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Corrupt Managers

(Investigating your managing agent)

From the files of your worst nightmare department: You’re on the board of a co-op, condo, or homeowners association and keep hearing about the Manhattan district attorney’s ongoing investigation into managing agents. You worry that your regional D.A. may start similar probes and uncover corruption in your backyard. The anxiety is bad but only gets worse when you suddenly discover that your agent has a criminal record. Then you find out that he is currently being investigated by the Securities and Exchange Commission for fraud.

Sound terrible? For tenants at 3 Hanover Square, that was no nightmare, that was reality. According to a self-appointed “Committee of Concerned Shareholders” in the 205-unit lower Manhattan building, their manager was convicted of selling counterfeit $100 bills and cocaine trafficking in October 1985.

“These federal criminal felony convictions were not disclosed when he was hired in 1988,” said one member of the group, a former board director. “We have his court records. He was fined $15,000, so this was not considered a light thing. The judge found him guilty and gave him three years probation. The board failed to do a basic background check.”

Such criminal breaches are not confined to New York City: This past September, the office of Westchester County District Attorney Jeanine Piro announced the investigation of Westchester manager Joseph Resnick, president of RMI Management for “misappropriation of funds.” The case is pending.

Such scandals, capping a year in which the real estate management industry was rocked by charges of kickbacks, are leading many owners of co-ops, condos, and homeowner associations to wonder what they can do to protect themselves from hiring a crooked manager.

One approach is to hire a licensed private investigator. For example, one board employed a detective, who quickly discovered that their manager had spent 15 years in prison for kidnapping his employee’s son and holding him for $100,000 ransom. When applying for his current job, he had omitted his criminal record and lied about his length of time in the business.

“This is a situation where you really have to call in a professional,” said Michael Kessler, an investigator with Manhattan-based Michael Kessler & Associates. “There are a lot of data bases out there that might lead us on the trail. We look at where he worked previously, we make pretext phone calls to gain information into a man’s background, we check out previous addresses, see why he left, that sort of thing. It might take a couple of days. Everything is electronic now.”

Investigators are helped by a wide range of computerized information services. Kessler said that he spends thousands of dollars a month paying for specialized data bases. “We’re tied into the criminal history records, public documents, credit information headers,” he noted. “It’s illegal to pull a credit history report without the subject’s release, but you pull header info, such as his name address, previous addresses, sometimes his social security number and previous employers. That can be important. If he says he’s with a company for 15 years, but hasn’t been, you can start an in-depth investigation.”

Kessler said it is a good idea to research the management company itself as well as the employee who will be running the building. “We frequently check out business credit ratings, public filings against companies, that sort of thing,” Kessler said. “Many do not pay withholding taxes on time, they get liens and tax warrants. Some say they are bonded, but really aren’t. We check out the principals, and see what else they’re involved in.”

A recent investigation uncovered that the principal of a management company also owned a perfume importing business and a pool hall. “There’s nothing illegal about that,” Kessler said, “but you just might want to know how those businesses affect his management. You have to wonder where he’s spending his time and effort. Is he taking on more than he can handle? Is he involved in management because he gets a liquid cash flow?”

According to Kessler, a basic report can run from $250 to $300. “If you have to do more than that in the investigation, why are you looking twice at the guy?” he said. “If you can find something that makes the board uncomfortable, it can affect their decision whether to go forward with the person. It’s called a ‘due diligence’ check. At least you’re forewarned that there could be a problem.”