Fraud Alert:
Rogue management firm at large in Halton
The Ontario Condo Law Blog
By Chris Jaglowitz
01 December 2014
It is not a lawyer’s usual role to alert the public about possible
crimes being perpetrated by suspected criminals at large, but we feel
compelled to do so when police and government fail to take action and
leave condominium corporations vulnerable to a rogue.
Boards of small condominium corporations in Halton Region should check
whether they have been victimized by potential rogue condo management
firm operating in Burlington and surrounding area.
No police charges have been laid and no convictions have been entered,
so we cannot name suspects without fear of defamation lawsuits, but we
offer this warning as a public service to help condo boards protect
themselves against fraud and to take effective steps to recover losses
if they have been victimized.
To help avoid unnecessary alarm, we add that the firm at issue is a
small one that does not hold ACMO membership or ACMO 2000 certification
and is not led by persons with the Registered Condominium Manager (RCM)
or Associate of the Canadian Condominium Institute (ACCI) designations.
We may report suspects’ names when charges are laid or a court makes a
finding of wrongdoing.
Until then, the easiest way to check for fraud is to review your condo
corporation’s bank balances and recent transactions. If the balances
and transactions provided by the bank meet your expectations, then
you’re probably okay but should take this opportunity to review and
improve your corporation’s financial controls to avoid falling victim
to a thief. See here and here and stay tuned for further tips you
should institute today. An ounce of prevention goes a long way to
avoiding fraud losses.
If your review of the corporation’s banking info reveals a potential
fraud, engage lawyers immediately and before you do anything else. The
odds of recovering fraud losses drop exponentially if the board fails
to get good advice quickly and at the outset.
In addition to preserving the corporation’s rights, getting legal
advice quickly will help you avoid being sucked in by the rogue, which
is a frighteningly common pitfall for condo directors after a fraud.
Many rogues are charismatic and will often convince victims that they
will return the money if given more time. Too many victims, shocked at
being defrauded and naively hopeful that the damage will be undone,
might accept these pathetic assurances and allow precious time to pass,
reducing the odds of making a recovery. The moral: Do not ever
trust the word of a person who has stolen money from you.
And while you must notify your bank immediately of a fraud (and give
them particulars of the suspected transactions or instruments), do not
expect your bank to do anything terribly helpful for you. Despite the
warm and fuzzy feelings arising from their friendly advertising, banks
are not your friends and will give you no greater protection than as
set out in the account operation agreement that no one reads when
opening an account. Those one-sided agreements typically provide that
account holders are deemed to accept forged instruments or unauthorized
transactions unless reported to the bank within 30 days after the
monthly statement was issued, even if it was mailed to the rogue. You
condo directors are getting a copy of the monthly bank statements
mailed to you directly, right? Right?!
Perhaps most disturbing is the fact that defrauded condo boards and
unit owners cannot always count on decisive action by police to bring
the wrongdoers to justice. This is a troubling proposition because our
natural inclination is to report criminal activity to police, not only
to potentially recover our stolen property, but also to help protect
other potential victims. Unfortunately, neither of these outcomes are
guaranteed from police interactions. In our experience, police
involvement with condo fraud scenarios rarely leads directly to
financial recovery. Laying charges could, however, alert the public
about bad apples and warn condo boards to steer clear, but too many
condo frauds take place without charges ever being laid.
This may be such a such case.
Because there is reason to believe that Halton Police have been aware
of misdeeds by the rogue firm in question for at least a year and were
given convincing evidence of criminal activity from multiple sources,
the continued failure to lay charges deserves special attention and
raises serious questions. It would, at the very least, frustrate
the hell out of the victims who took time to come forward, file reports
and give evidence, only to learn that the bad guys were left to defraud
even more unknowing condominiums. All those victims should rightly be
outraged, especially if they have devoted time and resources to
providing police with evidence that has yet to lead to charges being
laid and where the resulting delay may have have compromised their own
ability to recover their money using other processes.
Let us be clear that we are not anti-police. Victims should
report crimes to police and provide useful information for perpetrators
to be charged and prosecuted. There is also great value in the
information that might come from police during investigations. And we
all applaud when we see charges laid and prosecutions
commenced. Our point is that participating in a police
investigation (while part of one’s civic duty) should not divert a
defrauded condominium’s board’s time and energy from working with
counsel to follow the steps to recovering stolen money, since those
steps must be taken quickly. If your board has time to pursue
both avenues simultaneously, then by all means do both. If, however,
you must choose whether to use the criminal process versus the civil
process first, focus on the civil process first and make your own
recovery a top priority. The police process does not typically
lead to financial recovery and, indeed, may not even lead to charges.
Too many boards incorrectly assume that helping police will result in
quicker, less costly recovery than using the condominium’s
lawyers. While this seems a reasonable hope, it is
misguided. The best odds of recovery come from condo
corporations taking immediate and decisive action to pursue fraud
losses using the civil process. Devoting time and resources
to aiding a criminal investigation is both noble and important but it
should rank as a second priority as it may be a bad choice as your sole
means of seeking financial recovery. Talk to your lawyers first
to assess the situation.
Where police (armed with good information of wrongdoing) fail to
protect the public and leave suspected thieves free to victimize dozens
of additional condo unit owners, the government is the only other
player with the power to fill that role and to stop the bad guys’ crime
spree.
Almost 16 months have passed since the Ministry of Consumer Services
announced its plan to introduce condo manager qualifications and
licensing. No draft legislation has yet been revealed, but the plan
would presumably (hopefully?) create a regulator with the power to
revoke the license of suspected bad apples, a move that would have
spared the condo corporations in Halton from the rogue firm whose
misdeeds have been known to police for more than a year.
Creating a regulator with a mandate to license and regulate condominium
managers and safeguard Ontario’s condominiums and unit owners is long
overdue. The government’s delay in rolling out this essential
framework creates new victims with each passing day. These measures
must be introduced immediately. Not “soon, very soon” as Minister
Orazietti tells us, but now.
Right now.
Comments
Eldona • 04 Dec 2014
TRUE: Too many boards incorrectly assume that helping police will
result in quicker, less costly recovery than using the condominium’s
lawyers.
We had a fraud (it was our treasurer and a single bank employee in
cahoots, nothing to do with the manager) and we got the cops in on it.
We spent tens of thousands extra when we involved the cops because our
lawyer had to do all the documentation, explaining and answering to the
cops. Our lawyer had to explain to the cops about 50 times, yet the
same lawyer already had the money returned within two weeks. In that
one-time example, the cops added costly and unnecessary dimensions to
the investigation and to the recovery.
William Stratas • 02 Dec 2014
Chris, the best avenue always is civil action and recovery first, as
you correctly state. And the best way to do that is to invoke the
indemnification clause in the management agreement—in consultation with
your condo corporation's lawyer.
With that notice of indemnification having been made, then you proceed
to tally up the damages and losses. The costs of a special audit
examination of expenses and bank records will be claimed back in full
against the management company. Engaging a specialized fraud
examination firm (such as eagleaudit.ca) will get fast and direct results.
It's not an area that a regular accountant or auditor can handle.
With the fraud examiner's report in hand, your corporation lawyer
submits a demand letter to the management company: "Pay my client this
amount in total damages, pursuant to the management agreement
indemnification" -- and if they refuse, you have the basis to file
civil litigation. And your corporation will be in a very strong
position to win back all its costs and damages in that litigation.
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