Fraud alleged at rebuilt East Lake apartment community
By Maria Saporta
Published in the Atlanta Business Chronicle on August 23, 2013
The owner of the Villages of East Lake has filed a lawsuit against the former manager of the mixed-income apartment community alleging fraud and embezzlement.
The lawsuit was filed in federal court in Atlanta on Aug. 12 by East Lake Redevelopment L.P. and East Lake Redevelopment II L.P. against Mercy Housing Management Group Inc., a division of Mercy Services Corp., a nonprofit based in Nebraska with its headquarters in Denver.
The redevelopment of the East Lake community has received national, if not international, acclaim for transforming a poverty-stricken and crime-ridden neighborhood into a thriving residential community with strong schools and a low crime rate.
The East Lake story has been so successful that its visionary, developer Tom Cousins, has established a national organization — Purpose Built Communities — to help other areas in the United States replicate that success. Purpose Built is supported by three philanthropists — Cousins; Julian Robertson, a retired hedge fund manager; and Warren Buffett of Berkshire Hathaway.
Mercy was managing the 542-unit apartment complex for the East Lake partnership group that developed the Villages of East Lake. The lawsuit claims “fraud, conspiracy to commit fraud” as well as “alleged misconduct by former Mercy Housing employees.”
It says problems began to surface in 2010.
“Mercy Housing’s dishonest conduct has put at risk the benefits of the rebuilding of the East Lake Community by causing its regression to the same acts of abuse, corruption, misuse and neglect that led to its previous decline,” the lawsuit states.
Specifically, the plaintiffs allege Mercy Housing employees engaged in “unauthorized and unsubstantiated spending at Publix in excess of $54,000; and granted unjustified rent concessions in excess of $434,000.”
“Mercy Housing employees were engaged in a scheme to defraud, convert and embezzle funds from East Lake by accepting cash payments from residents, pocketing the money, and thereafter attempting to cover up their improper conduct by manually altering and manipulating the rent ledgers,” the complaint states.
Greg Giornelli, president of the East Lake Foundation and someone who has been involved with the East Lake redevelopment project since the beginning in 1995, declined comment, citing the pending litigation.
Barbara Faulhaber, director of communications for Mercy Housing, said the organization takes great pride in the welfare of those it serves.
“We are very concerned about the recent legal action regarding our property management division and the Villages of East Lake property,” Faulhaber said. “Because the case is in active litigation, we cannot comment on any specific details, but we do deny any intentional fraud and wrong-doing. The actions of two former employees do not represent the values of Mercy Housing, and we did everything possible to resolve the issue once it was discovered.”
The vision for East Lake was a public-private partnership that included Cousins, a developer and philanthropist, who had bought the East Lake Golf Course (made famous by amateur golfer Bobby Jones) and believed that he could renovate that amenity and help spark a renaissance in the community.
At the same time, the Atlanta Housing Authority had started to demolish its traditional low-income housing projects and replace them with mixed-income apartment communities through what was the HOPE VI program.
The East Lake Meadows housing project had been one of the worst in the city with such a high crime rate that it had become known as “Little Vietnam.”
The housing project was demolished and replaced with the Villages of East Lake — 542 townhouses, duplexes and garden apartments.
At the same time, the Charles R. Drew Charter School was established — serving 1,200 students in grades pre-K to grade nine.
A nine-hole public golf course also was developed — the Charlie Yates Golf Course — which is home to the First Tee of East Lake.
The community also has several other amenities: the East Lake Community Learning Garden and Urban Farm; the East Lake Family YMCA; the East Lake Learning Academy; and the Sheltering Arms Early Education and Family Center for children from birth to kindergarten.
The transformation since 1995 has been dramatic. Violent crime has been reduced by 95 percent. In 1995, 59 percent of the adults relied on welfare; today that number has dropped to 5 percent. In 1995, fewer than a third of the students in the neighborhood graduated from high school. Today 98 percent of Drew’s students meet or exceed the state standards for reading, language arts and math. Drew also is building a high school.