Blog posting by David C. Swedelson, Condo and HOA lawyer, Partner SwedelsonGottlieb
According to an FBI website article, a Las Vegas man pleaded guilty for his role in a scheme to fraudulently gain control of condominium homeowners’ associations (HOA) in the Las Vegas area so that the HOAs could direct business to a certain law firm and construction company.
The story is amazing, and you might wonder how this could happen. Over my many years as a California condo and HOA attorney, I have seen several community associations that were taken over and controlled by groups that bought up units and votes. But I have never seen this done so that work could be funneled to attorneys or contractors. But considering the money that could be earned on these projects, we should not be too surprised that this happened.
According to the plea agreement, Darryl Nichols admitted that, beginning in approximately November 2005, he joined a fraud scheme aimed at controlling various HOA boards of directors so that the HOA boards could award the handling of construction-related lawsuits and remedial construction contracts to a law firm and construction company designated by Nichols’ co-conspirators. According to court documents, the fraud scheme operated from approximately August 2003 through February 2009.
So how did the conspiracy operate? According to court documents, the co-conspirators used straw purchasers to obtain mortgage loans for units within Las Vegas HOA communities. Nichols admitted that he became a straw purchaser and used his name and credit to purchase condominiums at the Chateau Versailles, Sunset Cliffs and Palmilla condominium complexes. Nichols admitted that his co-conspirators provided the down payments and monthly payments, including HOA dues (assessments) and mortgage payments for the condominiums and were the true owners of the properties.
According to plea documents, Nichols’ co-conspirators managed and operated the payments associated with maintaining straw properties owned and controlled by co-conspirators by running a so-called “Bill Pay Program” by which co-conspirators funded the properties through several limited liability companies at the direction of a co-conspirator. Many of the payments were wired from California to Nevada.
Nichols admitted that he agreed to run for election to the HOA boards at the condominiums and became a board member at Chateau Versailles and Sunset Cliffs. Once elected to the boards, Nichols breached his statutory fiduciary duty to the homeowners by accepting from his co-conspirators compensation, gratuities and other remuneration that improperly influenced, or reasonably appeared to influence, his decisions-resulting in a conflict of interest. Nichols admitted that after being elected to the boards and accepting payments from his co-conspirators, he subsequently voted in a manner directed by and favorable to his co-conspirators.
According to court documents, to ensure Nichols and other straw purchasers would win HOA board elections, Nichols and his co-conspirators employed deceitful tactics such as creating fake labels and ballots, calling out-of-state homeowners in order to gather information about their voting intentions, and supplying mailing lists to co-conspirators to create forged ballots for non-voting homeowners. Nichols admitted that in approximately June 2008, at the request of his co-conspirators, he agreed to mail forged ballots from California to Las Vegas to make the forged votes for out-of-town homeowners appear legitimate.
Nichols admitted that he was given cash payments for his assistance in purchasing the properties, obtaining HOA membership status, rigging elections, and using his position to manipulate the HOA’s business to enrich the co-conspirators at the expense of the HOA and the legitimate homeowners.
It is just amazing that it took so long for this conspiracy to be uncovered. I expect that there will be more indictments. We will be tracking this story. Comments? Contact David Swedelson via email: firstname.lastname@example.org