Glendale may recoup funds lost to development company

The city Housing Authority could soon get a “sizeable chunk” of millions of dollars lost to a development company that inflated construction costs on affordable housing projects.

City Manager Scott Ochoa couldn’t say exactly how much the city would receive, but he expects a court-appointed receiver to the developer, Advancement Development Investment Inc., to reach an agreement with the city in the coming months.

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City Attorney Mike Garcia said Glendale is “closer to a resolution of our claims than we ever have been.”

The announcement comes almost six years after the city learned ADI, which built four affordable housing projects in Glendale, overcharged for construction services.

About half of the $34 million in Housing Authority funds paid to ADI were for fraudulent charges, Ochoa said.

A few years ago, the city was paid back about $6.5 million in civic settlements, including $3.5 million from PNC Multifamily Capital, a banker and investor in the ADI debacle.

Salim Karimi, the former president and co-owner of ADI, was arrested in India in December and released on bail, according to the U.S. Attorney’s Office.

Five former ADI executives are still at large.

The federal government is working to extradite Karimi to the United States, said Thom Mrozek, spokesman for the U.S. attorney.

Once that happens, the city plans to seek a separate trial to seek damages, though the process could be lengthy , Ochoa said.

“We will be hopeful and vigilant through the court-restitution process and hopefully we can deliver more funds back to the Housing Authority,” he said.

That money would be reallocated to a fund for affordable housing projects, Ochoa said.

In 2011, the Housing Authority — composed of the City Council members and two community members — passed a resolution that made voluntary disclosures mandatory.

This includes providing three years worth of audited financial statements, three years of business income tax returns, letters of recommendation and lawsuit disclosures.

“Most of these practices were already in place, but documentation of these best practices helps the city ensure the development of quality affordable housing in a fair and transparent manner that is beneficial to the residents of these developments and protective (of) taxpayer dollars,” Garcia said in an email.

However, Mayor Ara Najarian sees room for improvement.

“We really don’t have a project auditor that can confirm invoices are legitimate,” he said.

Also in the aftermath of the ADI scandal, a Los Angeles Times and Glendale News-Press investigation revealed that ADI pressured its subcontractors to donate to the campaigns of four people running for the City Council in 2009.

In the two years leading up the race, nearly one of every four dollars received by the top four candidates — more than $100,000 — was from ADI subcontractors.

Two of those candidates included Najarian and Councilwoman Laura Friedman, who both claimed in 2011 they were unaware the subcontractors were pressured into donating.

Najarian said he believed the subcontractors that supported his campaign were local tradesmen. He also recalled the 2009 election cycle as the beginning of a period of growth in Glendale, which included the opening of the Americana at Brand the year prior.

“I thought they were either folks who had ongoing jobs in the city who were happy that they had found a pro-development council,” Najarian said.

Friedman said the contractors who contributed to her first successful council bid were businesses in Glendale, so she thought they were supportive of her stance on affordable housing.

Also in 2011, the city enacted a policy that would prohibit a project applicant from contributing to a campaign while an application is pending and for a year after.

As for sitting council members, they must abstain from voting on an applicant’s project if they received a donation from them up to 12 months before their application goes for consideration.

City Clerk Ardy Kassahkian, whose role entails organizing and overseeing municipal elections, said it’s up the candidates to keep track of who’s funding their bids.

“It’s not the city staff’s responsibility to account for the political actions of an elected official … I think that at the end of the day, the responsibility lies with the person who is the candidate,” he said.

Though the city lost about $17 million to the fraud, the state government’s dissolution of redevelopment agencies statewide hurt Glendale more, Ochoa said.

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Arin Mikailian, arin.mikailian@latimes.com

Twitter: @ArinMikailian