Articles Posted in Fraud, Theft and Abuse

GaryMars3-200x300Firm partner Gary M. Mars authored an article that appeared as a “My View” guest column in today’s “Business Monday” section of the Miami Herald.  The article, which is titled “Condo Fraud Legislation Adds Teeth to Florida’s Laws,” focuses on the ramifications of the newly minted Florida law that established criminal penalties for some of the most common maneuvers of association fraudsters.  Gary’s article reads:

The new legislation, which will add teeth to the Florida laws governing the administration of condominiums by establishing criminal penalties for fraudsters, has been signed into law by Gov. Rick Scott and took effect July 1.

The El Nuevo and Channel 23 reports revealed many cases of electoral fraud and forgery, conflicts of interest, mismanagement, and rigged bidding systems at a number of condo associations in South Florida. The Miami-Dade circuit court grand jury investigation focused on some of the cases from the news reports and several others, and its findings illustrated in detail that the state’s laws and enforcement measures are inadequate.

The grand jury report was severely critical of the Florida Department of Business and Professional Regulation (DBPR), which has jurisdiction over the administration and enforcement of a vast majority of the state’s condo laws. “Unfortunately, the DBPR seems ill-suited to resolve, correct or prevent many of the recurring problems that have been brought to their attention,” it concludes.

MHerald2015-300x72The report found that the DBPR’s “failure to demand that its investigators utilize, or comprehend basic investigative techniques is breathtaking.” Astoundingly, one of the agency’s investigators testified that he did not know basic information and needed to consult with his supervisor. Continue reading

House Bill 6027 was signed by Governor Rick Scott. The Bill makes changes to the financial reporting requirements of Florida condominiums, homeowners’ associations, and cooperatives, and will be effective as of July 1, 2017.  The Bill may be summarized as follows:

  • Sections 718.111(13)(b) and 719.104(c)2, Florida Statutes, are amended to remove the requirement that an association that operates fewer than 50 units, regardless of the association’s annual revenues, shall prepare a report of cash receipts and expenditures in lieu of financial statements, and instead bases financial reporting requirements strictly on annual revenues.
  • Sections 718.111(13)(d) and 719.104(b), Florida Statutes, are amended to remove the restriction which limit the ability of a condominium and cooperative association, respectively, to waive the financial reporting requirements of such Sections for more than three consecutive years.
  • Section 720.303(7), Florida Statutes is amended to remove the requirement that a homeowners’ association that operates fewer than 50 parcels, regardless of the association’s annual revenues, may prepare a report of cash receipts and expenditures in lieu of financial statements, and instead bases financial reporting requirements strictly on annual revenues.

House Bill 1237 was also signed by the Governor. The Bill modifies several sections of Chapter 718, Florida Statutes, such as creating anti-kickback provisions, criminalizing certain acts, requiring websites for associations of a certain number of units and further regulating potential conflicts of interest, among others and will be effective as of July 1, 2017.  The Bill may be summarized as follows:

CONDOMINIUM ASSOCIATIONS

Financial Reporting (Section 718.71, Florida Statutes)

  • A new law is created specifying that condominium associations shall provide an annual report to the Department of Business and Professional Regulation containing the names of all financial institutions with which they maintain accounts. Any association member may obtain a copy of the annual report from the department upon written request.

Anti-Kickback Provision (Section 718.111, Florida Statutes)

  • This new law provides that an officer, director, or manager may not solicit, offer to accept, or accept any thing or service of value or kickback for which consideration has not been provided for his or her own benefit or that of his or her immediate family, from any person providing or proposing to provide goods or services to an association.
  • Any officer, director, or manager who knowingly solicits, offers to accept or accepts any thing or service of value or kickback is subject to civil and, if applicable, criminal penalties.

Criminalization of Certain Acts (Section 718.111, Florida Statutes)

The following acts are now punishable as criminal acts:

  • Forgery of a ballot envelope or voting certificate used in a condominium association election is punishable as a felony of the third degree in accordance with Section 831.01, Florida Statutes.
  • Theft or embezzlement of funds of a condominium association is punishable based upon the amount of the theft or embezzlement in accordance with Section 812.014, Florida Statutes.
  • Destruction of or refusal to allow inspection or copying of an official record of a condominium association that is accessible to unit owners within the time periods required by general law in furtherance of any crime is punishable as tampering with physical evidence in accordance with Section 918.13, Florida Statutes or as obstruction of justice as provided in Chapter 843, Florida Statutes.
  • An officer or director charged by information or indictment with a crime referenced above must be removed from office and the vacancy shall be filled, unless the bylaws provide otherwise, by electing a new board member, and the election must be by secret ballot. The vacancy created by the removal of such officer or director shall be filled until the end of the officer’s or director’s period of suspension or the end of his or her term of office, whichever occurs first.
  • If a criminal charge is pending against the officer or director, he or she may not be appointed or elected to a position as an officer or a director of any association and may not have access to the official records of any association, except pursuant to a court order.
  • If the charges are resolved without a finding of guilt, the officer or director must be reinstated for the remainder of his or her term of office, if any.

Hiring of Legal Counsel (Section 718.111, Florida Statutes)

  • An association may not hire an attorney who represents the management company of the association.

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Condo & HOA Board Members May be

Neglecting the Duties You are Owed

Are you concerned that the developer of your condominium did not deliver on the promises made to you when you purchased your condominium unit?  Are you concerned with the construction of the condominium in which you live?  For most individuals the purchase of a condominium unit can be their most important investment.  However, many of the decisions impacting this investment are not up to the owner of the unit, but rather they are left up to a board of directors controlling the association.

At a specified time, the developer of a condominium is required to relinquish control of the association’s board of directors in favor of the unit owners.  The turnover of an association from developer to the unit owners presents the first opportunity for the association’s board to hire a lawyer, an accountant and an engineer to perform important and time-sensitive inspections of the condominium.  These inspections will identify construction defects and other concerns that may exist.  As such, it should not be surprising that a developer would want a “friendly” association board of directors following turnover.  But imagine the havoc an unscrupulous developer could inflict if the association’s newly elected board — or the attorney and engineer working for the unit owners — have financial ties to the developer.

A recent Miami-Dade grand jury report found that there was extensive fraud, mismanagement, stacking of boards and conflicts of interest among condominium association boards (click here for the complete report).  Such misconduct is not limited to Miami-Dade, however.  Perhaps surprisingly, one of the largest public corruption cases set in the fast-paced, scheming neon desert notoriously dubbed “Sin City” did not involve the usual Las Vegas suspects, but rather a contractor, a lawyer, and a stacked board of condominium directors.  In 2015, Leon Benzer, a construction company boss, was sentenced to 15 and a half years in federal prison for orchestrating a scheme to take control of association boards for the purpose of channeling construction defect repairs to Benzer’s company. Benzer’s scheme involved a network of recruited purchasers and real estate agents who would get elected to association boards, hire Benzer’s attorney, and award lucrative contracts to Benzer’s construction company. Through these unethical practices, these individuals violated the duties owed to the association and its unit owners.

Condominium unit owners are considered shareholders of the association, and act in a fiduciary relationship to each owner.  In such relationships, the law demands a higher than ordinary degree of care from each director and officer, with Florida law specifically demanding directors to discharge their duties in good faith.  Simply put, directors should act to protect the best interests of the association and its unit owners, rather than their personal interests or those of affiliated third parties.  The actions of the board members in Benzer’s scheme were in complete disregard of the unit owners’ rights, as they participated in rigging elections and seeking only personal gain.

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GaryMars-200x300The firm’s Gary M. Mars shared his insights into the ramifications of a recent Miami-Dade grand jury report on condominium association fraud in an article in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was written by DBR reporter Samantha Joseph, notes that “[c]riminal charges could soon be in store for misbehaving condominium board members and managers if recommendations in a Miami-Dade grand jury report gain traction.  Self-dealing, destroying accounting documents, withholding records, participating in kickbacks, interfering in elections and other willful violations of Florida’s condominium statute could leave individual board members criminally liable for the first time.”

The DBR article reads:

The question isn’t whether there’s fraud and abuse among some of the boards, according to the grand jury report, which cites thousands of annual reports of alleged wrongdoing to Florida’s Department of Business and Professional Regulation. The question is how to police it and shore up a regulator described as a toothless tiger.

“Our investigation exposed . . . severe weaknesses within the current laws and regulations,” the grand jury concluded. “Because the condo laws and regulations lack ‘teeth,’ board directors, management companies and associations have become emboldened in their willful refusal to abide by and honor existing laws in this area. They even engage in fraudulent activity which goes unpunished.”

The report took aim at the Department of Business and Professional Regulation — an allegedly understaffed agency with broad jurisdiction over condo associations and more than 1 million businesses and professionals, including accountants, contractors, cosmetologists, veterinarians and real estate agents.

“The DBPR seems ill-suited to resolve, correct or prevent many of the recurring problems that have been brought to their attention,” it stated.

dbr-logo-300x57. . . Longtime community association counsel Gary Mars, shareholder at Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel in Miami, applauded the agency’s efforts in juggling thousands of complaints that would otherwise clog civil courts, but suggested an overhaul to place criminal cases beyond the department’s purview.

“Ultimately these should end up in a court proceeding, rather than going through a state agency,” he said.

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For community association attorneys, it often seems that no matter how much we caution homeowners and condominium associations to take all of the necessary safeguards in order to prevent theft and embezzlement, new cases of blatant fraud always seem to crop up.

The latest example was chronicled in a recent article by the Palm Beach Post.  The article focuses on the arrest of the bookkeeper for the master homeowners association of Cypress Lakes, a 1,000-home, 55-plus community off Haverhill Road in West Palm Beach.

PBPfpKristine K. Moore, the bookkeeper, was charged with embezzling nearly $95,000 over the course of years from the association.  Moore was paid $44,000 per year and had been employed by the association for more than six years.

According to a police affidavit, management reviewed the association’s credit card bills and called police in April 2014 after discovering about $10,700 in charges for personal purchases during the preceding several months.  Additional review then uncovered much larger losses, including missing cash deposits that had been paid by homeowners.

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Firm partner Roberto C. Blanch, who has written extensively about community association fraud in this blog and recently authored an article on the topic for the op-ed page of the Miami Herald, appeared on Spanish-language television network AméricaTeVé’s popular “A Fondo” live show hosted by Pedro Sevcec yesterday at 8 p.m.  He was joined by one of the two journalists from el Nuevo Herald behind the newspaper’s investigative series exposing possible fraud at several South Florida condominium communities.  The segment specifically focused on board of directors election fraud, and several cases of suspected fraud were discussed.

Our firm congratulates Roberto for sharing his insights into this important issue with the network’s viewers.  Click below to watch the Spanish-language segment.

 

An article in the Miami Herald that appeared on Saturday, April 16, reported that more than 250 South Florida condo residents teamed up to march against condo fraud last week.  The protestors, who marched on the streets of Doral, demanded that authorities reform condo laws in order to prevent fraudsters from taking advantage of their communities.  The protest included residents from several areas in Miami-Dade County, including Kendall, North Miami Beach and Aventura, as well as from Broward County.

Our firm has been very active in spotlighting this growing problem throughout the years in this blog and in our complimentary educational seminars for association directors, members and managers.  Recently, firm partner Roberto C. Blanch authored an article that appeared in the op-ed page of the Herald calling for greater law enforcement and regulatory efforts to combat association fraud.  Roberto wrote:

MHerald2015Florida is the state with the most community associations in the country, with more than 47,000, and it has now become imperative for the state’s lawmakers, regulators and law enforcement agencies to change their collective mindset in their approach toward combating community association fraud, theft and embezzlement.

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RobertoBlanch2013Firm shareholder Roberto C. Blanch wrote an article that appears in the op-ed “Opinions” page of today’s Miami Herald pegged to the ongoing investigative series by el Nuevo Herald that is being featured in the Herald.  The article, which was titled “Florida Must Improve Policing of Condo Fraud,” focuses on the need for changes in the state law enforcement and government’s collective mindset towards combating condominium association fraud.

Roberto’s article reads:

An investigative report in el Nuevo Herald chronicled the growing problem of election fraud at South Florida condominium associations. Based on the episodes of possible fraud uncovered by the reporters and the growing number of complaints by local condo associations, it has become apparent that it’s time to put teeth into Florida’s laws and enforcement actions addressing this type of fraud.

The report uncovered that at least 84 signatures were forged in fraudulent ballots submitted in the annual board member election last year at The Beach Club at Fontainebleau Park condominium in northwest Miami-Dade. It also describes how the election at the Los Sueños condo in Hialeah was anything but a dream when it resulted in an unprecedented voter turnout of 115 percent after the final vote tally exceeded the total voting pool.

The boards of directors control the purse strings for the communities they govern, and many communities have annual budgets of multiple millions of dollars that are used for a variety of lucrative service contracts. As such, condo association boards make for appealing targets for fraudsters who conspire to take over their control via annual elections.

MHerald2015In a recent case in Las Vegas, a U.S. Justice Department investigation revealed that 11 associations were defrauded of tens of millions of dollars in a board of directors takeover scheme from 2003 to 2009. Forty-one defendants were convicted of getting their straw unit buyers elected to the associations’ boards through tactics involving forgery, bribery, ballot stuffing and dirty tricks. The conspirators were found to have rigged the associations’ elections by traveling to Mexico to print phony ballots, using the master key at a condominium complex in order to remove ballots from mailboxes, and retrieving discarded ballots from condo dumpsters.

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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.