UPDATE: LA Weekly’s Jill Stewart picked up on this item and wrote that to call for an investigation, the “mini-Politburo — 15 Los Angeles City Council members … would have to vote to sic (City Attorney) Trutanich on themselves. God, would that be a comic delight.
Editor’s Note: On Friday, the City Council will once again consider approval of the Community Redevelopment Agency’s plan to sell the property at 1601 N. Vine St. tn Hollywood to Hal Katersky’s Pacifica Ventures for $4.65 million less than it paid him for it four years ago. The deal has sparked such heated controversy that the Council has repeatedly delayed action. In this open letter, to the Council attorney and community activist Richard MacNaughton reports that a critical document showing the property was worth far less than the CRA paid for it in 2006 and calls for a criminal investigation.
In its April 1, 2010 transmittal and in its July 15, 2010 report to the City Council, the CRA/LA expressly represented that it had purchased The Property in 2006 based upon the CB Richard Ellis 5-13-2006 appraisal of $5,450,000.00.
The April 1, 2010 and July 15, 2010 representations are the same representations which the CRA/LA has been making to the council since October 2006. According to the CRA/LA, the Richard Ellis appraisal was obtained by the “Developer.”
The CRA/LA and CD #13 have concealed from this council, the May 23, 2006 Pacific Real Estate Consultants’ appraisal which the CRA/LA had obtained on May 23, 2006, showing an appraisal value of only $4,070,000.00, which is $1.38 M less than the Ellis Appraisal.
The withholding of this lower appraisal from the City Council has the prima facie elements of fraud:
1. A $1.38 M discrepancy in two appraisals of the same property conducted in the same month is material.
2. When the CRA/LA’s own appraisal is materially less than the Developer’s appraisal, the CRA/LA and CD #13 had the duty of full disclosure to the council. Instead, no mention can be found of the $4.0 M appraisal in the documents submitted to the council in 2006 or at any time thereafter including the most recent CRA/LA report on 7-15-10
3. The withholding of the May 23, 2006 $4.0 M appraisal was a material misrepresentation by omission. Not only does the CRA/LA owe duties of full disclosure to the City Council, once a party undertakes to make disclosure on a subject, it may not simultaneously conceal other data which the recipient would consider material if he/she knew about it.
4. Although two separate CPRA Requests have been made to the CRA/LA for the Richard Ellis $5.4 appraisal, it has not been provided.
5. Presumably, all councilmembers, except CD #13, relied on the material representation that there was only one appraisal and it was for $5,450,000.00.
6. Presumably, no councilmembers, other than CD #13, would have voted to pay $5.4 M for a piece of property which the CRA/LA’s own appraisal said was worth only $4.0 M.
7. Because criminal behavior tends to break the chain of causation, Councilmembers cannot be charged with foreseeing that a materially lower appraisal also existed. Thus, their reliance was.justified. In a criminal investigation, however, there should be the Nixonian question to each councilmember, “What did you know and when did you know it?”
8. The City and its taxpayers were damaged by paying $1.3 M too much for the Property, and in addition, the City has lost interest on $1.3 M for the last four years.
Thus, there is a prima facie case that the CRA/LA along with CD #13 made materially false representations by wrongfully withholding material data and the Council justifiably and detrimentally on relied false represen-tations, resulting in the City’s being defrauded out of at least $1.3 M.
The Need for Criminal Investigations:
The time has arrived for a criminal fraud investigation into the entire deal(s) with respect to 1601 N Vine.
There are many additional questions with The Property including but not limited to who owned The Property. While the CRA/LA advises the Council that the seller was the Developer (Hal Katersky, Dana Arnold, Pacifica Ventures), the CRA/LA advised KMA that it purchased the property from Steve Ullman. As councilmembers know, there had been serious questions about the propriety of the sale/purchase and the appraisal for the Ullman “Capitol Records” parking lot. Thus, it appears that CRA/LA and CD #13 falsely represented to the Council in 2006 who was the real seller of 1601 N. Vine to CRA/LA.
The CRA/LA and the City Council have been aware that the public has been scrutinizing the questionable activity surrounding The Property. There have been a series of articles in CityWatch, with the first mention in the June 25, 2010 article, CRA has LA’s Council in a Mind Warp, and with detailed articles by Jack Humphreville. See for example, The Unpleasant Aroma of a CRA Deal, see also Ron Kaye LA, October 6, 2010 blog, The Art of the Deal: CRA, Molly’s Burgers, Hal Katersky – and Your Money.
At each council session where this property is on the agenda, more questions arise, but to date the City Council has stonewalled everyone. For the Council to continue with this deal is to knowingly ratify fraud.
A $1.3 M swindle is definitely in the felonious range and the Council has the duty to halt this project and to call in an outside authority to con-duct a criminal investigation. As the FBI is already conducting a criminal investigation of David Rubin and LA Housing, it seems that the FBI is the agency with whom the public would be most comfortable.
Furthermore, The City should initiate legal proceedings to recoup the $1.38 M over payment to whomever the funds were actually paid in 2006. Due to the conflict in interest which the City Attorney’s Office has in pur-suing private parties such as Katersky, Arnold, and Ullman when the litigation is likely to uncover wrongdoing by city officials, an independent law firm, without any ties to the Councilmembers or to any of their family members, needs to be retained.
This matter needs to be resolved in the courts, not in back rooms or even the Council Chamber.
Very truly yours,