Articles Posted in Fraud, Theft and Abuse

hands-and-breaking-handcuffs_shutterstock_58240561-300x184In the pursuit of association fraud and embezzlement, one of the most important aspects of the major legislation that was adopted earlier this year is the law’s effort to curb conflicts of interest by association board members and officers.

The new law provides that presumptions of conflicts of interest exist in the following circumstances:

  • A director, officer or one of their relatives enters into a contract for goods or services with the association.
  • A director or officer . . . holds an interest in a corporation, LLC, LLP or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association.

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Changes in condominium association laws that were recently enacted with an aim to curb fraud in associations seem to have had a strong impact in increasing the general awareness of the problems facing Florida condo communities.  A few major media outlets have followed up on the news of the law with reports about arrests involving South Florida associations.

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Several months ago the Miami Herald reported that the administrator of an Aventura condominium named Admirals Port had been arrested on charges of accepting thousands of dollars in bribes and stealing cash from the building’s laundry machines.  Donovan Staley was charged with organized fraud, grand theft and the use of a phone to plan a crime, and he could face up to five years in prison.

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The outcome of this year’s legislative session evoked a lot of confusion from property managers and boards of directors serving the community association industry.  As a result, we have received a lot of requests from our readership asking for clarification on some of the laws that were enacted. In this post, we will be tackcc-article-photo-fb-3-300x158ling the debit card provision in an effort to clear up some misconceptions about the new legislation.

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The new Florida law that establishes criminal penalties for association fraudsters should help many associations to contend with suspicious and irregular activities by unscrupulous board members.

Association boards of directors control the purse strings for their condo communities, and as such they have always made for extremely appealing targets for fraudsters who conspire to assume control via their annual elections.  In a Las Vegas case, 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 rigging board elections through such tactics as 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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Firm 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. 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. Continue reading

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.