Here we go again. As rumors float of more kickback indictments coming down from the Manhattan district attorney's office, two well-known contractors have pled guilty to a graft scheme involving replacement windows sold to nine cooperative and condominium properties in Manhattan, Queens, and Brooklyn. The two men admitted to taking part in a racketeering enterprise that defrauded building owners of more than $2 million.
On June 28, 2001, Mark Wisner, president of Air Master Window Systems and a shareholder in Martech Window Systems, and Irwin Sandler, owner of Scientific Compactor Corp., pled guilty to charges that they rigged bids on window replacement contracts, paid kickbacks to managing agents and board members, laundered the bribes they paid, and falsified records to hide it all. Prosecutors said that Wisner was the mastermind behind the scheme and that Sandler offered and paid the bribes.
The pleas are the latest development in a continuing investigation by the Manhattan district attorney's office into corrupt practices in the residential real estate business that was first announced on June 15, 1994 when 72 managers pled guilty to kickback schemes, with 34 individuals and three corporations agreeing to pay restitution to a special fund established by the D.A.'s office to reimburse victims. One manager went to jail. In mid- and late June 1999, the D.A. announced more indictments: dozens of managing agents, management companies, building superintendents, architects, engineers, waterproofing contractors, and board members were named. That was the first time that those other than managers or their staffs had been cited in the scandal.
In the latest case, the buildings involved were Taino Towers in East Harlem; York Hill on the Upper East Side; Dayton Towers in Rockaway Beach, Queens; Mitchell Gardens in Flushing, Queens; Park City 3 & 4 Apartments in Rego Park, Queens; and Pratt Towers, 39 Housing, and Contello Towers No. 2, all in Brooklyn.
The contractors worked with the managing agent to execute the scheme. "In order to secure the contract obtained in Taino Towers and secure or expedite the payment of services rendered," explained Wisner in his plea allocution, "I paid cash kickbacks to Marvin Gold [at the time, president of the now-defunct Marvin Gold Management]. Those kickbacks, which were in excess of $50,000, were added to the price of the job.
"I did not disclose to the board of directors or shareholders of Taino Towers that kickbacks had been paid to Marvin Gold and that the cost thereof had been added to the cost of the job. In order to generate the cash required for these kickbacks, I caused false entries to be made upon the books and entries of Air Master Window Systems and Martech Window Systems Inc."
In his allocution, Sandler explained how the scam typically worked: "In order to secure the contract at Taino Towers for Air Master, I met with Marvin Gold, whom I had known for many years. I informed Marvin Gold that Air Master was going to bid on the job, that I was good friends with Mark Wisner, Air Master's president, and would like to see Air Master get the job. I told Marvin Gold if Air Master got the job, he would receive a kickback.
"After that meeting, Mark Wisner met with Marvin Gold and agreed to pay him $150,000 if Air Master got the job at Taino Towers. The contract was awarded to Air Master, and cash kickbacks were paid to Marvin Gold. On at least one occasion, I met with Marvin Gold and gave him an envelope with $10,000, advising him that the money was from Mark Wisner."
Later, he added: "In order to conceal the payment to me as a legitimate business expense, I submitted a check request from Scientific Compactor to Air Master, thereby causing false entries to be made upon the books and records of Air Master."
Wisner and Sandler both received probation. Wisner agreed to pay restitution of $1,500,000 and Sandler agreed to pay restitution of $150,000. Marvin Gold pled guilty on March 10, 2001, to taking part in kickback schemes. Because of an ongoing federal case against him, Gold has been awaiting final sentencing for about a year. Burton Ryan, an assistant U.S. attorney for the eastern district who is spearheading the federal investigation, says that he can offer "no comment" about ongoing investigations.
In light of the plea revelations, how can boards cut down on the possibility of such schemes being practiced against their buildings? Among the steps to take:
Get more than three bids. The more contractors you have bidding, the better. "While it is understandable that boards look to their managing agents for advice on contractors to use on major capital projects, this process may not produce the desired results," says Stuart Betheil, managing director at Fleet West Management. "Management companies often use certain major contractors on a regular basis. This can have a positive effect on controlling problems that may occur during a project; however, there is another possibility that cannot be overlooked.
"In the bidding process, the possibility that contractors and agents may participate in manipulative practices certainly exists," he continues. "One way to minimize this practice (to the fullest extent possible) is to have only the board select and contact the contractors who will bid. This does place a burden on the board, but it is well worth the effort."
Don Levy, director of management at Lawrence Properties, suggests that boards have a bid list of five or more contractors. He feels the board should compose such a list from as many different sources as possible: architects, engineers, the manager, and other buildings.
Rotate the bid list. Levy says that a bid list of acceptable contractors should be constantly updated and rotated. "Keep adding fresh names," he notes. Doing that means there is less chance of contractors becoming familiar with each other and fixing the bids.
Do a bid analysis. Be sure that the bids are comparing apples to apples and examine very closely bids that vary widely. If there are extremes, that could simply be a result of someone underbidding — or it could mean that one contractor has inflated his price. "Engineer-prepared reports specifying the nature of any major building infrastructure problem [are recommended]," says Betheil. "A complete bid package, including a scope of work and specifications will ensure continuity in bidding."
Have the contractor sign a pledge. Levy suggests that you have contractors sign a notarized pledge that they haven't been the subjects of a criminal investigation. "If they lie and questions come up later, you have one more legal leg to stand on," Levy explains.
Betheil adds: "Boards could require that contractors involved in the bid process sign disclosure statements certifying that there is no relationship between the agent and the contractor with regard to the bidding process. While it is only a piece of paper, this document may be useful if any problems are discovered at a later date."
Check into a former identity.Be alert for reincarnations. Principals who ran into legal difficulties may have simply restarted under a new name. There may be nothing wrong with that, but full disclosure is always best. Your manager, architect, or engineer can alert you on this one.
Open the bids yourself. Betheil suggests that the uniform bid sheets only be opened at a special meeting of the board, where the bid information is recorded. "The bids are then referred to the engineer to determine if the bids are in compliance with the specifications and scope of work," he says. "Only after the contractor is selected, is the managing agent informed."