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LOS ANGELES—Federal authorities arrested Michael Young, founder of the nonprofit organization Home At Last, on Wednesday, accused of participating in a scheme to divert millions of dollars in public funds intended to serve the homeless in Southern California.

According to the U.S. Department of Justice, Young allegedly used shell companies and fraudulent billing practices to misappropriate more than $7.5 million from contracts intended for housing services for the homeless.

Prosecutors maintain that Home At Last received more than $118 million in public funds since 2019, including more than $75 million from the Los Angeles Homeless Services Authority (LAHSA).

Some of the diverted money was allegedly used to finance the opening and operation of Six Seven Five Lounge, a luxury restaurant and nightclub located in Inglewood, as well as an adjacent bingo hall. Authorities also accuse him of diverting public funds to luxury travel, classic car restoration, and real estate transactions unrelated to housing programs.

The federal investigation is part of a broader operation targeting alleged corruption and fraud related to funds intended to combat homelessness in California. Two people were arrested Wednesday, and a third suspect, Donye Mitchell, remains at large in another case, according to authorities.

In Young's case, prosecutors allege that companies listed as independent contractors were actually under his control, which would have allowed him to funnel public funds away from housing programs.

LAHSA had previously terminated its contracts with Home At Last. The agency reported in June that it had received a notification from the IRS regarding the seizure of cash located at an address linked to Young and stated that it was reviewing documentation related to the organization's expenses.

The Department of Justice indicated that the investigation is ongoing and that authorities are seeking to recover the allegedly misappropriated funds. The charges are accusations and those involved are presumed innocent until proven guilty in a court of law.