By Bill Turque
Washington Post Staff Writer
Friday, July 20, 2007
RICHMOND, July 19 -- At least $2 million was stolen from Northern Virginia condominium and homeowner associations, probably by a top executive of the Fairfax City company hired to manage their finances, a forensic accountant told state regulators at a hearing Thursday.
The losses sustained by customers of Koger Management Group between 2004 and 2006, described in a report to the Virginia Real Estate Board, far exceed earlier estimates of $800,000. The total may grow as more homeowner associations conduct audits, said Jeffrey D. Barsky, the accountant appointed by the board to investigate the matter.
"My concern is that there are a large number of victims that haven't been identified," Barsky said.
Koger Management collected assessments and handled other business for about 400 homeowner groups with approximately 70,000 members before it was placed under court supervision Feb. 26 by a Fairfax County Circuit Court judge. A complaint filed by the Real Estate Board and the Department of Professional and Occupational Regulation had alleged that large cash withdrawals had been made without proper documentation from homeowner association accounts.
The complaint named Jeff Koger, the company's former chief financial officer and son of company president Robert A. Koger, as "the likely primary culprit responsible for embezzling the funds."
No charges have been filed. Fairfax City police said this week that a criminal investigation is continuing.
Jeff Koger could not be reached for comment; messages were left on his phone and at his Herndon residence. Robert A. Koger did not respond to a message left at his Rust Road office. An employee at the offices of his attorney, George H. Ragland Jr., said Ragland was ill and not available.
Robert A. Koger said in March that he was estranged from his son, who he said left the company in late 2006 with "major medical problems."
Homeowner and condominium associations often function as surrogate local governments, levying millions of dollars in fees to provide residents with services such as trash pickup, snow removal, recreational facilities and street lighting. The groups frequently employ management companies such as Koger to collect the assessments and pay contractors.
Robert A. Koger said in an interview in March that Koger Management intended to return the money. He has repaid $113,000 in claims to 79 homeowner associations, said Barsky and Richard S. Mendelson, the court-appointed monitor. They include payments of $25,000 to the Masons Passage homeowners association in Lorton and $5,000 to the Branch Drive homeowners association in Herndon.
But Barsky told the Real Estate Board that approximately $2.2 million in homeowner funds was withdrawn from an account at a BB&T bank between 2004 and 2006 and transferred either to Jeff Koger or Tri-Fitness, an Annandale health club that lists Koger on financial documents. When reached by phone, Tony Harris, Tri-Fitness co-owner, referred all questions to Jeff Koger, then hung up.
Barsky said it is possible that Koger was using the BB&T account to process payments for Tri-Fitness or that he had re-deposited some of the missing money back into the BB&T account. In any event, he said, the gap between what is missing and what has been repaid suggests that the complete dimensions of the case are unknown. More analysis and bank documents are needed, Barsky said.
Barsky and Mendelson also reported that half of Koger Management's approximately 400 client associations have not audited their finances, representing a large potential pool of additional losses. Attorneys for other associations are preparing claims.
Robert A. Koger "has not been presented with all the claims he is going to be presented with," Mendelson said.
Mendelson said another potential problem for the company involves its claim with CNA, its insurance carrier. "There may be some issues concerning the claim," he said, without elaborating.
The Real Estate Board, which is involved in the case because Robert A. Koger is a licensed broker, met in a closed session for 40 minutes after hearing from Barsky and Mendelson but took no action. The board could petition the Circuit Court to place the company in receivership, which would freeze its assets and give a court-appointed receiver more direct control over the company's operations.
The future of the company is uncertain. Several associations switched to other management companies after the investigation began. In March, National Realty Partners, a real estate management company, announced an agreement to buy Koger Management's assets. It had moved its employees into the company's offices to manage its accounts and help sort out financial problems.
But the deal fell through this month. James Foley, National Realty's president, said Koger had raised the sale price at the last minute, bringing talks to an impasse. While National Realty was associated with Koger Management, it angered the remaining homeowner associations by announcing that it intended to raise management fees.
The experience has exasperated homeowners, who expected the operation of their associations to go smoothly.
"It was a nightmare," said Thomas DeFranco, president of the Ashburton Manor homeowners association in Oak Hill, which is missing about $5,800.