Man Indicted in Earthquake Fraud Scheme

A Los Angeles real estate developer has been indicted on charges of using more than $375,000 intended for renovation of earthquake-damaged buildings to purchase items such as a Range Rover and diamond jewelry and to pay personal debts, the U.S. attorney’s office said Thursday.

Thomas E. Bell, 38, president and owner of Bell Diversified Development Inc., a Studio City-based development firm, and a former deputy director of the California Department of Housing and Community Development, was charged Wednesday by a federal grand jury with 16 counts of fraud, including money laundering and obstruction of a federal audit.

“This is considered the largest HUD fraud scheme being prosecuted to date” in Los Angeles with earthquake money, said Assistant U.S. Atty. Nathan Hochman.

Bell could not be reached for comment, but his attorney, Donald Etra, said Thursday that his client denies the charges.

“Mr. Bell is innocent,” Etra said. “Every cent of HUD money invested in the program was properly utilized.”

As the owner of three low-income apartment buildings in Los Angeles and West Hollywood, Bell was lent more than $1.6 million in August 1994 by the Department of Housing and Urban Development as part of the HUD Emergency Loan Program after the 1994 Northridge earthquake.

The loan program funds, authorized by President Clinton as part of the Emergency Supplemental Appropriations Act of 1994, were targeted for rehabilitation and repair of multifamily housing projects damaged in the earthquake.

Bell “knowingly participated in a scheme to defraud and to obtain money from HUD by means of . . . false and fraudulent pretenses, representations and promises,” according to the indictment.

Bell and his company in 1991 assumed ownership of three properties, Villa Park Merridy in Los Angeles, Wilshire Villas North in the Mid-Wilshire area and the Uptown Manor in West Hollywood, through mortgage payments insured by HUD, the indictment says.

But in January 1994, the Northridge earthquake struck, prompting the federal government to send financial aid. Bell was approved in August 1994 to receive $2.8 million to hire contractors for specific rehabilitation work on properties damaged in the earthquake. He received $1.6 million from HUD as the first installment of the loan.

The indictment goes on to detail Bell’s alleged use of federal money for items not related to earthquake damage.

Court documents show that Bell used $100,000 to pay a debt to Murray and Frances Drutman. The Drutmans, who are retired, lent Bell the money in 1988 for a real estate deal. But in 1990, the Drutmans sued Bell for failing to pay back the loan. The suit was settled a few years later when Bell paid back the loan, apparently with the HUD money, court documents show.

In addition, Bell transferred $200,000 of HUD funds into his trust account and used the money to buy a $37,000 Range Rover and $41,775 worth of diamond rings and necklaces, and to make a $63,210 down payment on a second home in Studio City, the indictment states.

Bell also is accused of fabricating contracting bids and falsely stating that $497,000 worth of construction work had been performed.

At the time, Bell informed HUD officials that the funds were being spent according to HUD guidelines and then provided a HUD auditor with fraudulent documents to justify the expenditures made through his company, the indictment states.

“It is surprising [to see] what it appears the money was used for,” said John Rodriguez, special agent with the Office of the Inspector General, who led the yearlong investigation of Bell.

Bell is to be arraigned April 29. If found guilty on all 16 counts, he could be sentenced to up to 100 years in prison, a $3.75-million fine and full restitution.

Bell has been mentioned by local authorities in another alleged misappropriation of public funds.

In 1992, Bell and three other investors were lent more than $10 million in city housing department money and $13.4 million in Housing Authority revenue bonds to acquire and renovate the Hayward Manor hotel in downtown Los Angeles.

Three years later, the project has prompted the Los Angeles city attorney’s office to allege financial improprieties and request a court-appointed receiver to oversee the project.

Deputy City Atty. Laurel Lightner stated in court documents that there was a “possible diversion of funds” by the developers.