ADI and The City

Posted by on Jan 6th, 2011 and filed under News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry


Many issues were raised and dealt with at the Glendale City Council meeting on Tuesday but several in the audience were waiting for their turn to speak about the recent report of a developer that is now accused of fraud and possible criminal activity and the implications of impropriety by city officials.

Slightly more community members spoke in defense of city council and staff than criticized but it was obvious the issue has taken hold in the city.

It all began with divorce proceedings between Salim Karimi, at the time president of Advanced Development and Investment, Inc. and son-in-law of the company’s co-founder, and Janniki Mithaiwala, daughter of Ajit Mithaiwala, founder of ADI. As in many high profile, financially significant divorces more information goes public than the parties would anticipate. In this case the information that has reportedly been obtained by a court appointed receiver has company officials facing possible charges of fraud and criminal activity.

Until February 2010 when David J. Pasternak was appointed receiver of ADI, a developer of primarily low-income housing, it was known as an apparently reputable company. The firm is now under federal investigation.

For about two decades, ADI has built over 50 affordable housing developments in cities including Los Angeles, Anaheim, Fresno, Long Beach, Sacramento, San Diego and Glendale. And that, as Shakespeare would say, is “the rub.” It is what brought local media attention with veiled accusations and drove community members to the podium at Tuesday’s meeting.

The company is accused of fraud. It allegedly would get an invoice from one of its many independent contractors that were hired for a particular job, then would create a new invoice to reflect a higher price.  The second and fraudulent invoice would then be sent to the specific city where the work had been done.

Glendale City Manager Jim Starbird said they had no reason to question the invoices because they were within the previously agreed upon amount and had no idea that the invoices were being doctored.

“ADI is one of a number of affordable housing development [companies],” said Glendale City Manager Jim Starbird. “They had the most successful [track record] for the 9% tax credits.”

The 9% tax is an important issue when building low-income housing, Starbird said.

The California Tax Credit Allocation Committee or TCAC administers a federal and a state low-income housing tax credit program.  The system is to encourage private investment in affordable rental housing for low-income families. There are many checks and balances along the TCAC way.

“The typical times [with this program] were the tax credit rounds. If you miss the deadline you are put off six months,” said Glendale Mayor Ara Najarian.

Six months is a long time to wait for some of these families who need homes, Najarian added.

TCAC is a sophisticated funding mechanism where the company applying, like ADI, would receive a tax credit of 9%.  They would in turn sell that credit to a company that needs a tax break.  Normally they would work through a third party like an investment company.  The city that is having the low -income housing built now benefits from that sale to add to the value of their development.

ADI had a reputation of receiving the TCAC.

“It was like betting on a winner,” Najarian said.

Through the divorce the light was shown on the fact that ADI did not keep adequate records and had apparently transferred money from the company accounts to the personal accounts of the owners as well as out of the country.

ADI has also been accused of coercing the Independent Contractors they had worked with into donating to politicians.  It has been discovered that several current and former Glendale city councilmembers were recipients of some of those contributions. What Independent Contractors were urged to donate by ADI and who were acting, as community members wanting to support the candidate is what investigators will have to determine. Even after that is determined it is then a question of who knew the money was coming from ADI. Records indicate the money is from companies that were Independent Contractors who by definition are independent and not employees of ADI.

Another accusation of possible health and safety code violations had many who criticized the city concerned about the well being of those in the ADI units.

“The [allegation] that [Glendale units] are shoddy, that is not true, ” Starbird said in an interview with Crescenta Valley Weekly.

He added the city acted quickly after the Receiver had contacted them.

“We were one of the first agencies to look at the units,” he added.

The city inspected all the units built by ADI and found all to be up to standard.

“We had a skylight latch in one unit we had to fix,” Starbird said.

“We have not had one complaint from a company managing the buildings or not one complaint from a resident, guest or visitor to the units,” Najarian said.

Despite what may have been written in the media, Starbird feels that the city was victimized by ADI.  The question that some at Tuesday’s meeting wanted answered was why didn’t the city see the problem.

The fact is several media outlets covered many of the meetings that dealt with low-income housing, the meetings were televised, the city “watchdogs” were present at some of these meetings, inspectors, the city attorney and an outside law firm as well as an economic expert reviewing the process and although some concerns of costs were raised, the bottom line was no one found fraud.

“There were no signs of fraud, if there were we would have done [something about it],” Starbird said.

Much has been made of a memo that was written by a housing manager about concerns with ADI and the costs of the units under construction.  In that memo manager Mike Fortney strongly recommended not funding “this project at anywhere near the level currently being requested.”

“The general feeling was the costs of the project were getting too high and he obviously thought the city’s involvement was at too high a level,” Najarian said.

Najarian added they looked at the economics and determined the value of low-income housing was worth the costs.

Starbird said the memo had to do more with Aid’s approach to the city.

“None of the [concerns] got to the issue of fraud,” he said. “ADI was not an easy company to deal with.”

Starbird added that ADI officials were not fast in releasing needed information to the staff yet demanded information quickly from staff. One of the complaints was ADI representatives would circumvent staff and go directly to the city manager or councilmembers.  However that did not seem out of the norm to Starbird.

“Whether it is Disney or [Rick] Caruso, if staff isn’t moving they will call [one of us],” he said.

The investigation is long from over and there is no doubt the city will have more to answer to as it progresses, as will all the cities that dealt with ADI and all the politicians that can have campaign contributions linked back to them.

Starbird requested and was granted subpoena power allowing the city to request documents from ADI and others to begin their own investigation.

At Tuesday’s meeting community member Mike Morgan acknowledge the city is being affected by the controversy and cautioned not to “rush to judgment.”

“I think that like many people I am waiting for [all] the facts to come out,” said Bill Weisman, at that same meeting.

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1 Response for “ADI and The City”

  1. Mike Lawler says:

    Finally, a factual, balanced report of what happened! Thank you CV Weekly for cleaning up the mess the News Press/LA Times had made out of this story!

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