Florida HOA Lawyer Blog

Articles Posted in Fraud, Theft and Abuse

In her blog entry below that was posted on Sept. 10, Laura Manning-Hudson wrote about the disturbing trend of increased cases of fraud, theft and embezzlement at Florida community associations that she and many other association attorneys have been seeing. The damage that can be inflicted on associations by unscrupulous managers, employees and board members is indeed very severe, and this article will focus on the types of schemes that appear to be most prevalent and some of the best practices for associations to employ in order to help to avoid becoming a victim.

One of the most elementary strategies that are used by fraudsters is the pilfering of cash received from owners for their monthly assessments, which can be easily concealed by destroying copies of the receipts. The more elaborate schemes often entail under-the-table payments, bribes or kickbacks involving vendors that are actually co-conspirators. This could take the form of overpayments to the vendors that are then returned directly to the employee or board member instead of to the association. Other times it may involve a simple kickback from the vendor as an ongoing reward for their inflated contract.

The association’s checking account tends to be the primary vehicle for the theft and embezzlement of funds. Forged signatures and counterfeit checks may be used, and some fraudsters create fictitious vendors and issue payments directly to themselves using a bogus company name. Association credit cards have also been used in a similar fashion.

Election fraud aimed at taking a majority voting control of an association’s board in order to gain control of its purse strings is also one of the ploys that is being used with considerable success. By tampering with the ballots, stuffing the ballot box with forged and counterfeit ballots, and destroying legitimate ballots, fraudsters have been able to gain control of association boards in order to hatch and execute elaborate schemes to filch thousands of dollars from their associations each month.

Some of the best practices associations may implement to avoid being victimized include employing a high level of vigilance for all assessment payments, including verifying that the account number on the back of all of the returned checks matches the association’s account.

It is also important to ensure the independence of your association’s accounting firm by having it be selected by a vote of the board as opposed to the property manager. These accounting firms are called on to complete comprehensive annual audits, including a thorough review of the files for every member and vendor, as opposed to relying solely on reports.

Associations should also consider requiring two board members to sign all association checks. It is never recommended that associations allow property managers or other non-directors to sign association checks.

A designated board member should also conduct monthly reviews of the bookkeeping with the property manager, and this should include any credit card statements. Bank statements should also be required to be sent to the designated board member as well as the manager. The monthly review of these statements should include a careful review of all the checks that were issued and the signatures for each.

It is also wise to rotate the board membership on a regular basis and avoid having the same individuals in charge of the board or finances for considerable lengths of time.

For any payments received in cash, it is best to use a three-part cash receipt book so that copies of the receipts go to the payer, one for the bank deposit records and one for the bookkeeper.

By using these and other precautionary measures, community associations can make it as difficult as possible for managers, employees and board members to deploy schemes aimed at defrauding associations.

If it seems as if there have been more and more stories in the news recently about condominium association’s funds being stolen or misappropriated by either board members or property managers, it’s because it’s true. Many of the reports have been coming from Bob Norman of Local 10 News (WPLG), the ABC affiliate for Miami-Dade, Broward and the Keys.

Norman’s latest story aired on Aug. 28, and it can be watched below. The story discusses the arrest of the former property manager of The Waterway condominium in Hollywood, Fla., for the alleged embezzlement of $228,000 from the association.

The information uncovered by Norman for this report is similar to that of many other cases that he and other Florida journalists have chronicled over the last several years which appear to be a disturbing trend in condominium and homeowner associations. Board members should pay close attention to the business of the association in order to avoid becoming the next victim of an unscrupulous manager or director. As we have discussed in the past, a board member’s responsibility is not limited to simply showing up at meetings to vote. Recall that board members are charged with a fiduciary responsibility to protect the interests of the entire association and all of its members. This means being vigilant about the business of the association.

The association in this case broke one of the cardinal rules of association management by allowing the property manager to sign checks on its behalf. Board members should be the only individuals allowed to sign checks, and I typically recommend that at least two board member signatures be required. Looking at the supporting documentation, backup and invoices for those checks is also important.

In addition, associations should be diligent when hiring new managers including performing background checks and checking references. While individuals who have been convicted of a felony (whose residency rights have not been restored) cannot serve as directors, some associations even go so far as to run background searches on candidates or seated board members.

Associations should also request duplicate statements from their banks, and the statements should be sent to someone other than the person who is handling the bookkeeping. In addition, association accounts should be independently and professionally audited at least once per year.

By taking these and other precautions, associations can help to avoid becoming the victim of fraud, theft and embezzlement.

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The recent news about the start of a three-year jail sentence for the former property manager of a Sarasota, Fla.-area condominium who was convicted of stealing more than $200,000 from the association she managed sent a resounding message about the severe repercussions that property managers and association directors can face for theft and fraud.

According to several news reports, Judy Paul, 51 (pictured below), was sentenced to three years in prison followed by 10 years of probation, and was ordered to pay $200,000 in restitution to the Sand Cay Homeowners Association, following her conviction in July, 2013, on felony counts including grand theft and scheming to defraud more than $50,000. It was further reported that Paul was scheduled to surrender at a court hearing on July 1 but failed to appear. The reports state that when she subsequently appeared in court at a later date, she pleaded with the judge for mercy, claiming that she suffered from several medical conditions including uncontrollable bowels, post-traumatic stress disorder as a result of the conviction, and that she attempted to end her life two days before she was originally scheduled to surrender.

jpal.jpgPaul’s case was the first to be brought to trial by the White Collar Crime Division of the State Attorney’s Office formed in 2013. Her fraud was discovered when a routine 2009 audit uncovered more than 50 checks that she had issued and cashed or deposited into her own bank accounts. Evidence presented at the trial revealed that she also purchased a Harley-Davidson motorcycle with association funds, and the unit owners were forced to cover the association’s shortfalls through assessments.

This case underscores the importance for association directors and property managers to implement procedures and policies aimed at avoiding the theft of association funds by those who are typically authorized to have access to them. These efforts may include requiring that at least two board members sign all checks and review documentation supporting the invoice or obligation to be paid, the requirement for background checks and screenings for managers and employees, the thorough review of all bank statements and financial records presented to directors and managers, the establishment of low limits on discretionary expense approvals by the property manager without board authorization, and a detailed review and understanding by directors of the association’s yearly financial audits performed by independent professionals. Directors should also coordinate with the association’s insurance agent to confirm that the association is adequately insured to best protect against such instances of fraud, theft and other types of employment dishonesty.

The severe prison sentence and financial restitution imposed in this case against the convicted former property manager should send a compelling message to unscrupulous managers and association directors who contemplate taking part in schemes to defraud and steal from their association.

Investigative reporter Bob Norman from WPLG Local 10 News in South Florida has done a number of reports about fraud and theft at area condominium and homeowners associations. His most recent report is a follow up to a story that aired last September about the allegations by the residents of the Georgian Court North condominium in Fort Lauderdale against Ed Ryan, the longtime president of the association’s board of directors.

The residents had alleged that Ryan had taken hundreds of thousands in payments from the association that he knew were illegal over the course of more than 10 years. Ryan scampers away from Norman and his videographer to the bathroom outside of the courtroom when he is asked by the reporter to comment on the case. In court, he admits to taking the illegal payments and using some of the proceeds to buy a car, and he pleads guilty to the charges and is sentenced to complete 25 hours of community service, serve three months of probation, return the car and write a letter to the association admitting his wrongdoing. The residents tell Norman that they have also filed a civil suit seeking financial restitution from Ryan to the association.

Click below to watch the report.

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GaryMars.jpgThe following article authored by the firm’s Gary M. Mars appeared in the April issues of Our City Weston and Our City Davie magazines:

A recent case in Las Vegas has set a new bar for the heights to which criminals will go in their efforts to defraud condo associations and HOAs for contracts worth millions of dollars. A U.S. Justice Department investigation revealed that 11 homeowners and condominium associations in Las Vegas were defrauded of millions of dollars in a board of directors takeover scheme that took place from 2003 to 2009. Federal prosecutors are seeking jail time for the defendants in addition to approximately $25 million in restitution, and 37 defendants have taken plea agreements and are facing prison sentences while the remaining four defendants are awaiting trial.

The defendants are accused of getting their straw unit buyers elected to community associations’ boards of directors through forgery, bribery, ballot stuffing and dirty tricks, all with the help of a Kung Fu grandmaster to intimidate wary board members. As disclosed under his plea agreement, this martial arts expert admitted that the conspirators would rig the associations’ board of director elections by using stolen and forged ballots so that they could win a majority voting control of the boards in order to secure lucrative contracts once control of the board and association was obtained. Co-conspirators traveled to Mexico to print phony ballots, used the master key at a condominium complex in order to remove ballots from mailboxes, and retrieved discarded ballots from a condominium’s dumpsters.

Community association boards control the purse strings of the communities that they govern, and they have been long-standing targets for unscrupulous board members. For those who own residences in condo and HOA communities, this board takeover scheme underscores the level of involvement and vigilance that is necessary in order to help ensure that their community associations avoid this type of fraud.

Unit owners should make every effort to vote in all elections and submit their own ballots, as fraudsters will typically attempt to secure and utilize forged ballots from those who do not normally vote in the elections. They should also attend the election meeting and determine whether their ballot was counted or disallowed due to the submission of more than one ballot for their unit.

OCweston.jpgIf association members believe that the integrity of their board of directors has been compromised, they should consult with highly experienced legal counsel in order to discuss and determine their next steps. Election recalls, court appointed receivers, and injunctions precluding boards from awarding contracts are among the measures that can be pursued, and criminal investigations by state and federal law enforcement are also possibilities that can come into play.

Yet another report about an ongoing dispute involving alleged board member malfeasance at a Broward County condominium association has made the local nightly newscast on Local 10 News (WPLG, ABC). The report by the station’s Bob Norman chronicles the concerns of a number of the residents at the Summer Lake Condominium in Oakland Park over the actions of their association’s board of directors, which has been fined by the state’s Division of Condominiums for failing to hold timely elections.

In the report, the concerned residents complain to Norman that the directors have also refused to disclose the association’s financial records. They also say that former president of the association had signed off on payments in excess of $300,000 over a two-year period to a management company that was founded by his wife.

The residents claim that the former and current board presidents have used their positions on the board to facilitate their buying, renting and flipping condo units in the community using their private real estate investment company, which property records indicate has earned tens of thousands in profits from the purchase and sale of distressed units in the development. In one case, the two men orchestrated a short sale of a unit that had been deeded to Summer Lake to their own company for $83,000 and then sold it just four months later for $101,000. The concerned residents also say that they have seen the condo association’s maintenance men working in the middle of the day on units owned by the men.

Click below to view the station’s report.

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Yet another case of theft and fraud inflicted on an association by an HOA president made local South Florida headlines recently. According to news reports, Michelle Changar-Coe, a former homeowners association president, has been arrested and stands accused of embezzling more than $180,000 from her Tamarac community. Police reports indicate that she forged dozens of checks totaling $181,441.85 which were deposited into her bank account. The authorities reported that the fraud and theft occurred at the Mainlands Section 7 homeowners association from January 2009 through December 2013. Changar-Coe, 44, forged the signatures of four persons without their consent between May 2011 and October 2013. While conducting an audit of financial records, a board member found several checks from community funds that appeared to be forged with his signature and reported it to police. He later found a check for $20,475 that he never recalled signing and had been made payable to a “Michel Chandar,” a name that was later found to be bogus.

Changar-Coe (pictured below) is being accused of creating a fraudulent agreement for the association to pay a “city liaison” $2,575 per month for representation at City Hall. However, “no such position existed with the city of Tamarac, according to two city officials who provided sworn statements,” reads the police report. mcc.jpg She continued to invoice and collect from the association for the fake job from May 2011 to November 2013 using the name of Michelle Charger. Investigators found checks deposited into Changar-Coe’s personal bank account bearing the supposed city liaison’s name. She has been charged with first-degree grand theft of more than $100,000 and four counts of fraud.

An article by Tamarac Talk (www.tamaractalk.com) further details how the fraud was finally uncovered, detailing that “[r]resident Steve Soloff was suspicious, and informed the board that he had visited the City of Tamarac and spoke with City Clerk Pat Teufel” who had informed him “. . . that in her 10-year tenure with the city, she has never heard of any agreement by a homeowners association to hire a city liaison . . . ” and that “. . . she knew of no person named Michelle A. Charger.”

Apparently, key details of the fraud were uncovered as a result of a former director’s investigation of discrepancies uncovered in connection with the association’s finances in early 2012, when a fraudulent court document was presented demanding that such director and another director both resign immediately or face a $1 million lawsuit.

The above account underscores the importance for association directors and managers to implement procedures and policies aimed to avoid the victimization of the association and its members. These efforts may include requiring that at least two board members sign all checks, the requirement for background checks and screenings for managers and employees, the thorough review of all bank statements and financial records presented to directors and managers, the establishment of low limits on discretionary expense approvals without board authorization by the property manager, and a detailed review and understanding by directors of the association’s yearly financial audits performed by independent professionals.

Additionally, the foregoing story also highlights the relevance of what a thorough review of association records may reveal following a detailed inspection of official records by or on behalf of owners having reasonable suspicions of wrongful activity by directors or other association representatives. Lastly, this story suggests that in the event that directors have doubts or questions regarding suspicious activities or documents presented to the association, then such concerns should be promptly reported to association counsel for evaluation.

Our firm’s other HOA and condominium association attorneys and I work very closely with our clients to help them to avoid and detect theft and fraud in their communities. We write in this blog about important legal and administrative issues affecting associations in Florida, and we encourage association directors, members and property managers to enter their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

Community association boards control the purse strings of the communities they govern, and as such they have been long-standing targets of individuals seeking to defraud associations. A recent case involving the takeover of a number of Las Vegas HOAs in a scheme to steer large construction contracts to a Nevada general contractor appears to have set a new bar for the heights to which individuals will go in their efforts to defraud HOAs for contracts worth millions of dollars.

The accounts of the Nevada case read as if they come directly from the pages of a novel about a wild and far-flung criminal enterprise, proving yet again the old adage that reality can be stranger than fiction. The U.S. Justice Department investigation revealed that 11 homeowners associations were defrauded of millions of dollars in the takeover scheme that took place from 2003 to 2009, and federal prosecutors are seeking jail time for the defendants in addition to approximately $25 million in restitution. The alleged mastermind behind the scheme has pleaded not guilty to conspiracy and fraud charges leveled against him and 10 others.

Besides conspiring to commit mortgage fraud in order to secure mortgages for straw buyers in the communities, the defendants are accused of getting their straw buyers elected to the boards through bribery, ballot stuffing, intimidation and dirty tricks. Once on the board of the HOAs, these directors would secure lucrative construction contracts benefiting the organizers of the fraud. Accounts tell of co-conspirators travelling to Mexico to print phony ballots and counting ballots in co-conspirators’ offices, and one co-conspirator used his master key at a condominium complex to remove ballots from mailboxes. Other tactics involved “dumpster diving” efforts to retrieve discarded ballots at a condominium complex that would be used to fix an election, and attending HOA board meetings in order to intimidate board members who were not friendly with the individuals involved in the scheme. It is also alleged by a co-conspirator that he regularly witnessed HOA board members come to the office of another co-conspirator to receive cash payments.

A total of 35 defendants have now pleaded guilty in the case, leaving the remaining defendants to stand trial on Oct. 14. The investigation into the scheme is considered to be the largest public corruption case ever brought by the Justice Department in Nevada.

meeting vote.jpgThis case serves as an important reminder for Florida community associations about the level of involvement and vigilance that is necessary in order to help avoid becoming a victim of this type of fraud. It is imperative for unit owners to monitor and participate in their association’s elections and meetings, and they should always be on alert for suspicious tactics by owners or other groups surrounding board member campaigns and elections. Owners should also ensure that they vote in all elections and submit their own ballots whenever possible, as fraudsters will typically attempt to secure and utilize ballots from those who do not normally vote in the elections or do not reside in the community or condominium. In addition, owners should determine whether their ballot was counted or disallowed at the election due to the submission of more than one ballot for their unit.

If association members believe that suspicious political activity has taken place and the integrity of their board of directors and their election has been compromised as part of a conspiracy to commit fraud, they should consult with highly experienced legal counsel in order to discuss and determine their next steps. Election recalls, court appointed receivers, and injunctive relief precluding boards from awarding contracts to conspiring vendors are among the measures that can be pursued in order to correct or avoid injustices that may have occurred or may be in the works. Additionally, experienced community association legal representation may aid in processes related to criminal investigations by state and federal law enforcement agencies in such cases.

Condominium association lawyers in Miami and throughout South Florida have seen their fair share of fraud and theft involving the officers of local community associations, and the recent case involving the Hillcrest Condominium came as no surprise to the lawyers of Siegfried, Rivera, Lerner, De La Torre & Sobel , P.A. who represent more than 500 condominium associations and homeowners associations throughout the state.

According to newspaper reports about the matter, president Bonnie Andrews Soloman of the building’s association was arrested by local police after bank statements revealed more than $46,000 in unauthorized ATM withdrawals. Appallingly, all of the withdrawals were made at ATMs located inside of the Hard Rock Hotel & Casino and the Seminole Indian Gaming Casino over the course of a year. The condo association has hired auditors to review all of the finances, and the group fears that additional funds may also be missing.

It seems cruel to lay blame on the member of this condominium association who were bilked by Soloman, who they describe as very well liked and seemingly trustworthy and good natured, but the facts of this case point to serious lapses and inadequate safeguards that made the theft possible. First and foremost, associations should not provide their officers with ATM cards for the group’s operating accounts. A credit card for use in case of an emergency where a check is not an option is acceptable, but the limit should be set at less than $1,000. In addition, the checking account for the association should require two signatures from authorized individuals for all checks, and the bank statements should be reviewed by the group’s treasurer, who should provide an overview of the group’s finances at the monthly meetings.

In today’s economy with so many individuals dealing with personal financial setbacks, the potential for theft and abuse by trusted officers of community associations becomes more prevalent. Our highly experienced condominium and homeowners association attorneys will continue to work very closely with the community associations that we represent to help them to implement and maintain all of the necessary precautions and safeguards to help to prevent their becoming victimized by unscrupulous officers and managers.