Homeowner Groups Easy Fraud Targets : Swindle: Embezzlement from two Laguna Niguel associations points up vulnerability, lack of accountability.
The dancers at Captain Cream, a topless club in a Lake Forest shopping center, knew Jim Fitzgerald as a big spender. He could be seen at the club several days a week, dropping as much as $500 on tips and drinks in a few hours.
But unbeknown to hundreds of Laguna Niguel homeowners, Fitzgerald, the property manager of two homeowner associations, might have been spending their dues money, law enforcement investigators say.
Fitzgerald, who was arrested in the parking lot of Captain Cream in June, now is in Orange County Jail, awaiting a preliminary hearing to determine if he will stand trial on charges that he embezzled about $340,000 in homeowner association funds before he was fired as vice president of Seabreeze Management Co.
Fitzgerald, 45, says he is innocent and broke. He is represented by a public defender.
But sheriff’s investigator Donald Lambert says Fitzgerald stole the money and then spent the bulk of it “on wine, women and song.”
Since November, 1991, Fitzgerald had been funneling money out of the bank accounts of Camden Court Homeowners Assn., representing 188 townhomes, and Niguel Ranch Homeowners Assn., which maintains slopes and greenbelts for a 1,200-home community, according to sheriff’s investigators.
He is suspected of forging the names of association directors on bank signature cards that he placed on file with the Bank of Newport, where the associations kept their reserve accounts. Then, unbeknown to the associations, he created bank accounts in their name at the Bank of Yorba Linda, according to court documents.
Fitzgerald transferred funds from the Bank of Newport to the Bank of Yorba Linda, where he put his own name on the signature cards so he could sign on the accounts and withdraw money for his personal use, including paying off credit cards, the district attorney alleges.
Fitzgerald had a routine method of moving funds from bank to bank, according to a report that Lambert filed with the court.
He would telephone the Bank of Newport requesting a cashier’s check from one of the homeowner association capital accounts. When he picked up the check, he would present a withdrawal slip with two forged signatures of association directors, which, Lambert said in an interview, conveniently matched the forged names on the bank signature cards. Then he would deposit the cashier’s check into one of the Yorba Linda accounts he had created.
But no one, including the auditor in his annual review, discovered anything was amiss until May 10, when Lisa Dale, the owner of Seabreeze, went to the Laguna Niguel branch of the Bank of Newport to apply for a car loan and noticed a $4,000 cashier’s check on the desk of the business accounts officer that was made out to the Camden Court Homeowners Assn.
She became suspicious when she was told that Fitzgerald had requested the check to pay vendors, especially since Fitzgerald was not assigned to handle the bank account and vendors were paid from other funds.
Dale said she set about immediately to review the association’s financial records.
“Four employees and I took files to my house and did a review of the books, and indeed we saw several like transactions,” she said. “It was apparent that there indeed was a problem.
“At 1 a.m., I felt that I had irrefutable evidence a crime was committed and called the Orange County sheriff.”
The next day, Dale met with sheriff’s investigator Lambert.
“It was a stroke of luck the way she found out about it,” Lambert said. “But I think sooner or later the auditor would have found out about it.”
One reason no one noticed that funds were missing, Lambert said, is that Fitzgerald had created phony invoices from vendors to look as if the money was used for valid expenditures involving the maintenance and repairs of the association’s grounds and buildings.
Fitzgerald’s arrest has stung many who knew him.
“I felt like I was raped,” said Lester Garb, president of the Niguel Ranch Homeowners Assn.
Garb described Fitzgerald as “a real roly-poly man with a very nice, jovial, ingratiating personality.”
The district attorney and others say, however, that the Laguna Niguel incident illustrates that homeowner associations and the management firms they hire are vulnerable.
Homeowner associations are governed by boards of directors elected from among the residents. Because the directors often have other full-time jobs and little management experience, they hire professional managers to help them.
Large sums of money are handled daily by this young and fast growing form of local governance, which has responsibility nationwide for $5 billion stashed in reserve accounts for long-range expenses such as roofing, painting and emergency repairs, according to the Community Associations Institute.
“Because associations are a new concept and many people operating them have little or no business experience, they are an easy target for professional con artists,” said Paul Christiansen, a Laguna Niguel real estate broker.
Joseph D’Agostino, a deputy district attorney who prosecutes major frauds, said in recent years he has won several large cases in Orange County in which property management company employees bilked homeowner associations.
In one case, a manager was sent to prison in 1992 after he stole $377,000 from homeowner associations over a four-year period when he worked for three separate Orange County property management companies. He was hired by the last two companies, Merit Property Management and Marquis Management Group, without their knowing that he was under investigation for crimes he committed on his previous job.
In retrospect, the president of Camden Court Homeowners Assn. said, he would have expected the banks or the association’s auditor to have caught the money drain earlier. Philip Herzfeld also contends the board members should have noticed the transfers of funds out of their Bank of Newport accounts when they read their bank statements.
“My own feeling is that everyone shares some of the responsibility,” he said. “Because of this experience, we are a lot more suspicious and sensitive to how things are being done.”
Fitzgerald is not talking. He declined to be interviewed about the charges.
Investigator Lambert said he was able to find only $1,000 in Fitzgerald’s bank accounts. He “didn’t drive fancy cars, and he lived in an apartment in Aliso Viejo,” Niguel Ranch Assn. president Garb said.
But Lambert said that Fitzgerald, the divorced father of a teen-age boy, had been on expensive yachting trips in the Caribbean and had spent large sums at Captain Cream.
“He would spend $200 to $500 a day on tips and drinks,” he said. “According to the girls (the topless dancers), he liked to play like the big spender.” If Fitzgerald is convicted, he could go to prison for up to 10 years.
Dale of Seabreeze Management Co. has promised to reimburse both homeowners associations for their loss, in part by using a $250,000 fidelity bond posted by her firm.
But she adds that she is not convinced all the missing money is spent and has hired a private investigator to look for it, hoping that if Fitzgerald transferred stolen money out of state, he will get a longer sentence.
“I am trying to make a statement through the court system by getting as long a prison sentence as possible for Jim Fitzgerald, (one) that will discourage property managers anywhere from thinking this kind of crime pays,” she said.