Builder got millions from Glendale despite concerns about project
Glendale’s housing manager was blunt with his concerns about giving a prominent developer $12.2 million to build low-income housing near the city’s downtown.
“I strongly recommend … not funding this project at anywhere near the level currently being requested,” Mike Fortney wrote in an April 2008 letter to his boss.
Glendale City Council members awarded the money anyway. The following year, they paid an additional $1.7 million for the project, dubbed Vassar City Lights, a five-story stucco building on San Fernando Road.
The beneficiary of that vote was Advanced Development and Investment Inc., a Los Angeles-based developer that for two decades prospered in part by carefully cultivating the political process. The company has built apartment complexes subsidized by public agencies across the state, including more than 40 in Chinatown, Echo Park and other Los Angeles neighborhoods.
Now, the firm faces allegations that it defrauded government agencies and may have built potentially unsafe housing for the poor. In recent years, ADI has repeatedly persuaded officials in Glendale, Los Angeles, Sacramento and elsewhere to hand over millions of dollars to complete its projects — even after concerns were raised about cost or quality.
As its projects were being approved, ADI made tens of thousands of dollars in campaign contributions to California politicians. Far larger amounts — more than $300,000 over the last decade, according to a Los Angeles Times analysis of campaign contribution records — came, not directly from ADI, but from the little-known drywallers, electricians and other subcontractors retained by the company to construct its buildings.
ADI is currently the subject of a federal investigation in which at least three of its subcontractors have recently received subpoenas.
Four subcontractors told The Times that they were pressured to give to politicians and felt they risked losing future work with ADI if they said no.
“They pressured you hard,” said Everett Freeman, owner of Freeman Lath and Plaster in Lancaster, who added that he severed his ties with ADI, in part out of frustration with their demands for campaign contributions.
Once Freeman Lath and Plaster received work from ADI, company officials made it clear that “they expected everyone to contribute” to chosen candidates, he said. “It was insinuated that basically if you didn’t go along with their little program, you wouldn’t get the work.”
In Glendale, where the city has paid ADI more than $33 million over the last five years, ADI subcontractors flooded council members with campaign contributions. In the two years leading up to the 2009 council election, nearly one of every four dollars received by the top four candidates for the council — more than $100,000 in total — came from those companies, their employees and those employees’ relatives. Collectively those donations outstripped any other known source in the race.
State law prohibits companies such as ADI from contributing more than $250 to council members who serve on Glendale’s housing authority board when the firms have financial business pending before that board. In addition, Glendale council members are barred from accepting campaign contributions of more than $250 from companies that are seeking contracts or other business from the board. The board is made up of all the council members and two other people.
The U.S. attorney’s office declined to comment on its investigation. Lawyers for Ajit Mithaiwala, who founded ADI more than two decades ago, and Salim Karimi, who was recently fired as the company’s president, said their clients deny the allegations.
“Salim Karimi has not done anything wrong at any time. He was never involved in anything that was unethical, unprofessional or illegal,” said his attorney, Thomas Mesereau.
Details of the federal investigation are unknown, but the subcontractors known to have been subpoenaed each did work on the home of a Glendale City Council member, John Drayman, who, as a member of the Glendale Housing Authority board, has voted to approve several ADI projects.
Drayman acknowledged having hired an ADI subcontractor, Glendale-based National Fire Systems and Services, to renovate his condominium last summer. National Fire, in turn, hired at least six other ADI subcontractors, according to a list Drayman provided.
He said he picked National Fire in part because the company had agreed to let him pay over a period of months, a plan that he acknowledged was “not the norm” for a home renovation. Some of the subcontractors said they still have not been paid for their work.
Drayman said he had been referred to National Fire by an ADI manager, Khachik Zargarian, whom he identified as a longtime friend. But Drayman said he had no idea at the time that National Fire or the other companies were connected to ADI.
National Fire had never done a residential remodel before, the company’s president, Mike Thomassian said in an interview earlier this month.
Thomassian told The Times his hiring was linked to ADI, which he said had informed his firm about the job. “They didn’t want to be involved in that directly, so they offered us,” he said. He later sent an e-mail saying he was not sure how Drayman had been put in touch with him, but acknowledged that he had discussed with ADI “who was going to be responsible for the payment” and confirmed that “Drayman was paying.”.
The federal investigation also follows a report by a court-appointed receiver three months ago stating that ADI had falsified invoices and may have built substandard housing, made improper gifts to officials, submitted false statements to the IRS and extorted subcontractors.
The receiver, David Pasternak, became familiar with the company’s finances after Karimi, the company president, became embroiled in a bitter divorce from Jannki Mithaiwala, the daughter of the company’s founder. Pasternak was appointed to represent the company’s interests in divorce court.
Earlier this year, he reported to Judge Scott Gordon that he had found a wide range of “possible criminal activity,” including falsified records, fraudulent invoices and “hyperinflation” of budget estimates for the company’s development projects. A copy of his report was obtained by The Times.
In a subsequent filing, Pasternak pointed to the Vassar City Lights project as an example of overbilling. Of the $24.7 million in construction costs reported by ADI, about $6.5 million was fraudulent, Pasternak alleged.
One subcontractor, Corona-based Kampa Drywall, signed a $381,000 contract with ADI to work on Vassar. ADI reported $1.53 million in drywall costs from Kampa for the same work, according to documents filed in court by the receiver.
That conduct was repeated in the cases of “dozens of subcontractors,” Pasternak alleged. In some cases, his filing said, company officials “simply fabricated documents out of whole cloth.”
Current and former Glendale council members expressed shock.
“I was kind of taken aback,” said former Glendale Councilman Bob Yousefian, who received more than $36,000 from ADI subcontractors and their family members in the 2009 election, one out of every three dollars he raised. “To the extent that there was any overcharging going on, I don’t know why staff didn’t catch it.”
In reality, Glendale city staff members had raised concerns about ADI’s project costs to top managers even before Vassar City Lights was approved.
In a memo dated April 10, 2008, three months before the project won approval, Fortney, the city’s housing project manager, noted to his boss that ADI’s cost estimates on the Vassar project were up to $4 million higher than warranted. A day later, he listed 16 more concerns, including ADI’s failure to turn over certified audit reports.
Fortney questioned the quality of ADI’s projects, saying they “look and feel like low-income housing … yet their subsidy requests reflect more and more of a premium quality product.”
“If ADI does not like staff’s position,” he wrote in the same memo, “they go to the [council] and plead their case.”
Indeed, City Council members were part of the unanimous board vote to go ahead with the Vassar project when it came up for approval.
That was a pattern. In total, over the last five years, the Glendale Housing Authority approved five projects with ADI, including $6 million this year for a project called Central City Lights that has since been canceled.
Council members denied they had been influenced in any way by campaign contributions or even knew of the donors’ links to ADI.
“I think it’s a lot to ask of a candidate to think about not only who gave them money, but who those contributors might be doing business with,” said Laura Friedman, who was elected to the council in 2009 and only voted to approve the one ADI project that was later scrapped.
Mayor Ara Najarian, who is a council member, said he reviewed each contribution check that arrived during the last campaign but never made the connection that many were employed by ADI. “I just thought it was a nice contribution from someone in the construction trade, and presumably with ties to Glendale in some way or another, either having a business here or having principals living here,” he said.
He and the three other council members — Drayman, Frank Quintero, and Dave Weaver — also said they had never seen the memos warning against entering into the Vassar deal with ADI or been told in detail of their contents.
Current and former Glendale officials disputed the idea that council members were unaware of the concerns. “That’s a lie,” said Robert Kadlec, a former senior project manager for the Glendale Redevelopment Agency who retired in 2008. He said that at the time, the council “was really coming down” on Deputy Housing Director Peter Zovak for questioning the project.
Zovak and Fortney referred questions to City Manager Jim Starbird. He said council members had been briefed on staff members’ economic concerns about ADI’s projects. But Starbird added that ADI had good reasons to be asking for more money in 2008 with the economy failing and its financing in jeopardy. Larger city subsidies increased ADI’s chances of winning state tax credits, he said. He and Najarian also said ADI had an excellent record of getting projects built on time and on budget.
“None of these issues would have led anybody to believe that ADI was committing fraud,” Starbird said.
