Settlement reached in Big Six Towers suit.

A settlement has been reached by Big Six Towers with its former manager, as well as its former accountants and lawyers. The professionals had been sued by the Mitchell-Lama property's shareholders for alleged mismanagement with regard to a shopping center expansion and other activities.

Criminal investigations of former manager Richard Stone's activities by the Manhattan District Attorney's office and the City of New York's Department of Investigations concluded, however, without any charges being brought.

The shareholders did bring civil lawsuits, most of which were recently settled, with the remainder finalized last week.

According to a confidential memorandum to shareholders distributed at the end of November by attorney Jonathan Young, a partner with Anderson Kill & Olick, and obtained through real estate channels, the buildings have received approximately $1.4 million from its former attorneys, accountants and construction workers, primarily through professional liability policies.

Both a former board member and the board's former president cooperated with Big Six on the lawsuits and were not asked to contribute to the settlements.

As part of the settlement, the memorandum states, "Big Six will enter into a $2 million judgement against Stone based on his fraud and malfeasance."

Since Stone is destitute and has been supported by his elderly parents for the last three years, under the settlement, Big Six will be entitled to receive a portion of Stone's income after taxes for the next seven years.

The unusual settlement was made to encourage Stone to find employment, and if he fails to pay the money or provide financial information as required, Big Six will be free to enforce the judgement.

Stone's attorneys, Snitow & Pauley, did not return a call for comment before deadline.

Stone began working at the 982-unit, seven-building complex in Woodside, Queens in 1969, eventually receiving a salary of around $60,000. Other managers interviewed considered this salary very low by industry standards for the size of the complex.

Stone's income had been supplemented from Indecom Corp., a firm he owned, which acted in part as a construction company to do work on Big Six projects. A civil suit had also been filed against Indecom, but it now has no assets either, and according to the memo, owes $100,000 to Citibank.

Until Stone was fired, Big Six had been self-managed, with a tenant/cooperator board that relied on Stone for most decisions. The board has since brought in Kreisel, now known as Insignia/Kreisel, as its managing agent.

Stone, who hobnobbed with politicians and industry leaders through his long tenure as the president of the New York Association of Realty Managers (NYARM), has since been unemployed and is without assets.

"He bit off more than he could chew," said Young, who represented the building shareholders in the settlement, which he declined to discuss under confidentiality arrangements, except with regard to Stone.

A one-time aide to Herman Badillo, Stone's politically astute and gentle leadership allowed NYARM to expand and thrive. He also hosted a weekly radio broadcast on real estate issues that was eventually expanded to an hour, but not enough ads were generated to pay for the program.

Soon after the show expanded, Stone was relieved from his position at Big Six, and without a management job, could not continue as president of NYARM and was replaced.

Through his NYARM position and the radio show under its auspices, Stone was also an outspoken advocate of management licensing, and had been active in campaigning for state legislation of the profession, which is yet to pass.

NYARM officials declined comment on Stone or the settlement.

The problems at the Mitchell-Lama Big Six Towers began many years ago when new cooperators were asked to pay what turned out to be an illegal "capital charge" over the price of their unit at Big Six, prompting a lawsuit.

As part of the settlement in 1991, said a spokesperson from Housing Preservation & Development (HPD), the illegal charge was supposed to stop and an accountant was hired to oversee the building. But soon, HPD received word the money was still being collected from new cooperators, amounting to some $1.7 million. Auditors sent in by HPD in March of 1994 then found irregularities in the books.

An attorney hired by the shareholders brought in yet another accounting firm, which found even more problems.

Stone had helped develop the complex's co-generation plant, and then began a construction project to expand a shopping center. This was supposed to increase income and retail rents, and thus benefit the shareholders.

The $4.5 million project ran into cost and time overruns, however, and along with a bank loan, residents were asked to buy $1.85 million in debentures.

The memo of settlement estimates the damages to shareholders between $3 million to $5 million. These figures include lost income because the shopping center did not open on time, as well interest on construction loans.

Larry Vitelli, senior vice president of Insignia/Kreisel, said the new extension of the shopping center has now been completed, and is almost all leased.

"Mary Felicetti, an Insignia regional supervisor, and her staff have done an incredible job," Vitelli said. "We put her on site at Big Six to straighten it out. For. two years she was the general manager. We brought in a new super who has done a tremendous job. The buildings also have been turned around physically. Despite not a lot of funds available, the hallways have been painted, the elevators have been repaired, the staff is functioning well, the grounds have been landscaped, and it's all been done in-house."

Additional arrears have also been reduced because of maintenance and legal follow-ups, Vitelli said.

One co-op expert, who declined to be identified, noted that former manager Stone had a "burning ambition to make things happen," but "lost all sense of reality when he got in over his head."

Young said "Stone's genius was more in his ability to fool people. The Big Six offices were in chaos. Checks were stuck everywhere. He made people believe he was in control. The genius lies in his energy level, not in what he accomplished."

Dick Koral, director of the New York City Technical College's Apartment House Institute, says boards of co-ops should always be watching for trouble.

"Especially when you have a bright manager, the board has to be on top of them all the time," stressed Koral. "The lesson to be learned is that the work of managers has to be reviewed by a board that is not asleep."

Koral believes the board should have noticed the alleged disarray of Stone's office and his escalating personal problems.

"There should have been an audit of his work," said Koral. "I'm sure this was not Richard at the beginning, but then he had 12 oranges up in the air and then had bad judgement in trying to overcome them."

Greg Carlson, president of the Federation of New York Housing Cooperatives and of Carlson Realty, called this an "extreme" case of board trust.

"This case shows that a board has to be active in the management of their cooperative," he said. "Boards must be aware of their duties. They are the bottom line. Agents and other professionals work for you, but it's the board's responsibility to see they are doing the job correctly."

"This is the only industry where I can take someone off the street and put then in charge of a multi-million dollar building," said Carlson.