U.S. Investigates Possible Quake-Repair Loan Fraud

A federal task force looking into suspected fraud in Los Angeles’ $330-million earthquake loan program is reviewing more than a dozen housing loans red-flagged by city auditors as “questionable,” city officials said Monday.

Just two weeks before the fifth anniversary of the Northridge earthquake, the Los Angeles Housing Department is nearing completion of a comprehensive audit of 300 of the 1,526 loans awarded by the city using federal funds to repair housing damaged in the 1994 temblor, said Garry Pinney, general manager of the city agency.

Pinney said more than a dozen loans examined so far have been identified by his agency as questionable because of problems in how the money was used, warranting further review and possible criminal investigation by a task force that includes the FBI and the inspector general of the U.S. Department of Housing and Urban Development.

“We’re providing that information to the task force,” Pinney said. “The task force is going over them with us before deciding whether to proceed with a criminal prosecution.”

The $330 million in HUD loans administered by the city was for property owners who did not qualify for funding from the Small Business Administration or Federal Emergency Management Agency loans and did not have insurance to cover quake repairs.

FBI spokeswoman Laura Bosley declined comment. The U.S. attorney’s office also declined comment. U.S. Atty. Mark Harris said the office has prosecuted about 50 fraud cases involving earthquake relief since the Northridge quake.

In one high-profile case, the city attorney’s office accused an Agoura Hills construction company of collecting $35,321 in loan funds from the city for work that was not done on a small Northridge apartment building. Officials of Guy Construction Co. pleaded no contest to theft charges and were given probation and ordered to repay $35,000.

The broader investigation was confirmed in a report issued Monday by City Controller Rick Tuttle regarding city finances.