Federal investigators are seeking to learn if the Related Group, Miami’s biggest developer, lowered costs on an affordable-housing project by hiring subcontractors who failed to pay employment taxes, the Miami Herald has learned. … Related’s business practices are under scrutiny because of a long-running federal investigation into South Florida’s affordable-housing industry. … Even so, the U.S. Attorney’s Office and IRS are investigating the project’s cost structure to determine if Related padded bills and hung onto profits illegally, violations which could bring criminal charges, sources said. Prosecutors have already successfully targeted three other affordable-housing developers in Miami-Dade — Carlisle Development Group, Biscayne Housing Group and Pinnacle Housing Group — that used federal tax credits. The new investigation focuses on whether developers misused county funds.
Miami Developer in Hot Seat Over Low-Income Housing Fraud
Source: Samantha Joseph, Daily Business Review, March 21, 2017
A South Florida developer is in the hot seat after an uptick in fraud among developers using government credits to fund low-income housing ventures grabbed prosecutors’ attention. Pinnacle Housing Group Inc. affiliate DAXC LLC is accused of inflating construction costs to gain about $4.2 million from low-income apartment complexes in Miami, Sunrise, Homestead and Winter Haven. It paid $5.2 million, including forfeiture, and a $1 million fine to the federal government under a deferred prosecution agreement released Monday. Pinnacle’s affiliated contractor solicited bids for concrete shell work for housing developments from 2009 to 2011. It received final bids from a subcontractor to build the concrete structures, but instead of signing contracts with that company, it entered agreements with DAXC at rates of up to $1.5 million above the bids. DAXC in turn paid the subcontractor at the lower rates, making net profits of about $3.1 million. … The apartments rose during the housing market collapse, when contractors tasked with creating concrete shells often went out of business, leaving developers on the hook for stranded projects. Pinnacle’s use of DAXC as a middleman might have been part of a strategy to shield the developer from potential liens. The company has developed more than 8,500 affordable housing units over about 20 years in business. …