NYC Six developers indicted in alleged 421-a fraud

Six real estate developers have been indicted on charges of defrauding the 421-a tax abatement program of more than $1.6 million across six Brooklyn buildings, the Manhattan District Attorney's Office announced Wednesday. It was the office’s first formal charge under its new Housing and Tenant Protection Unit, which launched last week.

Developers Joel John, Michael Ambrosino, Alen Paknoush, Mendel Gold, Ioan Sita and Gheorge Sita and their real estate corporations face multiple charges, including grand larceny in the second degree, city criminal tax fraud and offering a false instrument for filing in the first degree.

The buildings involved are 70 Bushwick Ave., 300 Eldert St., 682 Bushwick Ave., 305 Stockholm St.,140 Stanhope St. and 1140 Bushwick Ave.

The developers are accused of violating the terms of the 421-a program by submitting falsified documents claiming that the designated affordable units in these buildings would be rented to qualified tenants. In reality, the DA’s office alleged, they rented the units at higher rates to tenants who, in some cases, did not qualify for affordable housing. Some units rented at more than $1,000 per month above what they should have been under the 421-a program, the DA’s office claimed in the indictment announcement.

Wednesday’s charges through the Manhattan District Attorney's Office follow a string of class-action lawsuits filed earlier this month by law firm Newman Ferrara against developers Atlas Capital Group, Heatherwood and Artimus Construction that claim 421-a abuses at properties in Brooklyn, Long Island City and Manhattan.

The charges arguably lend traction to longstanding calls for reform that have followed the controversial tax break program.

The 421-a program, launched in 1971, attempted to encourage affordable housing development by offering developers a tax break in return for making 30% of their units affordable. The developer community has staunchly supported it as the only way to economically incentivize affordable housing creation. Detractors have claimed that it doesn’t produce enough revenue to offset the loss in tax dollars.

Critics maintain that the housing created under 421-a isn’t truly affordable becuase the program allows developers to charge up to 130% of the area median income--for a family of four, that’s more than $130,000, Crain’s reported during the summer.

The program has been up for renewal multiple times over the years, and each time lawmakers have voted to extend it—until now. In June 421-a finally expired after negotiations in Albany fell through.

Gov. Kathy Hochul had pushed to revive the tax break during budget negotiations, proposing an altered version called 485-w that would have made all affordable units permanently subject to rent stabilization. It would have rejected eligibility for higher earners and offered expanded tax benefits for condos and co-ops. The proposal, however, did not appear in the state's final budget agreement and did not pass the state Legislature afterward, leaving the path forward unclear for a future iteration of the tax break.

“At a time when affordable housing is crucial for New Yorkers, and for the city’s recovery from the pandemic, these landlords, as charged, enriched themselves by fraudulently obtaining over $1 million in tax credits from the city that were intended to promote affordable housing,” Jocelyn Strauber, commissioner of the city Department of Investigation, alleged at the DA's livestreamed announcement.

“DOI and our partners at the Manhattan District Attorney's Office and the city Department of Housing Preservation and Development will continue to protect affordable housing benefits for New Yorkers who are eligible for them and hold accountable those who exploit these tax credits for their personal gain,” Strauber added.