Co-op indictments continue.

More indictments are expected this week against cooperative and condominium managers who have been allegedly involved in vendor kickback schemes. Additionally, sources say this time board members and contractors will be among the dozens more expected to be facing charges. There will be architects and engineers facing the judge, sources said, as well as a few company principles that have already sold their companies.

On June 11th, seven managing agents and one superintendent were indicted for various degrees of grand larceny and schemes to defraud. All were indicted on other counts as well. If convicted, they could be sentenced to jail terms of from four to 15 years, a range of fines, and possibly be required to make restitution to the 31 buildings involved. Anyone convicted of a felony could also lose their real estate salesperson's or broker's license.

Greg Carlson, president of the Federation of New York Cooperatives, said "In every industry there are few bad apples, but you can't degrade a whole industry because of what a few do. I don't care if you put in the safeguards and the code of ethics, it gets down to the agent, or the principal and their ethics. It's not to say the vendors are blameless, because they will tell you this is what everyone else does and is par for the course."

The amounts of money involved on the initial indictments ranged from a reference to a "small amount" to $194,000. Super John Kropman, working at 711 Amsterdam Avenue, allegedly received some cash but then, the District Attorney claims, padded a vendor's bill by $2,300, which was allegedly then used as a payment to manager Eric Dubbs.

The $194,000 was allegedly obtained from vendors and contractors who did work at Clearview Gardens in Queens by manager Michael Wegielski.

Except for Clearview and two Brooklyn buildings, the rest of the initially affected buildings are located in Manhattan. A spokesperson for the District Attorney's office said all those indicted participated in some aspect of the crime in Manhattan.

"For instance, a payoff could have been made in Grand Central Terminal," the spokesperson explained.

Among those indicted were Mark Weinberger, who allegedly obtained more than $69,000 in kickbacks from a vendor doing work in 1997 and 1998 at 347 West 39th Street and 360 Riverside Drive; and Scott Smith, who managed 201 West 70th Street and 138 West 17th Street, from which he allegedly took more than $97,000 in kickbacks through a vendor in 1997 and 1998. The two managers worked for the same company.

The early June indictments were unsettling to those in the industry because they involved several well-known company principals who participated in industry groups.

Leslie Berk and her management company, Prism Management, are charged with allegedly taking more than $55,000 in kickbacks at eight buildings managed from 1995 to 1998. She is also accused of embezzling approximately $12,000 by writing checks on building accounts to pay for fake services and expenses.

Taranto & Associates head Marcia Taranto, for instance, is a member of both the Real Estate Board of New York and the Association of Cooperative and Condominium Managers. The ACCM, as it is known, was organized as a response to the initial February 1994 indictment of 72 managing agents.

ACCM was purposely comprised of only company principals, and is actively involved in preaching and maintaining ethical standards for the industry.

Taranto has been accused of taking kickbacks from contractors that totaled more than $30,000 with regard to jobs at six buildings from 1996 to 1998.

In 1994, 72 managing agents were indicted and four companies pleaded guilty to similar charges. At that time, many of the agents were indicted on little evidence, which in some cases was based only on vendor affidavits or testimony.

Cases against most of the managing agents were settled with the DA for small fines and reduced charges like tax evasion, and agreements were signed not to return to the industry.

The amounts paid to a restitution fund by the indicted companies and agents, however, now comprises more than $4 million. This is in the keeping of a special master, but none of the money has been so far distributed to affected buildings.

Attorney Stuart M. Salt, the head of real estate department at Wolf Haldenstein Adler Freeman & Herz, who represents many boards, says an awkward accounting process is underway that was not in the industry's or buildings' interest.

"The money could have been used to put safeguards in place and instead is being consumed by attorneys' fees," Saft complained.

Since managing agents are typically in charge of several buildings, and the vendors were never initially identified, few of the boards were able to pinpoint the jobs on which they were overcharged.

One of the currently indicted agents, Eric Dubbs, formerly worked at Darwood Management, a company which paid into the fund and quickly closed up shop.

Under the formula explained by the District Attorney, kickbacks to managers typically totaled about 10 percent of any job. The pay-outs would effectively inflate the cost of the work, which was ultimately borne by unit owners and shareholders through higher maintenance or common charges and interest on larger amounts of borrowed money.

In the Fall of 1998, prior to selling his business, Elm Management's Arnold Zabinsky complained there was no longer any money in managing buildings because numerous competitors and penny-pinching boards had forced prices so low.

And how was he surviving? "By doing the legal work for the buildings, " he replied.

Many management companies have created buying power programs to get low prices for their boards, but also take a percentage of any savings.

"If you can provide a service at half the price of a vendor, it's your fiduciary duty to get that service," said Zabinsky at that time. "It's [the board's] option if they want to take part in the program. These services act as secondary profit centers - leasing, wholesale supplies - you do as many as you can. They subsidize the management fees and everyone wins."

When co-ops and condos were generating numerous unit sales and referrals in the 1980's, the brokerage carried the management. But when the market dried up in the early 1990's, the management fees could no longer sustain the costs of servicing the buildings, and companies became creative in searching for ways to cut corners and generate fees.

In March, 1996, when Zabinsky's company was handling 21,000 units in roughly 97 buildings, he said "Even at 20,000 units, I sit there and rack my brains to see how I can afford enough comptroller people and back office people. You need enough units to spread the hard costs around... Every day someone is opening [a management company] with a lower management fee."

Management heads often complain of the low fees, numerous competitors and pressure from boards to obtain low prices for all services.

For instance, Joseph Kanner and his management company, Focus Real Estate Management, who is charged with taking $2,900 in kickbacks from four Manhattan buildings and writing checks totaling more than $9,400 to pay for work at his own home, is said to have recently pitched a Queens board at fees of around $115 a unit.

Typically, managers said, a full service company would charge Queens and outerborough boards about $250 to $300 a unit, while Manhattan boards could pay double that figure. A typical Manhattan board could pay $300 or $350, while higher value upscale buildings that demand premiere services typically would be paying in the $500 a unit range.

"They low bid and they got a lot of buildings because of it, but you can't operate your portfolio," said one manager, who like several others interviewed for this story did not want to be named in an article about the indictments.

One manager suggested having boards pay fees by the hour, as they do for other professionals.

"Maybe boards will stop trying to break the backs of managing agents by telling them they have to do everything under the sun," the manager complained. "It's about time the boards learn that they get what they pay for."

New city and state laws and Federal mandates have added to the burdensome paperwork, as managers now compile information for the co-op/condo abatement, the STAR program, SCHE, SCRIE, lead paint disclosures, Local Law 10 and 11 facade work, water metering, recycling, and soon, fire safety notifications and signage.

They already work on compiling and complying with annual budgets; refinancing; window guards and notices; union and personnel issues; shareholder concerns; property tax challenges and the tracking and reconciliation of J-51 and other abatements, water and electrical bills and the choosing of service providers; antennas and or billboard siting and contracts; sidewalk safety; landscaping and snow removal; elevator, boiler and chiller repair; DC conversion; individual unit transfers; board meetings, committee meetings and newsletters; precinct and/or BID liaison; retail, garage and laundry leases; all renovation work; service elevator scheduling and other tasks that are performed daily and keep the property in seemingly seamless order.

Other managers have suggested formulating a new consumer-oriented law that, by setting a range of minimum to maximum fees by unit and service, would ensure the building managers would be adequately compensated and protect the buildings from overpaying.

It is entirely possible, for instance, that the unionized superintendent is making more money and has much better benefits than the managing agent. In fact, the supers will get raises on June 21st when the third year of the current 32b-32J contract kicks in.

"Some building managers could be making $35,000 to $45,000 in a job that's worth $60,000 to $80,000, " said another managing agent.

There are currently no state requirements necessary for an individual to become a managing agent, and some in the real estate industry, including the New York Association of Realty Managers (NYARM), have been proponents of creating a new management license.

The Real Estate Board of New York (REBNY) has been against this, however, as both an added burden and since most management company heads already hold a broker's license, which is required to collect rents in New York State.

A salesperson must take a 45-hour course and pass a test to obtain a license. While one-year of full-time experience as a salesperson under a licensed broker is needed to become a broker, a salesperson needs two years of experience in a general real estate business to qualify, Salespersons may accumulate points through transactions, listings and financings as credit towards the 1,750 points that equal a year of experience.

Continuing education of 22.5 hours once every two years is also required, until an individual has been a broker for more than 15 years.

Additionally, organizations such as the Council of New York Cooperatives, NYARM, the Associated Builders and Owners, and the Institute of Real Estate Management offer numerous locally and nationally accredited courses and continuing education seminars which can culminate in the awarding of various management designations.

But boards don't often insist on having an experienced or knowledgeable individual responsible for their buildings, so long as they are comfortable with the head of the company and the fees.

"I've heard out and out lies, where they are promised someone experienced and the next day buildings are sent a young kid. Managers are also overloaded with 10 buildings. Then they go to board meetings 10 nights a week, and that will burn you out," said the head of one management company, who limits his managers to six buildings each.

An inexperienced manager who is looked to for guidance can cause havoc small and large. A shareholder at a Madison Avenue co-op said their management company sent over a new agent, who sent out a notice for an annual meeting for the following week.

"He never read the by-laws, which are very specific as to the notice requirements, and the number of days it needs to be sent out before the meeting," the shareholder told REW. "He told me he chose the date because it was convenient for him."

Companies operate very differently and most offer a range of skill sets. Robert Grant, director of the Queens-based Diversified Property Management, said he makes all his agents read the by-laws, the offering plans, and the proprietary leases of any building that they work on, and so does he.

The low salaries are also blamed by industry experts as creating a financial and emotional burden on someone that has become skilled and knowledgeable through the years, and begins to recognize they are not adequately compensated.

That sets up a climate ripe for getting a "little something" for themselves in return for choosing a contractor.

On the ethical and legal side, it has created a pattern whereby skilled former managing agents start small companies. They typically have little overhead and varying back office services, but can offer attentive service and low fees to develop a boutique client base.

When unit fees are low, it also encourages company mergers for board buying power, and has created mega-companies. The largest, Insignia Residential Services, manages 60,000 units in the New York metropolitan area and intends to generate more fee opportunities through bundling and referrals even to other wholly-owned companies - for brokerage, mortgages, title insurance, telecom providers and even home renovation services.