FBI probes L.A. Housing Department’s actions in apartment project for homeless seniors

The FBI is investigating an affordable-housing deal in which Los Angeles officials channeled $26 million to a developer who they knew was under criminal investigation for alleged misuse of public funds, city officials said Thursday.
By: Jessica Garrison at Los Angeles City Hall: latimes.com
The developer, David Rubin, was indicted last fall in New York for alleged bid-rigging and fraud, charges unconnected to the L.A. project.

The $26 million went toward construction of a 92-unit apartment building near downtown L.A. for disabled homeless seniors. It has sat empty since October while its prospective tenants live in shelters or substandard housing.

The city's Housing Authority, concerned about irregularities in the deal, has refused to release money that would pay the tenants' rent. Without that rental income, the developer could be forced into default. In turn, the city could be on the hook for millions of state and federal dollars that it helped arrange for the developer, City Controller Wendy Greuel said in an interview Thursday.

The controversial deal came to light in an audit released by Greuel's office. FBI agents have requested notes and documents gathered during the audit, the controller's office said.

The agency involved in the deal is the Housing Department, which oversees compliance with rent control laws and aids construction of privately run, affordable apartments. The Housing Authority, a separate agency, manages federal Section 8 rental vouchers and city-owned housing projects.

The audit found that in 2008, Housing Department officials "blatantly disregarded information that ... one of the partners was under federal investigation."

Officials "then chose not to share this information with the city attorney or other stakeholders," Greuel said in a letter to Mayor Antonio Villaraigosa and other city leaders.

The audit does not accuse any city officials of criminal behavior, or allege that the $26 million was misspent.

Doug Guthrie, the newly appointed head of the Housing Department, said he was working to find a way to "get these people housed."

Guthrie succeeded Mercedes Marquez, who headed the agency when the deal was made.

"We are left today with a much-needed project [that] sits empty," Greuel said, calling it "a fiasco."

Officials in the housing department, she added, "appeared to act in the developer's best interest, as opposed to the best interest of the city and the taxpayers."

Rubin could not be reached for comment. His attorney, Donald Etra, was not immediately available. Marc Gelman, chief executive of Enhanced Affordable, said the company had done nothing wrong, adding that it has severed ties with Rubin. Gelman blamed squabbling city agencies for keeping homeless seniors from moving in to the new building, and said he might sue the city for not releasing the rent money.

"I have an empty building that every day costs money to operate, pay the debt ... a minimum of a few thousand dollars a day," Gelman said. "And these poor homeless people, we have them coming to our office, our building, on a daily basis."

Added Rudolf Montiel, the head of the Housing Authority: "It is reprehensible that public officials would aid and abet in the misuse of federal dollars. ... Unfortunately, the tenants are the ones who are bearing the brunt of the misdeeds of this developer."