Federal LIHTC Investigation Widens in Florida to Banks

At the end of 2016, Miami developer Matthew Greer, former CEO of Carlisle Development Group, pleaded guilty to stealing $16 million from the LIHTC program and was sentenced to three years in prison. The prosecutor in the case was Assistant U.S. Attorney Michael Sherwin, who has spent a number of years investigating the LIHTC program in Florida. At the time, as a result of his investigation, Steve Auger, the man who ran Florida’s housing agency at the time of the Carlisle Group’s fraud scheme, was forced to resign from the agency after an audit revealed he spent more than $50,000 on a steak and lobster dinner for affordable housing lenders and gave his own staff almost half a million dollars in bonuses.

A few months later, Sherwin charged a Miami-based shell company called DAXC LLC, belonging to the owners of Pinnacle Housing Group, another one of the largest developers in the country, with the theft of $4 million from four tax credit developments. In an agreement with prosecutors, a DAXC representative acknowledged that the company “inflated costs” for its own “personal benefit.”

Sherwin is not done investigating players in the LIHTC program. He has turned his attention to more developers with projects in other states and to the banks, lenders, and syndicators. In a recent quarterly Securities and Exchange Commission filing, Wells Fargo, a leading LIHTC investor, acknowledged that government agencies were looking into its purchase and negotiation of LIHTCs. Officials are looking into whether Wells Fargo colluded with developers to drive down the price of LIHTCs. In return, the bank would offer developers better loan terms or agree to fund less desirable deals, said the report. The U.S. Attorney’s office in Miami convened a grand jury to look into the accusations against Wells Fargo.

Also, it was recently reported that PNC bank has received subpoenas from federal prosecutors in Florida over practices related to its purchases of low-income housing tax credits. As part of the LIHTC program, the IRS issues low-income housing tax credits annually to state and local housing agencies through a competitive process. The agencies then award them to property developers, who sell them to banks and other investors. That gives the developers cash to construct new housing, while the banks get a dollar-for-dollar reduction in their corporate tax bills, typically spread out over 10 years.

For the banks, in addition to receiving a tax deduction equal to the amount paid for the credit, the banks enjoy depreciation deductions on the properties and help in meeting their requirements to lend to borrowers in low- and moderate-income neighborhoods. As a result, the LIHTCs have become a multibillion dollar industry that’s dominated by big banks.