CASE 4: THE PRESIDENT, THE LAWYER AND THE FAKE LOAN

 

A high-end co-op bought four units in its building for $1 million around 2004 and converted them into one single luxury unit. They sold it for $2.8 million – and netted just $237,000 profit. Even subtracting the renovation fee, the $80,000 legal fees, and other such expenses, that didn't account for a missing $1.5 million.

A special committee of the board took their concerns to an attorney who was also a professional property manager. He suspected fraud, and eventually the committee replaced the co-op's existing freelance managing agent with the attorney/agent and moved all the old records from the former's office. The attorney/agent, in turn, hired Kessler's firm – which noticed a suspicious business arrangement in which the co-op board's attorney had allegedly loaned the building $540,000. A private, non-bank loan is unusual enough – but the co-op's accounts showed deposits of $330,000, leaving $210,000 unaccounted for.

On top of that, Kessler's investigators found a $300,000 loan-repayment check to the lawyer – who, they found out later, was a business partner of the co-op board president, a minor 1960s art-world celebrity from a prominent New York family.

Her business partner wasn't the only person to whom the missing money went – more palms were being greased than at an oil-and-lube mechanic's. The investigation uncovered a $50,000 check unaccountably paid to the managing agent, exclusive of the payroll yet listed as part of it. Another $55,000 check went to a renovation contractor, above and beyond his $242,000 fee – and as for his fee, the committee could find only nine "extremely sparse" invoices totaling $5,500.

"We found the [contractor's] checks were all deposited into a credit union in New York," Kessler says. Later, "when things were getting hot and federal investigators were interviewing, the construction contractor fled the country to Poland. We understand he's back in this country again – probably doing the same to another building."

There were "a load of suspicious vendors," Kessler says, including a plumbing contractor who was allegedly paid $78,000 and many of whose invoices "were scratched out, written over or had Wite-Out, and were in the handwriting of the first managing agent."

And that wasn't all. The investigators found $20,000 paid over six months to the credit-card account of a former board member. There was another $3,000 in credit-card payments for the co-op president's daughter. Two brokers involved in the sale were supposed to split a six percent fee evenly – but one of them was a close associate of a former board president, and, despite the agreement, got four percent of the sale.

The investigators found the contractor with the $55,000 payment and skimpy invoices living in Queens. They went to his house wearing recording devices.

"He did not want to be interviewed at his home, so he asked us to interview him on the street corner," Kessler says. "We had about an hour interview, in which we got him to finally admit that he was billing as a conduit for one of the former board presidents and the first managing agent, who would divvy the money up between herself and the [then-current] board president. We had subsequent conversations afterwards, asking him to produce documents, and recorded every one of those conversations. We got enough evidence, we felt, to indict for commercial bribery."

But it was not to be. As Kessler puts it, the evidence "was taken to the U.S. attorney's ofice, who dropped the ball on it and nothing was done. It was [then] taken to [Manhattan District Attorney Robert] Morgenthau's office, who dropped the ball and nothing was done. They got away with it!" Kessler says of the perpetrators. "It's disappointing. ... You have to question politics and influence."

Adapted from Habitat July-August 2007. For the complete article and more, join our Archive >>