From the Editor 57: Corruption

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Cassandra Calling

For those of us who have been involved with co-ops and condos for the past 30 years, there was a profound sense of déjà vu, of history repeating, of hearing the famous saying by George Santayana: “Those who cannot remember the past are condemned to repeat it.” And although the warning is often quoted, many people tend to ignore it, as though it were a fortune cookie or a statement by Cassandra.

You’d think Gorelick would have known better. After all, he must have been aware of what had happened in 1994 and 1997. That’s when when dozens of managing agents and even some large firms were put out of business for taking kickbacks and stealing money from unwary co-ops and condos. When the first wave of indictments came down in 1994, everyone was stunned. Or said they were. I remember one prominent management executive who was indignant. But not about the scandal. He was angry at Habitat’s in-depth coverage of it. He told us we were doing a disservice to the industry, which supported us with advertising, by reporting on “a few bad apples” who were not representative of managers as a whole. He pulled his advertising. Three years later, he was sent to jail for stealing from his buildings.

It was an ugly time. I was surprised to see people whom I had interviewed and met many times, people I thought I knew, pleading guilty to accepting bribes from contractors an

d suppliers that cost properties millions of dollars. The untainted – and even some of the tainted – management firms went into overdrive, showing what safeguards they had put in place so that it couldn’t happen again. As the years passed, new boards were elected who didn’t know the past, and thus left themselves open to repeating it.

And so it goes. Soon after the Gorelick news broke, I spoke with a veteran managing agent. He had known Gorelick for years and was angry. Not only that – he was surprised by what he called “the stupidity of it all. Forging documents, moving money from one account to another; did he think no one would notice?”

Everyone in the industry – management executives, board members, contractors – are (or should be) angry about what Gorelick did. After all, the manager is more than just another employee: he or she is crucially important. Boards hire agents to guide them through the twists and turns of running the building. When they steal from you, it is a violation.

Most managers, I would confidently wager, are hardworking and diligent, and are doing the tough job of keeping their buildings running smoothly without doing anything dishonest. They don’

t merit suspicion. But, by the same token, boards shouldn’t put temptation in their paths. One of the bad moves made 

by the co-op in the Saparn case is that the board apparently gave control of the reserve account to the management company. Most managers I know shy away from that; at least one board member is a signatory on all of the corporation’s bank accounts. There are many other pieces of advice that can be offered, but the most important thing to do is trust but verify. For as my management interlocutor observed: “I always liked Alan Gorelick. He’s a knowledgeable and charming man. But I guess that’s the point. You wouldn’t be conned if he wasn’t knowledgeable and charming. That’s how people like that get away with it.”