Three Charged in Alleged $12 Million Southern California Homelessness Aid Fraud

Federal law enforcement officers arrested two Los Angeles-area homelessness nonprofit employees early Wednesday, Sept. 16, on federal charges alleging misuse of millions in taxpayer dollars.

Federal prosecutors have charged three people in an alleged $12 million homelessness aid fraud in Southern California, according to Associated Press reporting carried by WoodTV. Two are in custody. A third is sought.

Who was arrested

The Justice Department identified those arrested as Michael Young, 46, of Baldwin Hills, founder of the Culver City-based nonprofit Home At Last, and Lakiya Malone, 48, an employee of the Los Angeles-based Special Service for Groups. Both were expected to appear in court on Wednesday, according to The Guardian.

The third defendant is Donye Mitchell, 55, of Orange, also listed under the alias "Danya Mitchell." Mitchell is identified as CEO of the Los Angeles-based nonprofit The Big Blue Umbrella. The Justice Department is seeking to arrest Mitchell.

What prosecutors allege

Young is charged with wire fraud, the use of electronic transfers or communications to carry out an alleged fraud, in a scheme to embezzle more than $7.5 million from contracts with Los Angeles County and other publicly funded agencies. The Justice Department alleges a broader misuse of more than $12 million in taxpayer funds through Home At Last, which the department says received more than $100 million in taxpayer funds.

Prosecutors allege Young diverted the funds through shell companies, paper-only businesses that can hide where money goes, and then into commercial real estate and hospitality projects. The alleged uses include financing construction of a nightclub and adjacent bingo hall and spending more than $1 million in taxpayer money to open and operate a high-end restaurant.

Malone is charged separately with taking more than $180,000 in bribes and kickbacks, payments allegedly made in exchange for favorable decisions, from Alexander Soofer, described as director of another homelessness nonprofit. Soofer has agreed to plead guilty in a separate case.

Mitchell is charged with wire fraud for allegedly fraudulently obtaining $1.2 million in public grant funding. Prosecutors allege Mitchell used the money for personal expenses, including bail bonds, credit card debt and PlayStation charges.

How the case was investigated

The investigation was led by the Homelessness Fraud and Corruption Task Force formed by U.S. Attorney Bill Essayli to investigate fraud involving homelessness funds within the seven-county Central District of California. The jurisdiction covers Los Angeles, Orange, Riverside, San Bernardino, San Luis Obispo, Santa Barbara and Ventura counties. IRS Criminal Investigation's Los Angeles Field Office participated in the investigation. Officials listed in connection with the case include Darren Lian, Special Agent in Charge of IRS Criminal Investigation's Los Angeles Field Office, and Colin M. McDonald, Assistant Attorney General of the Justice Department's National Fraud Enforcement Division.

The broader context here is the structure prosecutors chose. They paired an embezzlement allegation tied to county contracts with a bribery allegation involving staff at separate nonprofits and a grant-fraud allegation based on personal spending. That suggests a task-force focus on the full chain of spending, from county contracts to subcontracted services to grant administration, rather than on one organization alone. For operators in publicly funded services, the questions to watch involve controls on related-party transfers, records for funds moved through shell entities, and oversight of contracting decisions where kickbacks are alleged. The next steps to watch are the initial appearances for Young and Malone, the effort to take Mitchell into custody, and the separate guilty plea proceeding for Soofer.