Cody Holmes, whose greed and the position of trust bestowed upon him at the age of 27 combined to threaten the viability of two of the more promising homeless rehabilitation programs undertaken in San Bernardino County and, indeed, the state of California, has been charged by federal authorities with fraud, more than two years after the extent of the embezzlement and other depredations he engaged him became publicly known.
Cody Holmes, 31, of Beverly Hills, was arrested Thursday morning on a federal criminal complaint charging him with mail fraud, a felony offense that carries a statutory maximum sentence of 20 years in federal prison.
Holmes made his initial appearance this Thursday afternoon in United States District Court in downtown Los Angeles. No plea was taken.
Holmes perfidy undid the efforts of dozens or scores of local officials in four municipalities in California and San Bernardino County’s governmental structure, and destroyed or nearly destroyed benefits intended for hundreds of people living on the streets.
Redlands and the cities of Salinas, King and Thousand Oaks were among  dozens of California cities that moved to take advantage of money being offered by the State of California through its Department of Housing and Community Development via the so-called Homekey Program, which was being pushed by Governor Gavin Newsom at around the time of the COVID-19 pandemic in 2020. San Bernardino County also sought to make use of that program. 
Using Homekey funds and matching city money, Redlands partnered with Step Up on Second, a Santa Monica-based nonprofit to take possession of the Good Nite Inn, located on Industrial Avenue, and convert its 98 hotel rooms into mini-living quarters, complete with kitchenettes and bathrooms to house and support, variously, individual homeless or homeless couples. Step Up on Second affiliated with Shangri-La Industries, to engage in those conversions.
Similarly, All Star Lodge, a former San Bernardino hotel with 76 single and one-bedroom units, was converted to interim to permanent housing for individuals and families through the County of San Bernardino’s participation in the Homekey Program.
Work on those projects progressed well. In March 2023, the facilities opened, becoming what were, in the most straightforward of terms, two of the best examples of how a state/local public agency/private industry solution to the homeless problem could be applied. Both projects were among the first real successes of the Homekey program.
Unbeknownst to virtually everyone involved, however, then-28-year-old Holmes, using his position as Shangri-La’s chief financial officer, embezzled an estimated $40 million from the company, which resulted in Shangri-La defaulting on the loans taken out to complete multiple construction projects for homeless shelters, including the Good Nite Inn in Redlands, the All Star Lodge in San Bernardino, one in the City of King, one in Thousand Oaks and three in Salinas. As pertained to the Good Nite Inn conversion project, Shangri-La received $30 million originating with the State of California passed along to it through the Department of Housing and Community Development and the City of Redlands, but then defaulted on a $12 million private loan it obtained in June 2022 to purchase the motel.
While precisely how Holmes utilized all the money he diverted might never be tallied in detail, it is known that he used money flowing through Shangri-La’s accounts to make $4.3 million in a down payment and a principal payment in July 2022 through a company he created, Holmes Capital, toward the purchase of a seven-bed, 11-bath 11,000-square-foot mansion at 9301 Cherokee Lane in Beverly Hills valued at $13.4 million; make over half of a million dollars in $48,000-per-month lease payments on another Beverly Hills property for over a year; lay out $54,400 in company funds on 20 VIP passes to the Coachella Valley Music and Arts Festival; another $43,475 for private jet travel; purchase his then-girlfriend, Madeline Witt, a $111,000 Birkin bag; spend another $16,839 for a Hermes Orange Togo Birkin; buy a $35,000 Audemars Piaget diamond watch; and acquire a $127,073 53-carat weight diamond necklace. Simultaneously, Holmes was leasing, using Shangri-La funds, a 2021 Bentley Bentayaga and a Ferrari Portofino.
The fallout from Holmes’ action dealt a near-fatal blow to the concept of altruistic assistance to the homeless in the cities of San Bernardino, Redlands, Thousand Oaks, King, Salinas and elsewhere.  The State of California sued city of Redlands, the County of San Bernardino, the City of King, the City of Thousand Oaks, the City of Salinas and Step Up on Second, together with PMF CA Real Estate Investment Trust, Qualfax, BMO Harris Bank, California TD Specialists, PPRF Real Estate Investment Trust, Lone Oak Fund, Arixa Institutional Lending Partners, LLC; Fairview Loan 123 LLC; 310 Real Estate Investment Trust, Medalist Partners Asset-Based Private Credit Fund III Commercial Real Estate LLC., Medalist Partners Asset-Based Real Estate Investment Trust III and Pacific Western Bank, the Tullius Law Group, the Law Firm of Foley & Lardner, the Fidelity National Title Corporation and Chicago Title Company, alleging they “breached their obligations” under terms of their agreements with the state.
According to the lawsuit, Shangri-La received more than $114 million in Homekey funds from the state to convert motels or other buildings into permanent supportive housing in San Bernardino, Redlands, Thousand Oaks , King and Salinas, while Shangri-La thereupon granted and recorded deeds of trust to secure loans from the host of lenders without first obtaining the state’s written authorization, as required under the Homekey agreements.
The state also alleges in its lawsuit that for each of its Homekey-funded projects, Shangri-La used the address of each motel to create undercapitalized limited partnerships to perpetrate the fraud, subjecting all of the properties, some fully converted and others only partially converted, to possible foreclosure.
Only the Redlands project and the San Bernardino project  met the goal of transforming previously existing hotels or motels into residences for the homeless.
San Bernardino County, Redlands, Thousand Oaks, King and Salinas failed to ensure that Shangri-La lived up to its performance requirements in its contract with them, according to the State of California.
It took tremendous effort, some skillful lawyering and intensified lobbying on the part of the City of Redlands to convince state officials that Redlands officials had not been the perpetrators of any fraud and that they were in fact victims whose admirable intentions and commitment had been egregiously betrayed and violated.
For months, Redlands officials sought to work with officials from Shangi-La Industries, who made a convincing case that they were, after all, Holmes’ victims, to see if the money Holmes had diverted could be recovered and the city’s financial obligations with regard to the financing of the conversion of the hotel satisfied. By Spring 2024, it was acknowledge that Shangri-La’s internal tracking and accounting mechanisms left much to be desired, based on the way Holmes suckered its corporate officials, and that Redlands’ recovery of the money Holmes had taken would be too long in coming, if ever it was to come, as the company had filed for federal bankruptcy protection. In April 2024, the City of Redlands ended its relationship with Shangi-La Industries.
Similarly, Redlands had placed a considerable amount of faith in the Santa Monica-based homeless services nonprofit Step Up. Redlands officials had brought Step Up in to manage the homeless services facility after it had been converted from a hotel. That facility put homeless individuals and couples into minimalized living quarters. Step Up was affiliated with Shangri-La in a number of homeless residency projects, and was satisfactorily managing the Redlands facility. Nevertheless, its relationship with Shangri-La was a complicating factor, as both were entangled in the lawsuits brought by the State of California.
In May, the City of Redlands gave Step Up, which was in the process of discontinuing its homeless facility management operations, a 30-day notice of its intention to end its property management services arrangement with the company. Consequently, Step Up’s last day in the role of the property manager at the converted Good Nite Inn was June 30.
The Redlands City Council, after considering options charted by Redlands Homeless Solutions Coordinator David Rabindranath, on September 16 opted to contract with Many Missions, a Thousand Oaks-based nonprofit to take on property management responsibility at the Redlands municipal homeless residence operation.
According to an affidavit filed with the federal criminal complaint against Holmes, in October 2022, the California Department of Housing and Community Development paid approximately $25.9 million in grant money for the Thousand Oaks homelessness project to Shangri-La Industries LLC. The grant funds were sent with the provision that the money be used to purchase, construct, and operate homeless housing in Thousand Oaks and followed many millions of dollars the California Department of Housing and Community Development had already paid to Shangri-La to buy, build, and operate housing for the homeless in Redlands and King City in Monterey County, among other California cities.
“Holmes – as Shangri-La’s CFO – knowingly submitted fake bank records to the California Department of Housing and Community Development that purportedly showed approximately $160 million supposedly controlled by Shangri-La and its affiliates to prove that Shangri-La had the capacity to fulfill the homeless housing projects for which it had coapplied for grants from the California Department of Housing and Community Development, including the Thousand Oaks project,” according to the U.S. Attorney’s Office. “In fact, the bank accounts Shangri-La and Holmes said contained these funds did not exist.”
The U.S. Attorney’s Office stated that “Holmes and Shangri-La also submitted to the California Department of Housing and Community Development balance sheets falsely representing that Shangri-La-affiliated entities held millions of dollars in cash that these entities did not actually have on deposit in the known accounts for those entities. Holmes and Shangri-La submitted these fake bank statements and false balance sheets with the intent that the California Department of Housing and Community Development should rely on them and release grant money to Shangri-La. After these documents were submitted to the California Department of Housing and Community Development, the California Department of Housing and Community Development paid millions of dollars more in grant money to Shangri-La, including for the Thousand Oaks project.
Some of the Homekey money paid to Shangri-La for homeless housing was used to pay credit card bills for American Express accounts associated with Holmes. In November and December of 2022, more than $2.2 million was transferred from a Shangri-La account to a Holmes-controlled account. Afterwards, from November 2022 to May 2023, more than $2 million was paid towards American Express cards. The charges on those credit card accounts included purchases at well-known luxury retailers. Law enforcement believes these payments were made at least in part for Holmes’s benefit.”
The announcement of Holmes’ arrest and the charges against him were made simultaneously with the arrest and filing of charges against Steven Taylor, 44, of Brentwood, who defrauded lenders to aid his property-flipping business, including a Cheviot Hills home that he sold to a homeless housing developer for more than double his original purchase price.
“Accountability for the misuse of billions of tax dollars intended to combat homeless starts today,” said Acting United States Attorney Bill Essayli, “The two criminal cases announced is only the tip of the iceberg and we intend to aggressively pursue all leads and hold anyone who broke any federal laws criminally liable.”
“In both of these cases, defendants took advantage of funds allocated to assist the homeless, some of the most vulnerable people in society and many of whom may be suffering from myriad conditions, including addiction,” said Akil Davis, the Assistant Director of the FBI’s Los Angeles Field Office. “The FBI is committed to the Homelessness Fraud & Corruption Task Force to find perpetrators of this insidious fraud and build cases to hold the offenders accountable in court. It is my hope that the charges we’re announcing today send a message to others who may be contemplating similar criminal behavior.”
“IRS-Criminal Investigation is proud to be an inaugural member of the Homelessness Fraud and Corruption Task Force, which was formed to ensure that funds which were committed to aiding California’s homeless population were spent as intended,” said Special Agent in Charge Tyler Hatcher of IRS Criminal Investigation’s Los Angeles Field Office. “Today’s actions show our commitment to ensuring the public that we will investigate missing funds that were intended to benefit some of the most vulnerable Californians.”