An executive tied to the downfall of Homekey projects in Monterey County is arrested on a felony charge.

A former chief financial officer of the company that was supposed to build four projects in Monterey County to provide housing for people experiencing homelessness was arrested on a felony charge of mail fraud by federal officials on Thursday, Oct. 16 in the Los Angeles area, the U.S. Attorney's Central District of California announced.

Cody Holmes, 31, of Beverly Hills is accused of knowingly submitting fake bank records on behalf of Shangri-La Industries to the California Department of Housing and Community Development in order to receive millions in grant money to transform seven low-performing hotels and motels across the state into permanent supportive housing as part of the state's Homekey program.

Holmes is also accused of using money obtained from the state to pay off credit cards that were used to purchase luxury goods.

If convicted, Holmes could face up to 20 years in federal prison.

When Homekey was first envisioned by Gov. Gavin Newsom during the early months of the Covid-19 pandemic, local Monterey County officials were eager to leverage the state funds—funds that came to California through the American Rescue Plan Act—to convert hotels and motels into permanent housing for very low-income people, supported by wrap-around services.

The officials partnered with nonprofit Step Up on Second Avenue, which had successfully transformed a hotel in partnership with Shangri-La in Los Angeles. Shangri-La purchased the property and did the construction, while Step Up provided the services. Step Up leaders were ready to spread the model elsewhere in California and on the East Coast. 

Salinas was the first Monterey County city to successfully apply for Homekey funds that Shangri-La then used to subsidize the purchase of the former Good Nite Inn on Work Street. It opened to residents in December 2020, even though renovations were ongoing.

Salinas officials were successful in applying for funds for two other hotels that were used by Shangri-La. A hotel in King City was also purchased.

All together the state awarded $40 million to create 250 units in the county. As it turns out, Shangri-La took out additional loans on the properties against state rules and began defaulting on those loans in 2023.

Since Shangri-La defaulted on those loans and lost ownership to all four properties, County of Monterey and city officials have been successful in rescuing at least three of the projects for use as housing as was intended through Homekey.

Last year county and Salinas officials partnered to save the original Work Street location. The Housing Authority of the County of Monterey purchased the King City hotel, now called Casa de Esperanza, after King City officials worked to preserve the project. HACM also purchased another of the three properties in Salinas. 

In January 2024, the California Attorney General's Office on behalf of HCD filed a lawsuit against Shangri-La and Step Up accusing them of improperly taking out third-party loans. (Step Up's leaders deny any wrongdoing and place blame on Shangri-La.) 

Two months later Shangri-La responded in Los Angeles Superior Court accusing Holmes, who they had recently fired, of taking millions of dollars and spending it on real estate, expensive cars, private jet travel, jewelry, handbags and VIP passes to Coachella, according to news reports.

In its announcement on Oct. 16, the U.S. Attorney's Office accused Holmes of submitting bank records to the state showing approximately $160 million supposedly controlled by Shangri-La and its affiliates in order to prove that the company had the capacity to fulfill the Homekey projects.

Investigators discovered those bank accounts did not exist, according to the announcement.

Officials said Holmes and Shangri-La also submitted balance sheets falsely representing that their affiliated entities had millions of dollars of cash on hand. The cash did not exist, according to officials. 

"Holmes and Shangri-La submitted these fake bank statements and false balance sheets with the intent that HCD should rely on them and release grant money to Shangri-La," according to the U.S. Attorney's statement.

In November and December 2022, more than $2.2 million was transferred from Shangri-La to an account controlled by Holmes. Between November 2022 and May 2023, more than $2 million was paid toward American Express cards that law enforcement officials believe benefited Holmes, at least in part.

The case was investigated by the Homelessness Fraud & Corruption Task Force, made up of the FBI and IRS-Criminal Investigations, as well as the Federal Housing Finance Agency Office of Inspector General and other agencies. Its creation was announced in April, specifically for investigations into fraud and waste in use of funds to eradicate homelessness in Los Angeles, Orange, Riverside, San Bernardino, San Luis Obispo, Santa Barbara and Ventura counties.

In Holmes' case, they focused on a Homekey project in Thousand Oaks, in which Shangri-La received $25.9 million from HCD, only to later default on loans and lose the property.