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First Reparations Issued In Co-Op Kickback Case
By CHARLES V. BAGLI
Six years after prosecutors first uncovered kickbacks and bribery
at hundreds of cooperatives and condominiums in Manhattan,
apartment owners are getting small reparations for the
tens of millions of dollars they lost as a result of the corruption.
On Monday, a restitution fund established by the Manhattan district
attorney began issuing checks to more than 400 buildings, including
some of the most luxurious apartment houses on the Upper
East Side.
It was a bittersweet moment for apartment owners who
had learned that apartment managers routinely accepted
millions in kickbacks from contractors and suppliers over a seven-year
period in return for work. Prosecutors said the contractors, in
turn, inflated their bills by about 10 percent to cover the costs.
More than 72 managing agents and 4 management companies pleaded
guilty to corruption charges and paid fines, but most buildings
will get only $4,000 or $5,000 each in restitution, far less than
what they may have lost and, in many cases, less than what it
cost to apply for restitution.
''I didn't expect the amount to be significant, but it does bring
some closure to a distasteful chapter in the history of building
management,'' said Dr. Jeffrey B. Green, president of Sutton Manor
Apartments on East 56th Street, where three managing agents and
nearly all its vendors were caught up in the scandal. ''I hope
this will lessen the amount of fraud going on, but I don't know.
I think they only uncovered the tip of the iceberg.''
The fund, which was set up in 1994, has been a headache for prosecutors
and apartment owners alike. Neither the 1994 charges against
the apartment managers nor the subsequent pleadings and
fines were specific about which buildings had been victimized
by bid rigging and kickbacks. More than 450 co-ops and condominiums
in Manhattan, therefore, filed claims totaling $560 million with
the restitution fund, which collected only about $3.75 million.
After a great deal of wrangling, Eric D. Herschmann, the special
master appointed to oversee the restitution fund, developed a
method to pay out the money. He said he expected to disburse a
second round of money to buildings outside Manhattan. Depending
how much money remains in the fund after administrative expenses,
he said, Manhattan buildings may receive additional money.
''This plan equitably distributed the money on a pro rata basis,''
Mr. Herschmann said. ''But it could never amount to a full recovery.''
Since none of the agents went to jail, the whole episode left
many co-op lawyers and residents skeptical about whether prosecutors
had successfully rooted out longstanding abuses in the industry.
''I doubt whether this will in and of itself end any corrupt practices
that still exist in the industry,'' said Aaron Shmulewitz, a partner
at Parker Duryee Rosoff & Haft, which represents about 140
co-ops and condominiums.
Daniel J. Castleman, chief of investigations for the district
attorney, said yesterday that the investigation was continuing.
''No one should be surprised if additional charges are brought,''
he said.