Pastor who pleaded guilty to money laundering profited from federally subsidized affordable housing properties
NEW ORLEANS (WVUE) - Shanyka Phillips moved into 912 Fourth St., an apartment building in the Irish Channel, in 2013. She had a support network nearby. The building was directly across the street from where her then-boyfriend’s mother lived, and his sister was in another one of the units. And, with a rent of $600 per month, the apartment was affordable.
But it also had problems.
“Living there was horrible,” she said in a recent phone interview.
The plant life was among the building’s most memorable features, she told Verite. Overgrowth on the back of the building combined with cracks in the walls meant that weeds would grow into her apartment. There was a broken air-conditioning unit that she said once gave her a painful shock, repeat roach infestations, leaks in the pipes leading to persistently high water bills and poor insulation that made the apartment freezing in the winter and sweltering in the summer.
When she would complain to the management, she said, nothing would be done for weeks, if anything got done at all.
“It just took a long time to take care of things,” she said. The building manager “didn’t care. He was just there only to get the rent and that was it.”
Philliips had a baby son and a young daughter. After about two years in the building, she said she had to get them out of that building.
“The living conditions was so bad that we had to leave,” she said. “They wasn’t doing what they was supposed to be doing.”
At the time, the building was owned by First Emanuel Homes of New Orleans, an affordable housing group controlled by First Emanuel Baptist Church. First Emanuel’s pastor, the Rev. Charles Southall, recently pleaded guilty to a federal money laundering charge and admitted stealing hundreds of thousands of dollars from the church.
The scheme not only defrauded the church and ripped off taxpayers, it also left many residents to live in roach-infested, crumbling buildings that would eventually be sold and upgraded to levels that no longer accommodated low-income renters.
According to information released by the United States Attorney’s Office in New Orleans after his Oct. 18 guilty plea, Southall had skimmed money from the rental and sale of properties owned by the church and its affiliated housing ministries, diverting more than $671,000 to himself. One of them was 912 Fourth St.
The building was one of 10 properties for which First Emanuel Homes received hundreds of thousands of dollars in federal affordable housing subsidies, in the form of low-income housing tax credits, under an agreement inked in the late 1990s. The credits were meant to be used to fund their purchase, needed renovations, maintenance and to keep rents affordable for low-income tenants. Two other properties named by the U.S. Attorney’s Office — one on Baronne Street and one on Amelia Street — were part of the same deal.
Several of the tax credit properties — two in the 1800 block of Carondelet Street, next to Southall’s church, one on Washington Avenue and one on St. Andrew Street — would later receive more than $500,000 in direct affordable housing grants through the federal HOME Investment Partnerships program, according to agreements filed with the Orleans Parish Civil District Court Clerk’s Office. The HOME grants, approved in the early 2000s, went to a separate, Southall-controlled nonprofit group called the Greater New Orleans Rehabilitation Corp.
The First Emanuel tax credit agreement, which became effective in late 1998, originally covered 10 buildings and houses, with more than 88 units. One of the buildings would later be demolished, the land turned into a portion of the parking lot for a Home Depot at the corner of South Claiborne Avenue and Earhart Boulevard, leaving nine properties and 71 affordable units subject to state affordability monitoring.
But the tax credits have since been canceled, records obtained by Verite show, due to First Emanuel’s failure to maintain the buildings or fill them with tenants. According to 2015 noncompliance forms, none of the buildings was in compliance. Some had damage — to roofs, ceilings or windows. One apartment in a St. Andrew Street building had roaches failing from the ceiling. But most problematic, more than 70 percent of them were empty. One, an apartment building on Amelia Street, had even been demolished. The land has since been sold and a large, four-bedroom single-family home built there. A developer sold it in 2018 for $470,000.
Most of the properties formerly subject to the agreement have been sold off, in several cases for hundreds of thousands more than what First Emanuel paid. That includes 912 Fourth, which the church sold in early 2020 for an estimated profit of $671,870.40, more than half of which went to Southall.
The same nine properties formerly under state affordability monitoring also have a connection to another major federal criminal case in New Orleans: against former First NBC Bank CEO Ashton Ryan, who was charged in 2020 with dozens of counts of bank fraud. A filing in that case identifies Southall, who has not been charged as a co-defendant with Ryan, as playing a role in the alleged wrongdoing.
Since its sale, the building at 912 Fourth St. has been fixed up. It has a fresh paint job and the apartments inside have new appliances, floors and counters. An online listing from earlier this year said the rent for an 800-square-foot two-bedroom unit in the building was $1,700 per month. That’s about $600 higher than what the the United States Department of Housing and Urban Development calculates as a fair-market rent — the standard by which it sets payments for housing assistance — for a two-bedroom apartment in the New Orleans metro area.
Had First Emanuel complied with the tax credit program, and stayed under state monitoring, all 71 units could have remained under maintenance and affordability mandates until the end of 2028, making them available for lower-income renters.
“Here we are again, where the failure to regulate and manage has cost us units,” said Andreanecia Morris, the director of affordable housing groups the Greater New Orleans Housing Alliance and HousingNOLA. “We keep doing this, because it’s not something that gets discussed. As the onion gets peeled, this does not get discussed.”
HousingNOLA recently released its annual report card, which found that even as the city’s median income has decreased in recent years, rents and sales prices have continued to rise. In 2015, HousingNOLA found that the city would need to create 33,600 affordable units — through new development or subsidies — by 2025 to meet residents’ needs. It has adjusted that figure to 47,000.
“It’s one of the problems we’re seeing here, is that rents are going up astronomically with no connection to income. So those rents are out of reach to the average New Orleanian,” Morris said. “The market’s completely out of whack.”
Reached by phone, Southall declined to comment for this story. His attorney, Clarence Roby, declined to comment over the phone, requesting emailed questions, which he did not respond to. And First Emanuel Baptist Church board chairman Arthur Williams did not return a request for comment.
In mid-September, federal prosecutors with the U.S. Attorney’s Office for the Eastern District of Louisiana charged Southall with a single count of money laundering, for transferring $100,000 acquired through fraud into an investment account. The charge was handed down in a bill of information — not an indictment — an indication that Southall had agreed to plead guilty.
A month later, he did. And on Oct. 18, the feds released a factual basis on his case, detailing the underlying crimes that Southall agreed could be proved had he gone to trial. According to that document, Southall admitted to stealing nearly $900,000 from his church, two parishioners and a New Orleans charter school he helped to run as a member of its governing board.
The largest portion of that money came from properties owned by First Emanuel. According to the document, Southall took $150,000 in rental income on First Emanuel Baptist Church properties — money that should have gone back to the church’s affordable housing ministries — and $537,805.51 from the sale of three First Emanuel properties: 1900 Amelia St., 2851 Baronne St. and 912 Fourth St.
The biggest profits came from 912 Fourth St., which First Emanuel sold for $775,000 in March 2020. Southall pocketed $374,168.11 of that, according to federal prosecutors.
First Emanuel purchased the eight-unit Fourth Street building — along with three others — for $189,196 in 1997. The group bought 2851 Baronne St. with another building for $202,415 the same year. In 1998, the group bought 1900 Amelia St., according to Orleans Parish property records, for $89,000 from First Emanuel Baptist Church. (The previous owners had donated it to the church in 1997.)
By then, the group had already been approved by the Louisiana Housing Finance Agency — now the Louisiana Housing Corporation, the state agency that administers the federal program in Louisiana — for about $173,000 per year in federal low-income housing tax credits to pay for acquisition and rehabilitation of the 10 properties. First Emanuel was only required to set aside 40 percent of the 88 housing units for low-income tenants. But Southall agreed to make the properties 100 percent affordable.
The agreement went into effect when the properties were “placed in service” at the end of 1998. The credits would be granted over 10 years, totaling more than $1.7 million.
As part of the agreement, First Emanuel would have to keep the affordable units in habitable condition — submitting to inspections by the Louisiana Housing Corporation — and occupied by low-income tenants for up to 30 years.
The charity would not fulfill that commitment. In mid-2015, the Louisiana Housing Corporation sent inspectors to visit the properties. They discovered serious violations at all nine.
In one apartment at 1709 St. Andrew St., “Roaches were on every surface throughout the unit and falling from the ceiling,” read an internal memo from June 24, 2015. Another building, at 1839 Carondelet St., had broken glass. Its neighbor, 1831 Carondelet St., had a water-damaged ceiling. 2851 Baronne St. had roof damage. A number of apartments had missing or broken smoke detectors.
But the biggest problem was the lack of tenants. In total, 50 of the 71 subsidized housing units were vacant.
Three buildings — at 3318 Broadway St, 1920 Washington Ave. and 1926 Washington Ave — were entirely boarded up.
“The date the buildings were last occupied could not be provided,” the memo said. The 12-unit building at 1900 Amelia St., had been demolished. Again, First Emanuel management could not say when it had last been occupied. The city, which had previously cited the building for code violations, had just taken it down after finding it to be in imminent danger of collapse, permit records show.
At 2851 Baronne St.,10 of 12 units were vacant and “not suitable for occupancy,” according to Housing Corporation records. And six of the eight apartments at 912 Fourth St. were likewise empty.
“When I was living there, there was only three people,” said Celia Baughman. “It was me, there was one other person on the second floor and there was one guy on the bottom floor.”
Baughman, whose brother was in a long-term relationship with fellow 912 Fourth St. tenant Shanyka Philips, lived in the building in 2014, she said in an interview. Though it was supposed to be set aside for low-income tenants, she said she was never asked about her income when she applied for an apartment there. She remembered paying about $775 per month.
“There was a couple times, the cops came because someone got overdosed in the apartment below us because it was empty, and homeless people would break in,” she said. “One day they went in there and cleaned it up, and I mean, you should have seen all the needles and all the stuff coming out of that house.”
Morris, of the Greater New Orleans Housing Alliance, called the vacancies and the state report on the condition of the apartments “deeply, deeply troubling.”
“That should not be allowed to happen,” she said.
The First NBC connection
Morris noted that, beyond state enforcement, low-income housing tax credit arrangements often have a second built-in regulatory mechanism in the courts. The credits can be sold, or the owner of the properties can enter into a partnership with an investment firm, which claims the credits and provides cash to purchase or rehabilitate the homes.
But if the properties fall out of compliance, the government can rescind the tax credits.
“Anything below a 90 percent occupancy rate, that’s not qualified occupancy,” she said. “That’s not going to allow you to claim your tax credit. And the investors tend to get cross about that kind of thing.”
Southall’s church had such a deal with an investment company for its tax credit properties. But about 10 years ago, the partnership went bad, with the investors filing suit against Southall and the church. But it appears from a Department of Justice filing in a larger criminal case that Southall was bailed out by his associate, First NBC Bank CEO Ashton Ryan.
In 1998, a company called the American Tax Credit Corporate Fund IV entered a partnership with Southall’s church, agreeing to pay the church about $1.3 million over time in exchange for the tax credits assigned to the properties. In 2012, after discovering that First Emanuel was not living up to its end of the bargain, the company did respond, filing suit against Southall in Orleans Parish Civil District Court.
According to the suit, a review of the properties’ rental files found serious compliance issues, including how First Emanuel was screening for low-income tenants and how many housing units it was setting aside as affordable. The properties also required “immediate … physical repairs” for which the church was responsible.
“First Emanuel has failed to either make these immediate need repairs or furnish the Limited Partnership with the funds necessary to do so,” Southall’s partners alleged.
That lawsuit never went to trial. A motion to dismiss was filed in early 2014, with no additional filings to follow.
A 2021 filing in the federal criminal case against Ryan does not mention Southall by name. It refers to an unindicted party named “Borrower L.” But it provides enough information to clearly identify him, as The Lens first reported in September.
The document says Borrower L was a “reverend” who was partnered with Ryan in a real estate business that owned a building on Oretha Castle Haley Boulevard, where he operated a mortuary business. Those details point only to Southall, a reverend and a partner with Ryan in a company called Universal Pro-Vision. The company owned a building at 2107 Oretha Castle Haley Blvd., where Southall ran Gaskin-Southall Mortuary.
The U.S. Attorney’s Office alleged that in 2012, Ryan and First NBC executive Robert Calloway — a codefendant in the fraud case — learned of the tax credit suit against Southall. After meeting with Southall in 2013, the bank executives arranged a loan for him, of which $200,000 would be used to settle the suit. But according to the filing, Calloway signed an official memorandum for the bank saying that the loan would be used to acquire and purchase ownership interest in properties.
In internal emails, “everyone acknowledged the loan was made to pay for the settlement,” prosecutors alleged.
The document goes on to say that in 2015, the year after the suit was settled, the bank arranged another loan to the same Borrower L-controlled entity. This one was for $2 million, again to help finance a housing deal.
“Thus, after a tax credit investor sued Borrower L — Calloway and Ryan’s business partner — for failing to fulfill his obligations in one housing transaction, Calloway committed First NBC Bank to using its own funds to finance another,” the 2021 filing reads.
In August, Calloway pleaded guilty to conspiracy to commit bank fraud, though the underlying crimes detailed in his factual basis involved another bank borrower, not Borrower L.
It’s not yet clear whether Southall will play a role in the Ryan case. Asked if he has agreed to cooperate in the case or testify against Ryan as part of his plea deal, the U.S. Attorney’s Office declined to comment.
Southall faces up to 10 years in prison for his money laundering conviction. He is scheduled to be sentenced on Jan. 17, 2023, two weeks after Ryan’s criminal trial is set to begin.
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