Updated: City Sues Hermon Based Developer

The city of Los Angeles has filed suit against a Hermon based affordable housing developer, alleging that they systemically fabricated construction costs in order to receive excessive construction financing.

According to the lawsuit filed on Thursday, the city is seeking up to $183 million in lost development dollars that Monterey Road based affordable housing developer Advanced Development Investment (ADI) and its numerous co-defendants allegedly received for 15 Los Angeles housing projects by inflating construction costs by up to 30 percent.

As a result of their alleged cost inflation practices, ADI and its co-defendants received approximately $30 million from the city's Affordable Housing Trust Fund, and helped investors earn millions more in affordable housing tax credits.

updated: Frank Mataljan, a spokesman for the city attorney's office, said the city is seeking up to $182 million in damages, even though ADI only recieved $30 in direct funding. He said that is because the total cost of ADI's fraud has still yet to be calculated.

"There's a complicated financing web set up when you have housing funds that come out of state, federal and local accounts and if that starts to unravel we're gonna be on the hook," he said. "It could be all the way up to $182 million if all these comp. financing deals fall apart."

ADI's co-defendants include sister companies Ajit Development & Investment Inc., Pacific Housing Diversified Inc., both of which were controlled by the Mithaiwala and Karimi families.

updated: Mataljan said that there are also up to 200 "John Doe" co-defendants, who range fro ADI employees to sub-contractors.

The city's lawsuit also accuses ADI of destroying subpoenaed documents containing evidence of their cost inflation practices and filtering monies to bank accounts in India.

"When [the] city recently sought […] to ascertain discovery of defendants' documents and forensic audits relevant to the fifteen AHTF projects, [the defendants] prevented the disclosure of such documents and audits," the lawsuit reads.

updated: "It's your classic racketeering case," Mataljan said. "They're accused of making false documentation, making foes claims, withholding and federal funds."

Among the allegedly fraudulent projects is the Manitou Vista II development in Lincoln Heights, for which ADI allegedly reported an overstated invoice of $427,761 for a $94,250 grading job.

The city claims it became aware of ADI's alleged improprieties through court appointed receiver David Pasternak, who was brought in during the divorce proceedings of former ADI head Salim Karimi and his wife Jannki Mithaiwala.

During that time, Pasternak ordered an audit of ADI's accounting practices by Crowe Howarth LLC, which uncovered the alleged construction cost inflation.

"The work of Crowe Howarth LLC at ADI revealed pervasive fraud, horribly deficient record keeping, deficient banking operations, destruction of records to conceal fraudulent construction invoicing, misappropriations of fund by the principals and employees of ADI and [co-defendants], all of which were done to hide and keep secret the fraud and harm ADI and [co-defendants] had been perpetrating against the city with respect to the 15 affordable housing projects," the lawsuit reads.

According to the Los Angeles Times, Thomas Mesereau, Karimi's attorney,  said he had not seen the city’s lawsuit and has claimed that his client had not done anything wrong.

The Times has also reported that several contractors were pressured by ADI to contribute to political campaigns, or risk losing future jobs with the company.

updated: Mataljan said that the claims that ADI pressured sub-contractors to finanically support political candidates is not part of their current lawsuit.

ADI's Hermon home base coincidentally occupies a special place in Los Angeles history. It was once the home of Claude A. Watson, a vice presidential candidate in 1936, and twice the Prohibition Party's candidate for president in 1944 and 1948.

Continue check Patch throughout the day as we continue to cover this developing story.