LAW LESSONS, PART 3: THE CASE OF THE RECKLESS RUSSIANS

When 10 of the building's rental apartments were bought in quick succession in 2006, alarm bells rang. "From day one we were suspicious because many of the 10 buyers used the same accountant," says the board's attorney, Steven Shore, a partner in Ganfer & Shore. "The condo has the right of first refusal on any sale, if it can match the contracts. But they couldn't match the contracts, so there wasn't anything they could do to stop the sale[s]."

The contracts themselves were another red flag. The buyers were paying wildly inflated prices for rent-controlled and rent-stabilized apartments, which had been owned by a single investor. "It was pretty clear from the get-go that something was rotten in Denmark," says Eleanor Lawson (not her real name), who has served on the condo's board of directors since 2004 and is now president. "We involved our lawyer right away."

Although no one in the building knew it at the time, they were already victims of an elaborate scam orchestrated by the Brooklyn-based brokerage firm AGA Capital, run by Russian-born mortgage broker Galina Zhigun, her son Garri Zhigun and office manager Maryann Furman.

The gang's appraisers inflated the value of its 10 "target" apartments, then AGA Capital applied for subprime loans in the names of the gang's straw buyers, claiming that seven of the apartments were going to be used as a "primary residence" and three as "investment property" that would generate $6,500 a month in rent. What AGA Capital failed to mention in the applications was that the apartments were occupied, they were either rent-controlled or rent-stabilized, and there was no way they could become the buyers' primary residences or generate anywhere close that rental amount. Soon after the loans were approved and the sales went through, the straw buyers stopped paying monthly maintenance charges.

"When you stop getting maintenance payments for approximately one-third of the units in your building, that's a big problem," says Shore, with understatement.

The building's board is a mixture of professionals — Lawson, plus two doctors, an attorney, an interior designer, a union negotiator and an entertainer. They realized they needed to act quickly, so they appointed a three-member legal subcommittee to work with Shore and his team.
"There were two questions," says Lawson. "What do we need to do from a legal perspective to protect the building? And what can we do to go after the lost maintenance money?"

Follow the Money

When indictments against AGA Capital and its web of co-conspirators began to come in the spring of 2007, the board realized it was the victim of a vast, sophisticated criminal scheme. It was a "jaw-dropping" moment, says Lawson.By now, the board realized that the lost income from maintenance was going to necessitate a special assessment, and it approved a 40 percent maintenance increase.

Shore suggested the board had two options. It could pursue millions of dollars in damages in federal court — a slow process that might result in a judgment that was substantial but uncorrectable — or it could go to civil court and try to win a quick judgment that would funnel rent on the 10 apartments away from the owners and directly into the building's coffers. At the legal subcommittee's suggestion, the board followed Shore's advice to pursue the latter course.