A now-defunct construction company affiliated with Miami-based Pinnacle Housing Group was charged Thursday with stealing federal money by inflating the costs of four tax-subsidized apartment projects — resulting in a $5.2 million payment to the U.S. government to resolve the prosecution.
Federal prosecutors who accused Pinnacle’s former affiliate of theft from a government tax-credit program for affordable housing development will eventually dismiss the criminal case under a so-called deferred prosecution agreement.
Prosecutors accused the affiliate, DAXC, of inflating the construction costs of four low-income housing projects to obtain $3.4 million in excess federal tax credits and of collecting $800,000 in development and construction fees that benefited Pinnacle’s four partners and a fifth principal. Pinnacle’s partners are Louis Wolfson III, Michael Wohl, David Deutch and Mitchell Friedman, along with their DAXC partner Felix Braverman.
The five men, who were not charged, had to pay back that money plus a $1 million fine under the terms of the deal with the U.S. attorney’s office in Miami.
In the deferred prosecution agreement, Pinnacle’s affiliate, DAXC, accepted responsibility for the “acts” of its five principals in a factual statement attached to the deal struck between federal prosecutors and the subcontractor’s lawyer, Stephen Binhak.
“As a result of the inflated construction contracts, [a state agency] authorized excess federal tax and grant monies, funds of which ultimately went to DAXC for [the four] developments that were neither needed for or used for construction,” the factual statements said.
The latest federal crackdown follows the 2015 criminal prosecution of Miami-based Carlisle Development Group’s CEO, Matthew Greer, founder Lloyd Boggio and five others for stealing tens of millions of dollars from the U.S. government’s tax-credit program for affordable housing. Greer and Boggio, who struck plea deals, are serving several years in prison for inflating the costs of more than a dozen South Florida projects, building them for lower amounts and taking kickbacks from contractors.
Pinnacle, one of the state’s leading builders of affordable housing, issued a statement Thursday saying it set up the construction affiliate, DAXC, in 2009 in the aftermath of the recession and obtained tax credits for the four low-income apartment projects from the Florida Housing Finance Corporation. The four projects in question are Avery Glen in Sunrise, Cypress Grove in Winter Haven, Orchid Grove in Homestead and Vista Mar in Miami.
“Recently, the federal government contacted Pinnacle about DAXC, and indicated that profits generated by DAXC on these four developments were unwarranted,” Pinnacle said. “Upon learning of this, DAXC voluntarily returned the profits along with a fine, thus concluding the inquiry.”
Prosecutors alleged Pinnacle’s affiliate, DAXC, inflated the costs for concrete shell work —foundation and walls — on the four projects that were submitted in contracts to the Florida Housing Finance Corp. That affiliate, however, did not have the manpower and equipment to do the actual shell work, according to prosecutors Michael Sherwin and Michael Berger. It was completed by another Pinnacle subcontractor between 2009 and 2011.
“Nonetheless, during that period, DAXC retained the excess funds from the inflated construction contracts,” according to the charging document filed in Miami federal court.
Florida Housing Finance Corporation, which administers the tax-credit program for low-income projects, said it “will pursue a ban” on Pinnacle from applying for or participating in any funding programs. The length of the ban is yet to be determined, the agency said. Developers use the credits, which are sold to investors for breaks on their income tax returns, to cover construction costs on projects.
“One of our main priorities is to ensure that all applicable federal and state rules and laws are followed,” Ken Reecy, Florida Housing’s interim executive director, said in a statement.
“We worked closely to assist officials from the U.S. attorney’s office and appreciate their efforts to help identify misuse and abuse of a program that is vital to providing low-income citizens of this state with affordable options for safe and decent housing.”