Managers react to fraud indictments.

To assure their board is and to reassure themselves, some management companies are instituting new procedures and hiring companies to provide internal oversight in the wake of the indictments of 48 cooperative and condominium managers last week, along with one management company being charged under the organized Crime Control Act, together with 34 individual guilty pleas and three corporate guilty pleas that were sealed.

While there are hundreds of managing agents in the city and thousands of buildings, the problem affects only a percentage and the majority of management companies and agents, board members, vendors and professionals have high standards of ethics and conduct.

"It's unfortunate that their brethren have chosen to violate their fiduciary duty," remarked Stuart M. Saft, a partner and head. of the real estate department of Wolf Haldenstein Adler Freeman & Herz, a law firm that represents many boards.

The companies are contributing to a restitution fund with $2.5 million pledged by those agents and agencies that have already pleaded guilty. Additionally, one company paid $1 million to the fund along with another 100,000 that will go to city recreational programs.

"I know the District Attorney is doing a second round of investigations. This is but the beginning," said attorney Richard Aborn, a former assistant district attorney and a partner at Aborn & Anesi. This law firm was originally hired by Howard Milstein when he acquired the management firm of Douglas Elliman and became concerned about rumored abuses.

The Associated Builders and Owners of Greater New York (ABO) is the local chapter of National Home Builders and gives out the RAM (Registered Apartment Manager) certification. Jerome Belson, president of ABO, said their certification program has an emphasis on the fiduciary relationship and its obligations.

"We applaud the district attorney for this investigation and we are continuing our efforts to get managing agents licensed," he said. "There should be a license for anyone operating 40 units or more and if someone is found guilty they should be barred from participating."

The New York Area Realty Managers (NYARM) also gives out a local NYARM designation and is pushing for licensing, but Peter L. Dicapua, president of the Building Owners and Managers of Greater New York (BOMA), another nationwide certification group, said the industry is overregulated as it is.

How can building boards protect themselves? That won't be easy agree the professionals, but will require vigilance and a tone that states, "this will not be tolerated."

BOMA, which has extensive course-work leading up to its management designations of Real Property Manager (RPM) and Facilities Manager, promotes a code of ethics.

IREM, which awards the CPM Certified Property Manager) for achievements and experience, stands for education and increasing the professional standards through education and improving and augmenting and individual's and company's integrity through higher ethical standards. "You can't. get the CPM without taking and passing the ethics seminar," explained Becker. "They also receive an ethical conduct certificate."

"Any owner or co-op condo board has to create a tone of running their property that does not condone anything under the table," said DiCapua. "It's a crime. It's illegal. The board, the owner have to create a tone in the building that it is absolutely unacceptable, and you have to be vigilant about the purchase of goods and services, and pay personnel appropriately."

Marc J. Luxemburg, president of the Council of New York Cooperatives (CNYC) and a partner in Snow, Becker, Krauss, said the CNCY is very dismayed and distressed. "It's a sad reflection of the whole industry." He advised boards to audit the books of the contractor and the incomes of the management. "It's up to the boards to put techniques into play."

Luxemburg suggests asking contractors and managing agents for certifications that they have not taken money. "It doesn't have to be on the basis of one time," he noted. "It can be done every month."

The Council of New York Cooperatives will be holding a seminar on July 13 entitled, "What to do about corruption," at a time and place that will be announced in the REW calendar.

Stuart M. Saft, a partner and head of the real estate department of Wolf Haldenstein Adler Freeman & Herz, a law firm that represents many boards, says boards who are managed by agents or firms that have been implicated will have to assess the situation. He suggests that for large construction jobs, the board should hire an independent engineer who can prepare the bid specifications, and then have the sealed bids opened in the presence of the board. "Have the managing agent only indirectly involved in capital projects," he advised.

For day-to-day operations, Saft advised that any payment over 500 should be approved by the board except for the three fixed items: payroll; real estate water and sewer charges; and mortgage.

Anything else should be approved, said Saft. "The only thing the board can't protect themselves for is if you have a contractor who wants to pay the managing agent, you can't monitor. But it has to take a pretty stupid contractor to pay a managing agent to pay the lowest possible price for a contract."

Belson advises boards and owners to pay a fair rate of fee for the services. "Beating a supplier down to the least possible dollar creates problems. A person has to make a living."

Additionally, he continued, "Look for a full insurance certification against any defalcation so that if any malfeasance occurs they can recoup. Review bills. Do not leave it without a check and balance system. These are the things that will prevent abuses."