Protecting Your Building from Fraud An Inconvenient Truth

Most individuals have a healthy sense of ethics, choosing to run their personal lives and business affairs aboveboard. Unfortunately, a few bad apples are inevitable.

Co-op and condo board members and managers are in positions of authority and regularly handle hefty amounts of money, often without much supervision or oversight. When the "bad apple" happens to be a board member or manager and perpetrates fraudulent use of monies or chooses to abuse relationships and/or resources, the effects on a co-op or condo can be devastating.

Types of Fraud in the News

Aaron Shmulewitz, a partner at the Manhattan-based law firm of Belkin Burden Wenig & Goldman, has specialized in representing the interests of co-op and condo boards for over twenty-five years and says that he's seen his share of sneaks. "Unfortunately, the structure of co-ops and condominiums—ownership by one group of people, management by a second and day-to-day operations by a third - makes co-ops and condos ripe for being taken advantage of by unscrupulous managers and employees," Shmulewitz says.

History tells us that those who engage in fraudulent activities are awfully good at hiding what they do—all too often, their crimes go unnoticed for years. That said, there are some places that fraud is likely to grow like a weed. "The most common form of fraud in co-ops and condos is building staff taking advantage of their positions by doing things like over-ordering building supplies and keeping or selling the excess, [or] working at another building during regular hours so as to be paid twice," Shmulewitz says.

Many who engaged in these types of fraudulent activities in the mid-1990s suddenly found themselves the center of attention in 1994. In June of that year, the Manhattan district attorney announced that a whopping 86 managing agents, companies and even a co-op board president had been indicted on charges of taking millions of dollars in payoffs from contractors and suppliers. Those who investigated found fake receipts, fake contracts and "lost" records—they didn't come up with much of the money that was lost, however.

Read More...

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10 Comments

  • Michael & Jenny DuBasso on Tuesday, November 20, 2007 12:48 PM
    I call my case "Horror on East 69th Street- Never buy a CO OP" There are four owners each with one vote; One owner, the President of the board and the other the secretary decided to carve up ALL the common area of our small Landmark Brownstone building. One owner, the President took over 800 square feet ($1,200,000) and with a false set of building plans created a luxury lower floor apartment while taking away the fire emergency exit (basement) removing the laundry room and placing the new one at my front door (hopeing I would leave).I had just completed a renovation of my apartment and shortly after with no warning from the so called board anything had been done, (I was away six months), my contractor who dropped by to inspect my apartment called me with the above news plus the baring walls had been removed under my apartment partially collapsing it, breaking out parts of tile, mouldings etcetera. When I contacted the secretary she ignored my protests and simply stated how nice everything was now. I then discovered the President had bought her a larger apartment in the building for her "BOARD APPROVAL" a net increase of about $400,000 for her!! THen I started calling EVERYONE, the Department of Building & Safety, Buildings Enforcement, Attorney General (they could not be bothered) and lastly the District attorney who sent out an assistant who informed me they were not interested. All thatwas left was expensive litigation with my defenedents hiding behind the CO OP rules, Board members can carve up the common area. Of course they lied in deposition saying I had "verbally" given permission to have all the wonderful things above done; can anyone help? There appears there is no relief for the little guy.
  • Co-op manager and president of the board not getting back to share holder that has questions on updating apt
  • the president has no maint reciepts fofr 7 yrs and has an apt that was listed as vacant filled with her stuff for storage and her daughter is also in an apt with few reciepts of payment and the treasures has only 2 yrs the tax and waters bills are very behind and the building bills due to there mis management of funds are way over 300 thousand what can be done we really need help or who this can be reported to its a co op an its hdfc thank you
  • We believe out management is being taking money for years. How can I find a lawyer that can help us COOP owners Does any one knows a good lawyer that will be on the owners side and not the management?
  • Question: should all units of same size be charged same basic maintenance? For instance, if I'm in a 1-bedroom for 20 years, should someone who moved into a 1-bedroom (same line even) a few years ago be paying less for his basics? I'm on 5th floor; he's on first.
  • Concerned shareholder on Friday, December 25, 2009 1:25 PM
    I have recently joined my coop’s board of directors and came across a filing for building’s management company where one of the existing board members also served as the CEO of our existing management co. Is this a conflict of interests and a red flag I should further look into? Any input would be appreciated.
  • Disgruntled homeowner on Tuesday, June 08, 2010 12:00 AM
    I live in Forest Hills and found out that a member of the coop board has been issues a check for an outrageous amount. That is a complete breach of fiduciary duty. Not to mention over $100k from our operating account issued to a private account. Again when the current board was questioned, no answer.
  • For years in my coop we suspected the director taking money. It is very difficult to prove anything. We are in the middle of suing her since she does not show financial statements to other board members and she is vere unfriendly and aggressive--the shareholders are in fear of her. She rules like a dictator. We had a nice reserve fund when she was elected, now three years later we are 12 million dollars in the minus.
  • When I moved into my little co op community several years ago I received a print out for a luncheon at the club house. When I asked the neighbors who was going, they told me they don't go and that the vice pres. of the board makes people very uncomfortable about going. I later learned that no one shows up and watched him pack up the food into his car. Is he stealing food? Omg, I couldn't believe it!!! Where there is smoke there is fire! Here the board is a handful of the same people for years and years, it seems that they maintain control by way of harassment, bad so no one dare have a shareholder meeting. They live in fear of this board. Ive been living in a Lakeview Terrace (movie) except its worse! Fidicuary duty, why bother with that when we can do this? Cant blame them, blame Congress and the lack of laws. Ive been a strong advocate for the Condominium Cooperative Ombudsman sitting stale in the Senate. For those Rogue boards such as mine, That law needs endorsements, it needs your voice!!!! Co-op and condo owners may finally get legal reprisal, a way to level the playing field so “bossy boards” who “rule” instead of manage will have to justify their decisions to a higher power: The Office of the Co-op/Condo Ombudsman. That’s if bill AB00034 in the State Assembly passes to law!!!
  • The management at my coop has recently announced that they have to increased the monthly maintenance fees by a significant amount to pay for a loan they borrowed against the building. According to them, they had to do this because there were several shareholder who had not paid their maintenance fees for several months. My question is: Does this sound even remotely plausible? The management seems to assume that ALL the shareholders are apathetic to such things as "we owe significant sums of money; and therefore we must borrow a lot of money to pay it back...ergo were raising the maintenance fees". Who can we contact to look into this further? Should we as shareholders be seeking legal representation?