Eyes Wide Open Identifying and Preventing Fraud

Few experiences can rattle the collective confidence of a co-op or condo community as much as charges of fraud. Trusts are broken and faiths betrayed, all in the name of personal gain. Boards and residents can protect themselves, though, and go a long way toward ensuring that the trauma of fraud does not happen to them.

Know It When You See It

People bandy the word “fraud” around all the time, but it’s a crime that can be difficult to nail down. First, there is civil fraud, which involves intentional misrepresentation with the intent to cause a loss to another individual or group. Civil fraud is between two parties, which would allow one to sue the other. Criminal fraud, however, can involve similar situations but must break one of any number of New York State laws. Basically, criminal fraud is what the state prohibits under the penalty of criminal liability. Each state has different fraud laws, making an all-encompassing definition difficult to pin point.

The majority of fraud cases for co-ops and condos fall within the civil category, where distinct subtleties differentiate it from theft and other criminal actions. One of those subtleties is intent, says Doug Heller, partner in the law firm of Friedman, Krauss and Zlotlow. “The keys to fraud are intent and misstatement,” he says. Determining intention can get sticky, with conclusive evidence often elusive. “That’s why civil fraud is so hard to prove,” Heller says.

Outright stealing, for example, might not constitute fraud. Kickbacks also might fall outside the purview of fraud. Still, though, just because it’s difficult to pin down does not mean it’s not happening.

Like the ubiquitous cockroach, fraud can turn up in any dark corner, no matter how spotless the environment around it seems. In high-end buildings, in four-family walk-ups, in professionally managed buildings or buildings where casual is king, fraud can take place. It could involve cooking the books or focus on a construction company taking more than its fair share of payment. It could rear its head during a board election where the legitimacy of a vote is called in to play. Or it could be a board member himself, taking a few dollars here and there. Simply put, “fraud is way too common,” says Mark Gilbert of Marks Bookkeeping Services.

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2 Comments

  • I believe our board is stealing money in the form of kick backs and fudging the books. The corporation attorney is in the president's pocket and the entire board along with its counsel have to go. If we do not have an attorney to go to, what do we do and how do we catch them? I am not a board member but 5-6 of the 15 think ther is stealing going on, how do we find out?
  • I believe it constitutes fraud when somebody knowingly steals and intentionally withholds the original Shareholder's Certificate belonging to another person for no good reason except to cause them financial hardship and problems. Any advice on what a person can do to rectify the situation?