Embattled Los Angeles developer Shangri-La Industries, which has left a trail of unpaid debts, unfinished projects and foreclosure threats since it took $114 million from the state to convert motels into housing for the homeless, is now accusing its former chief financial officer of embezzling millions of dollars to fund an extravagant lifestyle.
Shangri-La, which is being sued by state housing authorities for breaching the terms of its agreement under Gov. Gavin Newsom’s signature Project Homekey program, alleges in a lawsuit that former CFO Cody Holmes, 29, engaged in bank fraud and check kiting in 2022 and 2023 with Shangri-La’s lenders, banks and brokers.
The suit, filed last month in Los Angeles Superior Court, seeks more than $40 million in damages and other costs.
Holmes, according to the lawsuit, allegedly transferred vast sums of company cash and property to bank accounts and shell companies he set up and controlled and to his suspected ex-girlfriend, Madeline Witt, 28, who is a defendant in the lawsuit.
He used the money to host extravagant parties, cover $46,000 a month in rent at a leased home in Beverly Hills, travel regularly on private jets, lease exotic cars — including a 2021 Bentley Bentayga and a Ferrari Portofino — and even $12,000 to cover a student loan payment, the lawsuit alleges.
Additionally, Holmes purchased high-dollar luxury items for himself and Witt, including two Birken handbags valued at nearly $128,000, Chanel and Louis Vuitton handbags valued at more than $14,000, a $127,000 Riviera diamond necklace, a $35,000 Audemars Piguet diamond watch, and 20 VIP passes for the 2023 Coachella Music and Arts Festival valued at more than $53,000, according to the suit.
Holmes and Witt did not respond to multiple emails, telephone calls and text messages requesting comment.
Legal maneuvering
Attorneys representing Shangri-La, its affiliate businesses and Chief Executive Officer Andrew Meyers Abdul Wahab, who professionally uses the surname “Meyers,” filed the suit seeking a temporary restraining order that would prevent Holmes from withdrawing money from nine bank accounts he controls.
Shangri-La fired Holmes in January following an internal investigation, according to court records.
“For the past two years, defendant Cody Holmes has looted Shangri-La and its subsidiaries of public funds earmarked for Shangri-La’s affordable housing projects,” attorney Brian A. Sun said in the motion filed March 6. “A (temporary restraining order) will prevent the public funds embezzled by Holmes from being hidden, withdrawn, or used to purchase extravagant expenses.”
Sun, according to his motion, said Holmes continued to make extravagant purchases after he was fired from Shangri-La, including leasing a 2024 Porsche Taycar and renting another luxury home in the Hollywood Hills.
A judge denied Sun’s request on March 7, but the lawyer said he plans to push the issue by refiling another motion.
In a telephone interview, Sun said Holmes is “dissipating assets as we speak. He’s selling off assets.”
Homekey program
Since 2020, the state Department of Housing and Community Development has provided Shangri-La Industries more than $114 million in Homekey funds to convert motels up and down the state into permanent supportive housing for the homeless.
Shangri-La has partnered with the Santa Monica-based nonprofit Step Up on Second, which provides support services to the homeless, in its efforts to purchase and upgrade motel properties and set up housing operations for the homeless.
Problems began surfacing when lenders and general contractors and subcontractors stopped being paid. Dozens of mechanic’s liens totaling millions of dollars have been filed over the past year at county recorder offices where the Homekey projects were located.
At the San Bernardino County Recorder’s Office alone, more than $2 million in liens were filed from March 7 to May 3, 2023, by contractors and suppliers not paid for work completed at the former Good Nite Inn in Redlands, now called Step Up in Redlands, and the former All Star Lodge in San Bernardino, now Step Up in San Bernardino.
Step Up in Redlands, which opened in January 2023, and Step Up in San Bernardino, which opened in March 2023, are the only two of Shangri-La’s seven Homekey-funded projects that were completed and are now operating.
Another of the developer’s Homekey projects, at the former Salinas Inn, has 44 units and is about 95% complete, Sun said.
State action
In January, the state Department of Housing and Community Development sued Shangri-La Industries and its partners in the Homekey projects, including the county of San Bernardino, the city of Redlands and Step Up on Second.
The state alleged Shangri-La and its co-defendants breached their obligations, granting and recording deeds of trust to secure loans from the third-party lenders without first obtaining the state’s written authorization, as required under the Homekey agreements.
Newsom launched Project Homekey in June 2020 to protect unhoused individuals from the threat of the coronavirus pandemic. The state has allocated more than $3 billion to cities and counties to purchase motels, hotels, vacant apartment buildings and other properties to provide permanent housing for the homeless.
The state alleges in its lawsuit that for each of its Homekey-funded projects, Shangri-La used the address of each motel to create undercapitalized shell companies to engage in misconduct. All the hotel properties face possible foreclosure, according to the lawsuit, which is set for a status conference on April 17.
Officials at the Department of Housing and Community Development did not respond to requests for comment. It could not be determined whether the state is conducting a criminal investigation.
Career trajectory
Holmes, according to the lawsuit, began working at Shangri-La as in intern in 2014 while still an undergraduate at USC. He earned his master’s degree in finance while working at the company as its director of finance.
When the company’s chief financial officer left in 2019, Meyers made Holmes its new CFO, according to the lawsuit.
“Meyers promoted Holmes to CFO because Meyers believed Holmes to be an intelligent problem solver and resourceful employee. Most importantly, Meyers trusted Holmes,” according to the lawsuit. “Holmes exploited that trust and intentionally deceived plaintiffs in order to enrich himself and his then girlfriend, defendant Witt.”
Alleged fraud
On March 22, 2023, the lawsuit alleges, Holmes recorded a fraudulent deed of trust on one of Shangri-La’s Homekey properties, the Salinas Inn at 1030 Fairview Ave. He falsely represented that the property owed money to one of Holmes’ alleged shell companies, Millenium Partners Inc., which was doing business as 310 REIT, according to the lawsuit.
In June 2023, Meyers and Shangri-La’s affiliates received notice from a lender that one of its Los Angeles properties, a vacant lot at 1228 Normandie Ave., was in default, even though Shangri-La and its affiliates paid cash for the property in September 2021 and it was completely debt free.
The lawsuit alleges Holmes, “without plaintiff’s knowledge or authorization, encumbered the property with loans and then allowed the loans to default.”
Holmes also used other people’s identifying information, including that of Meyers, to misappropriate funds from Shangri-La and its affiliated businesses, the suit alleges.
In April 2022, according to the lawsuit, Holmes forged Meyers’ signature on a lease for a 2021 Bentley Bentayga and created a fake email account to communicate with the lender. Two months later, Holmes allegedly forged Meyers’ signature again, this time on a lease agreement for the $46,000-a-month rental house in Beverly Hills.
Additionally, the lawsuit accuses Holmes of engaging in check kiting by drafting checks drawn on his alleged shell companies’ bank accounts and depositing them into the bank accounts of Shangri-La and/or those of its affiliates, knowing there were insufficient funds to cover the checks.
14 lawsuits over unpaid debts
Holmes’ conduct, the lawsuit alleges, is responsible for at least 14 lawsuits filed by lenders and general contractors up and down the state involved in Shangri-La-affiliated motel conversion projects who claim they were never paid. Half of the lawsuits were filed in San Bernardino County and involve the San Bernardino and Redlands projects.
The other Homekey projects include three in Salinas, one in Thousands Oaks and another in King City.
“Many of the projects remain incomplete due to the fiscal malfeasance and mismanagement of defendant Holmes,” according to the lawsuit.
Some of the contractors who filed mechanic’s liens and/or sued Shangri-La due to nonpayment or breach of contract were stunned to learn about Holmes’ alleged transgressions.
“I’m going to be really surprised if this guy doesn’t wind up in the Bahamas. It’s shady,” said Adolfo Gomringer, owner of Monrovia-based AG Flooring Inc.
Gomringer said his company is still owed $93,000 for demolition and metal framing work his company did at the former All Star Lodge in San Bernardino.
“This sounds like a movie script. Pretty crazy. It’s unfortunate,” said Gomringer, who said he remains in contact with representatives at Shangri-La, who assure him he will be paid. For now, however, Gomringer said he’s counting it as a loss.
Gino Gjoka, managing partner at Northstar Development & Construction Inc. in Ontario, which served as the “supercontractor” on the Redlands, San Bernardino and the Salinas Inn Homekey projects and has filed three separate lawsuits against Shangri-La, echoed Gomringer’s sentiments.
“They should make a Netflix show of this whole thing. A lot of crap going on,” Gjoka said in a telephone interview.
He said he remains concerned about the subcontactors who put their “blood, sweat and tears” into the projects but have gone unpaid. Some of the contractors used their own funds and credit lines to complete the jobs, Gjoka said.
He remains skeptical about Shangri-La’s allegations against Holmes, and questions the developer’s own culpability.
“I don’t buy any of it,” Gjoka said. “All of a sudden they’re turning against each other. I don’t know what kind of business owner would let some other employee do all of that without noticing. It doesn’t sound correct.”
Source: Orange County Register
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