause — Bill @ 8:22 am

“Affordable housing.”

It sounds noble and charitable, and sometimes it can be.

But as the cities of Los Angeles and Glendale have learned, other times it can be a racket, a criminal enterprise run by people willing to pay off politicians and deliver substandard products in order to personally enrich themselves and their cronies. 

The article linked above is from April 25, 2011.  It reports:

Los Angeles claims ADI [Advanced Development and Investment Inc. ], 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.

But the allegations of wrongdoing by ADI in its supposed benevolence goes back even further.  In 2008 the City of Glendale was getting concerned that with the declining housing market, federal credits to companies like ADI were also declining.  Thus, undertaking affordable housing projects with their costs inflated by bribes and fraud would result in local citizens (read:  local taxpayers) having to bear an increasingly large burden for the cost of local projects.

Then in 2010 a Glendale watchdog group publication, the Vanguard Weekly News, expressed its surprise that finally the Los Angeles Times had picked up the story of ADI’s alleged graft and corruption in Glendale.

The Times story, which ran on October 13, 2010, the same day as the Vanguard‘s reporting, was headlined Federal authorities probe L.A. developer.    The essence of the Times story is in its two opening sentences:

Federal prosecutors have launched an investigation into a prominent Los Angeles developer accused of bilking taxpayers out of millions of dollars, building potentially unsafe apartments and possibly making improper gifts to public officials.

Advanced Development and Investment Inc. has submitted fraudulent bills to cities for affordable housing projects, failed to keep proper records on more than $650 million that flowed through its checking accounts and transferred as much as $80 million to personal accounts — at least one in India — according to a court-appointed receiver’s report on the company’s activities.  [highlighting mine]

But equally alarming is the method by which ADI’s alleged affordable housing racket was revealed.  It wasn’t revealed by city  officials responsible to the voters for being proper stewards of the public’s money.    Some of them were allegedly recipients of ADI’s largesse, so they had no real interest in protecting the public.  And frankly, neither was it revealed initially by the L.A. Times.   The alleged scam was revealed by the receiver in a divorce action.  The receiver, David Pasternak, had been appointed by the Los Angeles County Superior Court to identify the ADI owner’s assets in a divorce action.

Pasternak dutifully filed his report with the Court, but he wisely provided a copy to the US Attorney for the Central District of California.   Since the report raised valid questions about the payment or evasion of payment of federal taxes by ADI, the US Attorney provided the information to both the IRS and the FBI.  They initiated criminal investigations.

One important outcome of this story as it applies to those of us who live in lil’ ol’ Coeur d’Alene, Idaho, is in the December 7, 2012,  L.A. Times blog story headlined Developer agrees to pay $165,000 to end L.A. ethics inquiry.  The story reports:

A real estate development company that regularly received funds from Los Angeles officials to build affordable housing projects has agreed to pay $165,000 to end an Ethics Commission investigation into allegations of campaign money laundering.

Campaign money laundering?  Yep.  The story reported that according to Ethics Commission investigators:

Advanced Development and Investment Inc. and its affiliated construction company, Pacific Housing Diversified, made 33 contributions totaling $23,850 under assumed names between 1999 and 2009. Advanced Development executives used cash and checks from  company accounts to improperly reimburse employees who had made the contributions…

In other words, the Ethics Commission alleged that ADI had directed its own and its construction company employees to make campaign contributions to influential elected officials’ campaigns.  ADI and Pacific Housing Diversified (PHD — ADI’s construction company) then repaid the employees for those contributions.   Essentially, it was ADI and PHD making the campaign contributions but hiding that fact.

And without admitting guilt (because the federal criminal investigation is ongoing), ADI has agreed to pay a fine of $165,000 to end the Ethics Commission investigation.

Could something like that happen in Idaho?  In Kootenai County?  In Coeur d’Alene?  Sure it could.

“Affordable housing” sounds noble.  Honest, decent people will support “affordable housing” projects in hopes of helping others.  That is laudable. There are some honest and decent people here.

But just as there are honest, decent people who want to do the right thing, there are racketeers who will see “affordable housing” as just another scam for personal enrichment.  They will rig bids or ensure there are no competing bids to get projects, overbill, deliver substandard products, and likely be gone long before their scam is uncovered.  After all, who’s going to blow the whistle on them here?  Public officials who directly or through cutouts receive campaign contributions  or other forms of legitimate-appearing revenue from them?  Local and regional news media who would prefer to report only good news about the delivery of “affordable housing” rather than expose the racketeering behind some of it that will eventually taint all of it?  Hardly.

As the years of experience in southern California have shown, any revenue-generating industry (affordable housing is an industry) that allows itself to be corrupted will be corrupted.   Once tainted, it may take years to remove the stain.  One need only look at the evolution of the gaming industry in Las Vegas to fully grasp that concept.  Racketeering occurs more easily and gains a stronger foothold where local, county, state, and federal public officials are unwilling to recognize it and deal with it, and where there’s large amounts of money to be made.

It can happen here, too.





  1. Bill,

    Who owns the waterfront “affordable housing” apartments in Riverstone?

    Comment by concerned citizen — December 9, 2012 @ 8:28 pm

  2. concerned citizen,

    If you’re talking about the Riverstone West Apartments at 2238 W. Johns Loop in Coeur d’Alene, the Kootenai County records currently show it is owned by Riverstone West Properties, LLC, Hayden, Idaho. Are these the ones you’re talking about?

    Comment by Bill — December 10, 2012 @ 6:57 am

  3. I’m not saying anything was nefarious with the project but the community almost had a catastrophe with the “working class” apartments then “affordable” condos on 4th St. a year or so ago. Just sayin………in my estimation it sure got kinky and the information wasn’t quite transparent.

    Comment by Ancientemplar — December 10, 2012 @ 8:49 am

  4. Yes.
    Isn’t Riverstone West Properties, LLC, Hayden, Idaho a for profit venture? If so, why would the rest of us have to subsidize their profit?

    Comment by concerned citizen — December 10, 2012 @ 12:21 pm

  5. I wondered why lcdc would subsidize a project that receives federal tax credits without requiring repayment of the subsidized funding. Remember that federal tax credits were also an issue with the Fourth Street project. If my memory is correct, those tax credits may be redeemed/exchanged/sold for 80 cents on the dollar.
    I am not so sure that the Fourth Street project has been eliminated.

    Comment by Susie Snedaker — December 10, 2012 @ 9:47 pm

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