It was formally known as Venice because of its numerous waterways bearing a minimal resemblance to the Italian city by the same name. It is currently a Hazard Zone.
Venice was once a beautiful community until the 1900's, when rampant industrialization took over the city. Reckless industrialists used the waterways of Venice as their personal sewer system, flushing away their wastes without a care about the people that lived in the area.
Starting in the 1940's, efforts were made to clean up the area. By the 1970's, the overall toxicity of Venice was such that it was actually possible for people to start living there again. Venice became the living example of how Corporate America could actually take responsibility and clean up their own mess.
Then the Rikti Invasion of 2002 happened.
Details are sketchy, however it was clear to all involved that "something" happened during the Rikti assault. Something went off in a Crey facility, sending toxic clouds into the air and contaminating the ground and water. What was once a symbol of corporate responsibility became one of the first designated hazard zones for the post-Rikti city. And everyone knew who was to blame for it, which is why the area was renamed "Crey's Folly".
(See the area's Paragon Wiki entry for more information.)