FBI probes L.A. Housing Dept.’s actions in affordable housing project

The FBI is investigating an affordable-housing deal in which Los Angeles officials channeled $26 million to a development company officer who they knew was under criminal investigation for alleged misuse of public funds, city officials said Thursday.

The officer, David Rubin, was indicted last fall in New York for alleged bid rigging and fraud, charges unconnected to the L.A. project.

The $26 million went toward construction of a 92-unit apartment building near downtown L.A. for seniors, some of them homeless and disabled. Though ready for occupants, it has sat empty since December while many prospective tenants live in shelters or substandard housing.

The city’s Housing Authority, concerned about irregularities in the deal, has refused to release money that would pay the tenants’ rent. Without that rental income, the developer, Enhanced Affordable, could be forced into default. In turn, the city could be on the hook for millions of state and federal dollars that it helped arrange for the developer, City Controller Wendy Greuel said in an interview Thursday. She added that the way officials handled the deal “defies comprehension.”

But advocates for the homeless are incensed for another reason. They say it is inexcusable that the city is allowing a new building to sit vacant while homeless seniors suffer.

“It’s terrible. It’s a travesty. These people are sick . . . some of them will die prematurely without housing,” said Ruth Schwartz, executive director of Shelter Partnership, which helped find homeless seniors for the project.

She added that she wants the city and the mayor to find “the political will” to work out the red tape and “help move the people in.”

The controversial deal was the subject of an audit released Thursday by Greuel’s office.

FBI agents have requested notes and documents gathered during the audit, the controller’s office said.

An FBI spokeswoman said the agency could not confirm or deny any involvement in the matter.

The city agency involved in the deal is the Housing Department, which oversees compliance with rent control laws and aids construction of privately run, affordable apartments. The Housing Authority, a separate agency, manages federal Section 8 rental vouchers and city-owned housing projects.

The audit found that in 2007 and 2008, Housing Department officials “blatantly disregarded information that . . . one of the partners was under federal investigation.”

Officials “then chose not to share this information with the city attorney or other stakeholders,” Greuel said in a letter to Mayor Antonio Villaraigosa and other city leaders.

The audit does not accuse any city officials of criminal behavior or allege that the $26 million was misspent.

Doug Guthrie, the newly appointed head of the Housing Department, said he was working to find a way to “get these people housed.”

Guthrie succeeded Mercedes Marquez, who headed the agency when the deal went through. She has since moved on to a job at the U.S. Housing and Urban Development department in Washington, D.C. Marquez could not be reached for comment.

“We are left today with a much-needed project [that] sits empty,” Greuel said, calling it “a fiasco.”

Officials in the Housing Department, she added, “appeared to act in the developer’s best interest, as opposed to the best interest of the city and the taxpayers.”

City officials should notify the city attorney, the City Council and other officials of legal issues involving prospective developers and conduct more thorough background investigations, the audit said.

Rubin’s attorney, Donald Etra, declined to comment, directing calls to Marc Gelman, chief executive of Enhanced Affordable. Gelman said the company had done nothing wrong, adding that it severed ties with Rubin after requests from officials in the Housing Department whom he declined to name.

Gelman blamed squabbling city agencies for keeping homeless seniors from moving in to the new building and said he might sue the city for not releasing the rent money.

“It’s all political. . . . I have an empty building that every day costs money to operate, pay the debt . . . a minimum of a few thousand dollars a day,” Gelman said. “And these poor homeless people, we have them coming to our office, our building, on a daily basis.”

jessica.garrison@latimes.com