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The stakes have been raised. Pushing its probe into Praxis Housing Initiatives full throttle, the office of New York State Attorney General Eliot Spitzer has launched an official investigation into expenditures and financial decisions made by the directors of the multi-million-dollar nonprofit housing and social service provider for homeless people with AIDS.

Meanwhile, city officials have also upped the ante. After reviewing complaints about Praxis for a number of months, the city Department of Investigation has referred its case to a federal prosecutor at the U.S. Attorney’s office for the Southern District.

Federal prosecutor Marc Berger confirmed that he has been assigned the Praxis case but declined to discuss it further.

The prosecutor will likely help the AG’s office determine whether executives at Praxis have committed any criminal improprieties. “We’re taking a very serious look at this,” said Brad Maione, spokesperson for the attorney general, who confirmed his office’s civil investigation.

These investigations kicked into high gear following a series of recent reports in City Limits, said Maione, which prompted former Praxis employees to come forward with more complaints and documents alleging misappropriation of public funds.

In the past two weeks, several former Praxis employees were either invited or subpoenaed to speak with Assistant Attorney General Sally Blinken of the Charities Bureau about activities they may have witnessed while at Praxis.

“The misperception out there is that nonprofits aren’t profit-motivated, and that’s often not the case,” Hugo Puya, a former comptroller of Praxis, said after his meeting with Blinken. “Housing the homeless — as sad as that may seem — is a lucrative business, and with very little oversight, groups like Praxis are free to spend the public money as they please, and often for their own personal gain.”

In mid-February, City Limits reported that Praxis founders Sterling Zinsmeyer and Gordon H. Duggins had transferred hundreds of thousands of dollars in public funds from the nonprofit’s coffers to buttress a number of for-profit shelters they control. The shelters, though advertised on early Praxis newsletters as nonprofits, are run through separate holding companies from which Zinsmeyer and Duggins split the profits, tax and state records show.

The reports have also caught the attention of the Inspector General of the federal Department of Housing and Urban Development, who is reviewing the matter.

In an initial interview in January, Zinsmeyer conceded that some mistakes at Praxis had been made, but he claimed all money used to support their for-profit ventures had been paid back in full.

Last week, a representative for the public relations firm O’Reilly Strategic Communications, which has been retained to handle Praxis media inquiries, said, “Praxis Housing has retained independent counsel to conduct a thorough and independent review of its business and financial activities. Praxis will respectfully decline comment until that review is completed. Praxis is proud of the housing services it has provided since 1995 to hundreds of formerly homeless New Yorkers with HIV/AIDS.” Amy Millard, a lawyer from Clayman and Rosenberg, the firm handling Praxis’ independent financial review, did not return phone calls.

For a detailed look at some of the spending habits of the executives at Praxis, see Geoffrey Gray’s story in the April issue of City Limits, on newsstands soon.

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