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Sue Ehrlich

© Santa Maria Times

Sue Ehrlich

Housing Scandal Goes Radioactive

DA Executes Search Warrants on Defunct Lompoc Nonprofit

Thursday, September 27, 2012
By Nick Welsh (Contact)

Armed with 12 search warrants, investigators with the Santa Barbara District Attorney’s Office seized 30 boxes of financial records and at least one computer from the former director of the recently bankrupt Lompoc Housing and Community Development Corporation (LHCDC) and its agents on September 12 and 13. Assistant DA Kelly Scott of Santa Maria obtained search warrants against Sue Ehrlich, the embattled ex-director of what for years had been Lompoc’s biggest provider of affordable housing, and several accounting firms that worked with Lompoc Housing after persuading Judge James Iwasko that there was credible evidence embezzlement might have occurred.

Scott explained she took action after being contacted by County Auditor Bob Geis, who complained Ehrlich and other officers of Lompoc Housing had repeatedly refused to provide him the financial records needed to perform a forensic audit, as the County Board of Supervisors had instructed him to do. Geis lacks the legal authority to subpoena documents. Scott explained the term “embezzlement” has many legal meanings, not all of which relate to personal enrichment.

The county, she noted, had given Lompoc Housing $50,000 to get its notoriously unkempt financial books in order, but Geis complained that Ehrlich had improperly used that money to pay down mounting debts instead. For the record, sources with Lompoc Housing insist county officials were notified at the time how that $50,000 would be spent and, in addition, that they gave Geis all of the nonprofit agency’s old checkbooks. Geis’s second-in-command, Theo Fallati, explained that’s not enough to conduct the audit requested. When his office told Ehrlich that, he said she would reply, “We’ve given you everything that we have.” He added that none of the seized documents have been turned over to his office yet, and it’s premature to say whether the boxes of records will fill in the gaps.

When Lompoc Housing shut down its two homeless shelters earlier this year and lost possession of its 255 units of affordable housing (due to foreclosure and default) secured over the years with nearly $6 million in public funds, Santa Barbara’s Grand Jury reported it was a train wreck that many saw coming but few did anything about. For years, Lompoc Housing had repeatedly failed to submit the financial reports and records required of nonprofit agencies operating with public monies despite numerous requests; its properties, run-down by prolonged deferred maintenance, were poorly managed.

“I’m concerned about the probable political motivation behind some of the actions thus far, and we are investigating the matter.” - Bob Sanger

The problems preceded the stock market crash and the recent recession, and began when Ehrlich branched out of affordable-housing development and into commercial revitalization projects in downtown Lompoc. Critics have long speculated that the organization was insulated from critical oversight because Supervisor Joni Gray’s husband, George Wittenberg, served as the group’s legal counsel for years and that Gray’s longtime administrative assistant Sue Warnstrom ​— ​who has since resigned ​— ​served as the group’s president. Those concerns were very much on the mind of noted criminal defense attorney Bob Sanger, who’s been retained by the Lompoc Housing, when he said, “I’m concerned about the probable political motivation behind some of the actions thus far, and we are investigating the matter.”

Most of the millions in public funds lost by Lompoc Housing originated with the federal Department of Housing and Urban Development (HUD), and was first funneled to the county Housing and Community Development department or the City of Lompoc, and then to various nonprofit entities known as Community Housing Development Organizations, or CHDOs.

In the wake of Lompoc Housing’s collapse, HUD was strangely silent, even as county supervisors wrung their hands and Lompoc city councilmembers demanded answers. Late this August, officials with HUD’s Los Angeles offices initiated an audit of how the county’s Housing and Community Development managed its funds and cast an extremely critical look at three of the county’s four CHDOs, all of which have managed to weather the recession in relatively good financial condition.

Strikingly, the one agency it did not audit was Lompoc Housing. The other three ​— ​Santa Maria’s Good Samaritan, Peoples’ Self-Help Housing, and Surf Development, an adjunct of the county Housing Authority ​— ​were deemed to have been improperly certified as CHDOs. Pending resolution of this dispute, HUD has announced that all further funding to these agencies would be cut off. How long the resolution will take remains anybody’s guess.

But for Sylvia Bernard, director of Good Samaritan, the cut threatens her agency with economic ruin. “We’re right in the middle of building a 16-unit affordable-housing project in Santa Maria,” she said. “We have $500,000 in outstanding bills that we are expecting the county to cover with HUD funds. If we don’t pay our contractors and our subcontractors, we could get slapped with stop-work orders as early as next week.”

While most affected officials are extremely reluctant to say much of anything pending resolution of the conflict, Fred Lamont of the County Housing Authority was extremely outspoken while addressing the Lompoc City Council last week. When asked why he thought Lompoc Housing was excluded from the audit, Lamont said he thought it might be because Ehrlich and HUD auditor Cynthia Blatt were close personal friends. Blatt was out of her office until later this week and not available for comment, and the coworker to whom she referred calls in her absence did not return calls for comment.

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