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.