Left Adrift

Forty condo associations, mostly on Chicago’s North Side, have found themselves floating in the backwaters of red ink after alleging they were victims of a monumental condo management fraud

By Edward McClelland

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Strauss’s apparent financial unraveling began five or so years ago after he—backed by a group of suburban investors—redeveloped a 15-unit building at 4855 North Bernard Street. By September 2005, all 15 units had been sold, but the investors and the bank that gave the project a loan hadn’t received any money. Jay R. Hoffman, the lawyer who represented the investors, says his clients have swallowed their losses. “I don’t think [Strauss] has the money,” he says, “and my clients aren’t able to chase him around for it.”

By this time, Strauss was shifting money from one bank account to another. Many of Regent’s associations deposited their money in Bridgeview Bank. But in April 2007, according to court papers in one of the civil suits, Bridgeview closed those accounts because Regent was kiting checks. Strauss transferred the funds to an account at Corus Bank that only he controlled, and began depositing his clients’ money there, according to the suit.

Regent kept the alleged shell game going by sending out computer-generated financial updates rather than actual bank statements, according to court papers and former clients. Paul Kolenda’s association has joined one of four lawsuits against Regent. According to its complaint, on November 30, 2007, Regent submitted a report listing the building’s assets at $385,526.63. The actual balance? Forty-nine cents, says Kolenda.

Why did Strauss allegedly do it? Court records and interviews with victims suggest two possible motives: He was losing money in real estate, and he was struggling to pay his wife’s medical bills. “In his mind, he needed cash and he was ‘borrowing’ from the associations,” Greg Catenacci suggested. “As soon as he sold a property, or refinanced, he’d pay it back—no harm, no foul.”

In the immediate aftermath of Regent’s collapse, Kolenda’s building, which had received notices of water and gas turnoff, scrambled to pay the bills. Garbage piled up in the dumpster because Regent hadn’t paid the haulers. As it turned out, the association was stuck for $100,000 worth of bills that Regent claimed to have paid, says Kolenda. The board had already hired a new management company, First Property, to oversee the building. But without access to financial records, First Property couldn’t even figure out whom to pay. First Property’s president, Michael Rutkowski, called vendors, asking whether 1934 North Washtenaw owed them money. To settle the bills, the building took out a $150,000 loan.

The building’s lawsuit names Strauss and his wife, Nancy, as defendants, as well as Regent’s treasurer, Donald Doering, and his wife, Linda. After subpoenaing bank records from Bridgeview, the association says, it found that Regent had been transferring money to its own accounts as late as January. “Strauss may have used converted funds of the Association to pay joint bills on Strauss and Nancy Strauss, including medical bills and mortgages and other expenses on real property owned by Strauss and Nancy Strauss,” the lawsuit claims.

Through his attorney, Camille B. Conway, Strauss has pleaded the Fifth to the lawsuit’s charges because of the pending criminal investigation. The Doerings never mounted a defense and have been found in default. They recently put their Wilmette house on the market for $944,900. Police say Doering is cooperating with the criminal investigation into Regent. He did not respond to phone messages left by this magazine.

Associations that suffered smaller losses aren’t suing, because they don’t consider it worth the legal fees. Christina Beer is president of a condo at 223 West Wisconsin Street, which employed Regent. Last year, Beer says, Strauss urged her association to start a reserve fund for building repairs. The board approved a special assessment in June and raised more than $60,000—now gone. Beer filed an insurance claim to recover the money. It turned out the policy— arranged by Strauss—covers fraud only by employees, not contractors, including building managers, and she was able to recover only $25,000. She’s still hoping for justice from the police, but whenever she calls the Financial Crimes Unit, “they’ll just say there’s no update. Honestly, I’ve given up.”

Detective McLaughlin insists that the police have tried their best but have been slowed down because Regent has not complied with a subpoena seeking financial records. As a result, he says, investigators have had to subpoena banks and gather documentation from each of the affected condo associations to build a case—a more time-consuming task. Says McLaughlin: “Assuming I’m not going to have the help of Regent’s records, we have to re-create everything from the owners’ documentation—you know, canceled checks, bills from vendors—and a lot of the owners have had difficulty retrieving their records.”

Several condo associations, however, say they want to be as helpful as possible but are facing a Catch-22: They don’t know exactly what was paid in or out of their accounts; that’s what they hired Regent to do.

This past summer, the FBI took the lead on the Regent criminal inquiry, although the Chicago Police Department has retained its investigative role. “That the FBI took on the case shows you that it’s a big case in their eyes,” says Sergeant Phillip Cappitelli of the police department’s Financial Crimes Unit. Virginia Wright, an FBI special agent, would not comment directly on the case, but said it’s common for fraud investigations to take years. “It may take two years to investigate and two years before the U.S. attorney is ready to file charges,” Wright says. “When you’re looking at financial institutions and you have to do a historic case, you have to go back years to determine when the fraud started.”

That leaves some wondering whether Strauss, who is 74 and has been described by one individual who dealt with him as a broken man, will ever be prosecuted. To Kolenda, that would be an injustice. He and his fellow condo owners are in a financial hole that may take years to escape. Regent’s alleged victims didn’t just lose just their savings. Their homes are worth less, too. It’s hard to sell a condo with no reserve fund. “There’s a lot of first-time homebuyers here,” he said. “We’ve got a lot of new parents who are afraid to sell because they don’t know if they’ll get their money. There’s a cloud over this building now.”