Mixing Board President and Management Company President Roles Led to Fraud

If there is one easy piece of advice I can offer condominiums – always use an unrelated management company to manage your books. While this won’t eliminate fraud it most certainly cut down on it.

For owners in the Lovers Key Condominium, Estero, Florida – this lesson came with a rude shock: $291,500 stolen from the association’s funds by past president Charles Bennett III, and past vice-president Kenneth Marwick. In this case Lovers Key Condominium also used Bennett’s property management company, EID Management & Realty, to operate their condominium.

When the president of your board is also the owner of the management company you contract, it is too easy for bad things to happen.

In this case both Bennett III and Marwick have pleaded guilty to first degree grand theft charges. Both have been sentenced to prison time and following probation.

Being in the role of both control of the condominium board and the management company they were able to funnel money into companies controlled by the two men, all of them unrelated to association activities. (video)

As more and more money sits or flows through condominiums and HOAs, we need legislation that forces boards and management companies to be non-related. The use of two eyes – the boards Treasurer and a management company is a powerful way to keep the books legitimate and funds safe, and that relationship needs to be kept separate.

Banned from Selling Condos, Fined $7.4M

It’s nice to see that some developers can actually get fined and permanently banned from selling condos (but see below) when they make distasteful actions.

In 2008 Yair Levy and YL Reactor Street, LLC emptied the reserve of Reactor Square Condominium in NY State, failed to make payments in lieu of taxes, and abandoned the property without heat or hot water in the winter of 2008.

Three years later, Levy and YL Reactor Street, LLC may not sell or market condominiums and were levied over $7.4M (USD) in fines, including penalties.

What’s sad is three fold – it takes years to resolve these issues, it is likely that the condominium will never receive any money, and (most importantly) that Yair could simply set up show in a different state. Even though issued by the New York Supreme Count (29 June 2011), that wouldn’t stop Yair from operating in another state.

I would counter, that given a strong ruling but an ineffectual process to either collect or limit the defendant’s action – why don’t we have national based rulings and enforcement. In Canada, we have seen similar issues with BC banned developers simply pick up shop and move across the border to Alberta. It always seems that the system is so in favour of not interfering with developers, that we continually put the purchasers at risk.

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