MAFIA HOA VICTIMS DEMAND RESTITUTION FROM U.S. GOVERNMENT
FBI and DOJ have grossly failed to warn the public of the dangers of buying into MAFIA homeowners' associations.
2,400 Nevada homeowners' associations were targets of La Cosa Nostra Mafia organized crime. Organized crime also targeted HOAs in Arizona, Texas and Florida, along with Nevada.
Apparently, the Mafia has gone from the garbage extortion rackets of New York City to rigging HOA contracts and extorting/foreclosing on HOA homeowners.
We know of victims that have been absolutely terrorized by both criminal rackets AND corrupt law enforcement (the very people that should be protecting victims!)
Victims have been told, for years, apparently, this is all a "civil matter".
FBI gave victims a false sense of security thinking it was a "civil matter".
Thinking it was a "civil matter", victims defended their homes in court, only for State Secrets Privilege used by DOJ to deprive victims' constitutional rights, their rights to defend their freedom, homes, life savings, etc.
It is believed the U.S. Government is possibly covering up these massive organized crime rackets to avert a possible housing market crisis.
Please think twice before buying into a U.S. homeowners' association and please read retired FBI Special Agent Michael B. Elliott's speech regarding organized crime homeowners' associations.
https://www.leg.state.nv.us/App/NELIS/REL/80th2019/ExhibitDocument/OpenExhibitDocument?exhibitId=43167&fileDownloadName=AB%20421_Testimony_Michael%20Elliott%20Nevada%20Home%20Builders%20Association.pdf
PREPARED STATEMENT OF MICHAEL B. ELLIOTT
Senate Judiciary Committee
(AB-421)
5/15/2019
Good morning Madame Chair and members of the Committee. My name is Michael Elliott and I am here today on behalf of the Nevada Home Builders Association.
I am currently employed as a licensed private investigator in the state of Nevada. Prior to my retirement in the Spring of 2017, I was employed for over 22 years as an FBI Special Agent. During my career with the FBI I specialized in investigating public corruption and election crimes.
From 2005 to 2007 I was a Supervisory Special Agent in the Public Corruption Unit at FBIHQ in Washington, D.C. During that time frame I oversaw all public corruption violations for the entire west coast of the United States, as well as those in the high-profile district encompassing Washington D.C. I was also responsible for the national election crime response and investigative system in the entire United States.
I am appearing before you today as a result of my unique experience as the case agent of Operation GrandMaster, a criminal investigation commonly referred to as the "HOA Investigation." Operation GrandMaster was the largest Federal public corruption investigation in Nevada history. The case lasted for over 10 years, from 2007 to 2017, and involved well over 100 people and dozens of companies and law firms. In the end, it resulted in the Federal indictment and conviction of 44 subjects. Among others, the convicted subjects included multiple Nevada attorneys, private investigators, real estate agents, notary publics, Community Association Managers ("CAM's"), one Captain and four Lieutenants at the Las Vegas Metropolitan Police Department (LVMPD), and over a two dozen HOA Board Members. Several dozen additional subjects, many of whom held high-level positions in the government and private sector, were also targeted by the case but not indicted due to complex legal issues, including statute of limitation restrictions caused by the shear enormity of the criminal scheme. The case also resulted in the execution of 10 Federal search warrants, over 70 consensually recorded telephone conversations with coconspirators, the largest seizure of physical and computer evidence in the history of the FBI, Las Vegas Division, and unfortunately, at least four high-profile suicides and several additional, related deaths. Further, the search warrants were largely predicated on the outcome of a complex FBI and LVMPD undercover operation in which the primary “bag-man” for the head of the HOA conspiracy paid over $20,000 in cash bribes to FBI Cooperating Witnesses. These cooperators were paid to rig a pending election at the Mission Pointe HOA in Las Vegas, thereby facilitating the essential theft of over $3 million in CD recovery funds from a competitor.
Given the size and notoriety of the case, there has been a great deal of misinformation disseminated publicly. This problem was compounded by the fact that, per Department of Justice policy, government prosecutors and agents assigned to the case were not allowed to discuss the case publicly until the last appeals of all convicted defendants were exhausted. Fortunately, that event occurred earlier this spring. As a result, I am now allowed to speak about the case publicly, and in a position to tell you today exactly what happened and its relevance to the legislation currently pending before this committee. To that extent I would ask you to consider the fact that I am the agent who actually opened the case, the affiant on all of the Federal search warrants, the one who actually ran the undercover case, and the only investigator to have actually worked the case for the entire 10-year period of its existence. Unfortunately, I was also the agent that had to attend and investigate the results of all of the autopsies of the subjects who tragically, and needlessly, died as a result of the criminal scheme. As a result, I believe I speak to on this matter today with a level of knowledge and authority that no other individual has. As such, I would ask you to carefully consider the facts I am about to tell you, as opposed to the some of the rumors and misinformation that been disseminated for personal and professional gain by some in the HOA and legal industries. I appear before you today in an effort to prevent Operation GrandMaster from happening again, because, in my professional opinion and experience, there is a provision in the current legislation that was directly responsible for the HOA scandal, and will inevitably lead to another criminal conspiracy if enacted into law. This is the provision that allows HOA boards to unilaterally initiate construction defect (“CD”) litigation on behalf of individuals homeowners without their specific consent (HOA Standing, Section 8). In the limited time that follows, I hope to summarize for you what happened in Operation GrandMaster, how this provision was largely responsible for the scheme, and how it's reenactment will inevitably lead to another wide-scale corruption case in the future.
As many of you have heard by now, the origin of the fraudulent scheme was a mob-inspired, and based on the ease and simplicity with which HOA Boards could be taken over and manipulated. In sum, the investigation revealed that these individuals began looking at Nevada HOA's in the late 1990's and realized their similarities with other legitimate businesses historically targeted by the mob, such as labor unions, waste management, and construction. Specifically, they realized that many HOA's in Nevada controlled multi-million-dollar budgets, yet there was little, if any, true regulation or oversight over their conduct and decisions. In addition, it was clear that many boards could easily be taken over and manipulated through election rigging and bribery of select board members and assigned CAMs and association attorneys.
Given this situation, a scheme was initiated wherein HOA Boards were taken over through fraudulent property purchases, rigged elections, and in many cases outright bribery of existing board members, CAM's and association attorneys. The goal was to take over the boards, which would in turn enter into seemingly legitimate contracts with various service providers, such as those involving landscaping, pool maintenance, and security services. Through this illegal control of the HOA principals, contracts would then be awarded to companies secretly owned and controlled by the conspirators. This was facilitated by bid-rigging and related illegal acts, all designed to redirect millions of dollars in HOA's funds back to the conspirators.
During the process of developing this scheme, the lead conspirators realized that, while they could make millions of dollars through the scheme, the greatest pot of money to be stolen was in fact through construction defect litigation claims. This was not surprising, given that the two principal conspirators included a highly experienced attorney and construction company owner, both of whom specialized in construction defect litigation claims. In addition, both of these individuals were absolutely convinced that the current system was rigged, and that the other successful construction defect attorneys and remediation companies were already doing the same thing.
Thus, the scheme was put into full effect in the early 2000's. At this time the head of the conspiracy hired a team of individuals, including a licensed private investigator, to research literally every HOA in the state of Nevada. They had a grid rating system, and the specific goal was to rate every HOA for potential takeover.
Issues targeted by the team included, among others, when the unit was built, the size of the HOA as the CD recovery amount was typically based on the “number of doors” in the association, the ease with which the board could be corrupted through bribery or replaced through rigged elections, and the potential for influencing and controlling the assigned Community Association Manager.
I know this process occurred, not just because multiple key defendants admitted it as a result of their cooperation agreements. Rather, during the process of reviewing the evidence seized in the case, a process that took well over two years to complete, we discovered “targeting packages” containing detailed information collected on over 2400 separate HOA’s throughout Nevada. These initial efforts narrowed the list of potential targets, and were then followed by and an actual intelligence gathering phase to identify final targets. This second phase included members of the team performing on-line database searches of county court and property records, secretly contacting paralegals and other support personnel at competing CD law firms, and conducting actual, on-site research at the HOAs in an attempt to determine suitability for the take-over scheme. The on-site research included a wide variety of techniques, including posing undercover at common areas, such as swimming pools, clubhouses and gyms, to covertly interview actual residents regarding potential defects. It also included illegal database searches and research of current board members to identify potential negative or embarrassing information that might be used to encourage board members to resign or otherwise coerce them into compliance with the scheme.
Once a final decision was made to attempt full take-over, units would be purchased in the targeted HOAs. The initial funds utilized to make these are believed to have been provided by Chicago linked mob associates and were literally delivered to the main subject’s office in pillow cases. Later, units were purchased through funds provided by the main attorney, who was able to obtain millions of dollars in loans through simple signatory agreements with no collateral.
In a seemingly unprecedented action, several banks loaned this individual millions of dollars for the alleged purpose of funding construction defect litigation. The banks did this because, at the time, multi-million-dollar CD recoveries were common and considered by the banks to be a “sure thing.” However, this was an expensive scheme given the number of HOAs and resulting units involved (over 40 were actually purchased as part of the scheme). Thus, towards the end of the conspiracy the units were refinanced and the equity obtained was used as a downpayment on additional units. These purchases were all Federal felonies in that the banks were defrauded on multiple counts of misrepresentation as the true intent of the loans was to facilitate a criminal conspiracy.
Once the units were purchased, a percentage of the unit was often deeded to a prospective straw board member. These individuals would then run for positions on HOA boards. Victories were assured through election rigging and often bribery of the association’s community manager or attorney. Once the straw board members obtained seats on the association’s boards, “plants” at meetings would read scripted statements prepared by the conspirators raising alleged issues of construction defect and requesting immediate action. This tactic was intentional and specifically designed to remove suspicion from the newly elected straw board members. The board members would then request the association’s manager or attorney to contact attorney’s specializing in CD matters to investigate the claims raised by the planted audience members. Not surprisingly, the conspirator attorney was always brought in and eventually hired to pursue CD litigation against the builder and associated subcontractors. This individual always won the contract through bid rigging as the conspiracy controlled the CAM and the CAM controlled which bids were accepted and brought before the boards.
Thereafter, Chapter 40 notices were immediately filed, and inevitably litigation followed. The conspirators had a rule of thumb in this regard. Specifically, their moto was “sue high, settle low, and do as little repair work as possible.” Thus, in the end, the conspiracy not only defrauded the homeowners by illegally taking control of their boards for personal benefit, they defrauded them again at the end of the scheme by destroying the value of their homes through the filing of CD litigation and failure to actually conduct repairs. Additional damage was done to the associations through the eventual default of mortgage payments on the units used to qualify plants for their positions on the HOA boards. Almost every one of these units eventually went into default, thus significantly damaging surrounding property values for years.
Given the constraints of today’s hearing, there is not enough time to detail even a fraction of the illegal, intrusive, and damaging actions taken by the conspirators in this matter. However, it is my hope that a summary of the following key issues will assist and guide you in your decision making process with respect to Section 8 of AB-421 (HOA Standing):
• Affordable Housing: At the inception of the case I and other investigators met with a wide variety of government and private officials involved in the CD industry. Based on the information obtained in these meetings, it became patently clear that a by-product of the criminal scheme was a direct increase in the value of condominium housing in Las Vegas. Specifically, it was learned that the price of a condominium in Las Vegas at the turn of the century was approximately $10,000 to $15,000 more than it would have otherwise been due to increased insurance premiums caused by the perceived inevitability of CD litigation. These increases were directly passed on to homebuyers. This was viewed as a major issue as the impact was felt most by those who could least afford it—young individuals just starting their careers and senior citizens. Similarly, due to the extensive loss in value and negative publicity caused by the investigation, one complex (Chateau Versailles) lost its HUD Certification, thereby making it virtually impossible to obtain a bank-secured loan on properties. At the apex of the investigation in 2010-12, this resulted in units that previously sold at over $200,000 being sold at approximately $50,000 to cash only purchasers.
• Limited Scope of Scheme: It has been argued by those supporting AB-421 that Operation GrandMaster was a “limited” problem involving only a small group of criminals in Las Vegas. This statement is patently false. Operation GrandMaster was in fact a mob inspired scheme conceptualized by Chicago LCN associates and brought initially to Las Vegas. Not only did the group target over 2400 HOA’s throughout the entire state of Nevada, by 2008 the scheme had expanded to include efforts in Arizona, Texas and Florida. In one of the most flagrant acts of the entire scheme, the lead Las Vegas attorney associated with a Florida law firm and actually flew several associated Florida attorneys to Las Vegas to teach them how to conduct the scheme. These attorneys later filed CD law suits in Florida and were subject to a spinoff criminal investigation in that state.
• Many of the CD cases that were filed were not supported by actual defects: It has also been argued that Operation GrandMaster should be viewed in a limited manner as all of the defects supporting the CD law suits were in fact real. This is also incorrect. Rather, there were multiple instances in which the conspirators could not prove actual defects, or deceived the homeowners about the likelihood of potential defects, in order to file a CD law suit. In many instances this was accomplished through deceptive presentations to home owners during the pre-Chapter 40 filing process. The following two examples are illustrative of the type of deceptive techniques used to deceive and manipulate homeowners:
o Fictitious Constructions “props”: The lead attorney had a demonstrative “prop” created and used it to incite homeowners and gain support for filing CD litigation. The prop consisted of an alleged section of wall that contained a “half-empty” can of Mexican beer allegedly discovered left in a wall during construction and found during destructive testing. The implication was that the construction companies commonly used non-union, illegal aliens to build the units and they were often so drunk while working that they actually left half-empty beer cans inside the walls during the process. This was a clear phycological ploy designed to enrage home owners by praying in biases against illegal aliens and non-union workers. This prop was found and seized by the FBI during the execution of search warrants on the primary attorney’s office.
o Fictitious Water Damage & Stripers: The conspirators knew that the greatest fear of homeowners was defective construction related to health and safety issues. As a result, they often utilized the fear of water leaks resulting in dangerous mold growth to motivate homeowners to support destructive testing, a required precursor to CD litigation. This was a dual-purpose deceptive technique as it is commonly difficult to obtain homeowner’s permission to conduct destructive testing because it often results in the homeowner being displaced from their unit for extended periods of time. This was the case at Pebble Creek Village HOA. As a result, the conspirators concocted a scheme involving strippers who would knock on the doors of units owned by single men on Sunday mornings, background information provided illegally by the CAM who was receiving kickback payments in return for cooperating in the scheme. The strippers were essentially dressed in bathing suits or G-Strings and a jacket from an alleged water intrusion detection company. The strippers would inform the owners that they believed there might be water damage in the unit and asked permission to enter the unit and inspect the walls. They would then run a rigged radar detector over several walls, claiming the device was a water intrusion detector. During the alleged inspection they would cause the device to alert with a loud beep in front of the homeowner and claim that this was proof of defective pipes, water intrusion, and likely mold growing in the walls. Finally, they would flirt with the homeowner, offer him their telephone number, and then ask them to sign a consent form authorizing destructive testing.
• Character Assassinations of Legitimate Opposition: As with any criminal scheme of this size, there were many moving parts and often times the conspirators made mistakes which, at least in part, exposed what they were doing. This was especially true at Vistana, the epicenter of the scheme in 2005, when several legitimate homeowners identified planted board members and exposed a rigged election. In response, the conspirators utilized the services of a well-known lobbyist and political consultant to create negative advertising and character assassination efforts designed to discredit those individuals who opposed the scheme. This included, but was not limited to, circulating anonymous fliers and confronting homeowners with allegations of racism and criminal records. In at least one instance the conspirators had an opposition member arrested by the involved LVMPD command staff on bogus charges as a means of intimidation.
• Non Completion of Repairs—“Value Added Engineering”: As noted above, the purpose of the scheme was to obtain as much money from the HOA, through any means available, not to correct defective construction. As a result, in almost every instance the repair work done subsequent to settlement of the CD litigation was either not completed at all, or done at substandard or deceptive levels. To conceal this practice, the conspirators would refer to the work completed as “value added engineering.” One of the best examples of this was the roof repair at Vistana. This work was alleged to have cost, and billed to Vistana, at several million dollars and supposedly included a complete replacement of all identified building roofs. However, in reality, the conspirators arranged for an unwitting subcontractor to conduct a simple repair of several problem areas. The repair job cost several hundred thousand dollars and the conspirators simply pocketed the difference. In a similar situation at Vistana, the conspirators failed to correct an alleged issue with the firewalls between garage areas and living spaces that were not sufficient to meet fire-code standards (a serious health-safety violation). Rather, they simply used a special type of fire-proof paint (Elastomeric) to cover the existing firewall and claimed the problem had been corrected. Again, the money saved through this “value added engineering” was not passed on to the homeowners, but rather pocketed by the lead conspirator. In 2012, at the height of the investigation, several meetings were held with the investigators and prosecutors assigned to Operation GrandMaster. This was a result of the fact that members of this body, the Nevada State Senate, had reached out to the Justice Department in an attempt to obtain assistance in crafting legislation that might prevent the criminal scheme from happening again. During this meeting several issues were identified as the key legal issues that facilitated and encouraged the conspirators to initiate the HOA take-over/CD litigation scheme. While there were multiple issues identified, the two most critical were the following:
1. Lack of Legal Penalties for Bribing CAMs, HOA Board Members, and Rigging HOA Elections: The most pressing issue was the fact that, under Nevada law at the time, there were no statutes criminalizing the bribing of licensed CAMs and HOA Board Members. Similarly, there were no criminal prohibitions on rigging HOA elections. In response, a meeting was held with a leading member of this body and a criminal statute was drafted correcting this glaring omission. Later that year the legislation was enacted into law.
2. Authority of HOA Boards to Unilaterally Initiate CD Litigation on behalf of Homeowners Without their Specific & Individual Consent: The second most important issue, which lead directly to the success of the criminal scheme, was the fact that the HOA boards were allowed to unilaterally initiate CD litigation on behalf of entire associations, without the specific consent of individual homeowners. Because of this, the conspirators only needed to control a majority of any given HOA board in order to initiate the scheme.
In 2012 and 2015, legislation was passed by this body, and later enacted into law, correcting both of these issues. While AB-421 does not seek to revoke the criminal prohibitions on bribing board members and CAMs, it does take a dangerous step back, in my opinion, by allowing board members to once again unilaterally initiate CD litigation on homeowner’s individual property without their specific consent. As I have detailed, the HOA/CD litigation scheme was a sophisticated, far reaching, mob inspired criminal scheme motivated by millions of dollars in potential illicit gain at the expense of hard-working Nevada homeowners. The lynch-pin of the scheme was the ability to easily corrupt HOA boards and then use the authority of the board to unilaterally file CD law suits without individual homeowner’s specific consent. If this body decides to pass AB-421 in its current form, it will reinstate the ability of board members to file such lawsuits. Based on my extensive experience investigating HOA boards, CAMs, industry lawyers, and sophisticated public corruption and organized crime schemes, I can tell you with virtual certainty that, if this body approves the HOA standing provision of Section 8 of AB-421, there is no question as to whether this scheme will happen again in Nevada. Rather, the only honest question is when it will happen. The evidence and outcome of Operation GrandMaster clearly demonstrates this fact. It is simply too easy to manipulate and control HOA boards and there is too much money at stake in unilateral CD litigation to believe otherwise (estimated to be approximately $1.5 billion in recoveries in Nevada to date). I respectfully submit this statement on the record and welcome any questions the committee members might have regarding my experiences as the case agent of Operation GrandMaster and how it guided my opinions with respect to the HOA standing issue of AB-421 contained in Section 8 of the proposed bill.
TAGS: FBI claims Mafia is a "civil matter", Crime Victims' Rights Act, restitution, reparations, State Secrets Privilege Coverup, U.S. Constitution Article 4, Section 4, First Amendment Free Speech-Right to Redress Grievances, Fourth Amendment - illegal civil forfeitures, FISA (unconstitutional wiretaps and surveillance of victims), Fifth Amendment - due process, Sixth Amendment - legal representation deprived, Eighth Amendment - cruel and unusual treatment, Fourteenth Amendment - disparate treatment of victims, equal rights violations, ADA disability discrimination, U.N. human rights treaty violations, human rights violations, HOA assessments, extortion, embezzlement, rigged contracts and elections, La Cosa Nostra, Mafia, Nevada, Arizona, Texas, Florida.
2,400 Nevada homeowners' associations were targets of La Cosa Nostra Mafia organized crime. Organized crime also targeted HOAs in Arizona, Texas and Florida, along with Nevada.
Apparently, the Mafia has gone from the garbage extortion rackets of New York City to rigging HOA contracts and extorting/foreclosing on HOA homeowners.
We know of victims that have been absolutely terrorized by both criminal rackets AND corrupt law enforcement (the very people that should be protecting victims!)
Victims have been told, for years, apparently, this is all a "civil matter".
FBI gave victims a false sense of security thinking it was a "civil matter".
Thinking it was a "civil matter", victims defended their homes in court, only for State Secrets Privilege used by DOJ to deprive victims' constitutional rights, their rights to defend their freedom, homes, life savings, etc.
It is believed the U.S. Government is possibly covering up these massive organized crime rackets to avert a possible housing market crisis.
Please think twice before buying into a U.S. homeowners' association and please read retired FBI Special Agent Michael B. Elliott's speech regarding organized crime homeowners' associations.
https://www.leg.state.nv.us/App/NELIS/REL/80th2019/ExhibitDocument/OpenExhibitDocument?exhibitId=43167&fileDownloadName=AB%20421_Testimony_Michael%20Elliott%20Nevada%20Home%20Builders%20Association.pdf
PREPARED STATEMENT OF MICHAEL B. ELLIOTT
Senate Judiciary Committee
(AB-421)
5/15/2019
Good morning Madame Chair and members of the Committee. My name is Michael Elliott and I am here today on behalf of the Nevada Home Builders Association.
I am currently employed as a licensed private investigator in the state of Nevada. Prior to my retirement in the Spring of 2017, I was employed for over 22 years as an FBI Special Agent. During my career with the FBI I specialized in investigating public corruption and election crimes.
From 2005 to 2007 I was a Supervisory Special Agent in the Public Corruption Unit at FBIHQ in Washington, D.C. During that time frame I oversaw all public corruption violations for the entire west coast of the United States, as well as those in the high-profile district encompassing Washington D.C. I was also responsible for the national election crime response and investigative system in the entire United States.
I am appearing before you today as a result of my unique experience as the case agent of Operation GrandMaster, a criminal investigation commonly referred to as the "HOA Investigation." Operation GrandMaster was the largest Federal public corruption investigation in Nevada history. The case lasted for over 10 years, from 2007 to 2017, and involved well over 100 people and dozens of companies and law firms. In the end, it resulted in the Federal indictment and conviction of 44 subjects. Among others, the convicted subjects included multiple Nevada attorneys, private investigators, real estate agents, notary publics, Community Association Managers ("CAM's"), one Captain and four Lieutenants at the Las Vegas Metropolitan Police Department (LVMPD), and over a two dozen HOA Board Members. Several dozen additional subjects, many of whom held high-level positions in the government and private sector, were also targeted by the case but not indicted due to complex legal issues, including statute of limitation restrictions caused by the shear enormity of the criminal scheme. The case also resulted in the execution of 10 Federal search warrants, over 70 consensually recorded telephone conversations with coconspirators, the largest seizure of physical and computer evidence in the history of the FBI, Las Vegas Division, and unfortunately, at least four high-profile suicides and several additional, related deaths. Further, the search warrants were largely predicated on the outcome of a complex FBI and LVMPD undercover operation in which the primary “bag-man” for the head of the HOA conspiracy paid over $20,000 in cash bribes to FBI Cooperating Witnesses. These cooperators were paid to rig a pending election at the Mission Pointe HOA in Las Vegas, thereby facilitating the essential theft of over $3 million in CD recovery funds from a competitor.
Given the size and notoriety of the case, there has been a great deal of misinformation disseminated publicly. This problem was compounded by the fact that, per Department of Justice policy, government prosecutors and agents assigned to the case were not allowed to discuss the case publicly until the last appeals of all convicted defendants were exhausted. Fortunately, that event occurred earlier this spring. As a result, I am now allowed to speak about the case publicly, and in a position to tell you today exactly what happened and its relevance to the legislation currently pending before this committee. To that extent I would ask you to consider the fact that I am the agent who actually opened the case, the affiant on all of the Federal search warrants, the one who actually ran the undercover case, and the only investigator to have actually worked the case for the entire 10-year period of its existence. Unfortunately, I was also the agent that had to attend and investigate the results of all of the autopsies of the subjects who tragically, and needlessly, died as a result of the criminal scheme. As a result, I believe I speak to on this matter today with a level of knowledge and authority that no other individual has. As such, I would ask you to carefully consider the facts I am about to tell you, as opposed to the some of the rumors and misinformation that been disseminated for personal and professional gain by some in the HOA and legal industries. I appear before you today in an effort to prevent Operation GrandMaster from happening again, because, in my professional opinion and experience, there is a provision in the current legislation that was directly responsible for the HOA scandal, and will inevitably lead to another criminal conspiracy if enacted into law. This is the provision that allows HOA boards to unilaterally initiate construction defect (“CD”) litigation on behalf of individuals homeowners without their specific consent (HOA Standing, Section 8). In the limited time that follows, I hope to summarize for you what happened in Operation GrandMaster, how this provision was largely responsible for the scheme, and how it's reenactment will inevitably lead to another wide-scale corruption case in the future.
As many of you have heard by now, the origin of the fraudulent scheme was a mob-inspired, and based on the ease and simplicity with which HOA Boards could be taken over and manipulated. In sum, the investigation revealed that these individuals began looking at Nevada HOA's in the late 1990's and realized their similarities with other legitimate businesses historically targeted by the mob, such as labor unions, waste management, and construction. Specifically, they realized that many HOA's in Nevada controlled multi-million-dollar budgets, yet there was little, if any, true regulation or oversight over their conduct and decisions. In addition, it was clear that many boards could easily be taken over and manipulated through election rigging and bribery of select board members and assigned CAMs and association attorneys.
Given this situation, a scheme was initiated wherein HOA Boards were taken over through fraudulent property purchases, rigged elections, and in many cases outright bribery of existing board members, CAM's and association attorneys. The goal was to take over the boards, which would in turn enter into seemingly legitimate contracts with various service providers, such as those involving landscaping, pool maintenance, and security services. Through this illegal control of the HOA principals, contracts would then be awarded to companies secretly owned and controlled by the conspirators. This was facilitated by bid-rigging and related illegal acts, all designed to redirect millions of dollars in HOA's funds back to the conspirators.
During the process of developing this scheme, the lead conspirators realized that, while they could make millions of dollars through the scheme, the greatest pot of money to be stolen was in fact through construction defect litigation claims. This was not surprising, given that the two principal conspirators included a highly experienced attorney and construction company owner, both of whom specialized in construction defect litigation claims. In addition, both of these individuals were absolutely convinced that the current system was rigged, and that the other successful construction defect attorneys and remediation companies were already doing the same thing.
Thus, the scheme was put into full effect in the early 2000's. At this time the head of the conspiracy hired a team of individuals, including a licensed private investigator, to research literally every HOA in the state of Nevada. They had a grid rating system, and the specific goal was to rate every HOA for potential takeover.
Issues targeted by the team included, among others, when the unit was built, the size of the HOA as the CD recovery amount was typically based on the “number of doors” in the association, the ease with which the board could be corrupted through bribery or replaced through rigged elections, and the potential for influencing and controlling the assigned Community Association Manager.
I know this process occurred, not just because multiple key defendants admitted it as a result of their cooperation agreements. Rather, during the process of reviewing the evidence seized in the case, a process that took well over two years to complete, we discovered “targeting packages” containing detailed information collected on over 2400 separate HOA’s throughout Nevada. These initial efforts narrowed the list of potential targets, and were then followed by and an actual intelligence gathering phase to identify final targets. This second phase included members of the team performing on-line database searches of county court and property records, secretly contacting paralegals and other support personnel at competing CD law firms, and conducting actual, on-site research at the HOAs in an attempt to determine suitability for the take-over scheme. The on-site research included a wide variety of techniques, including posing undercover at common areas, such as swimming pools, clubhouses and gyms, to covertly interview actual residents regarding potential defects. It also included illegal database searches and research of current board members to identify potential negative or embarrassing information that might be used to encourage board members to resign or otherwise coerce them into compliance with the scheme.
Once a final decision was made to attempt full take-over, units would be purchased in the targeted HOAs. The initial funds utilized to make these are believed to have been provided by Chicago linked mob associates and were literally delivered to the main subject’s office in pillow cases. Later, units were purchased through funds provided by the main attorney, who was able to obtain millions of dollars in loans through simple signatory agreements with no collateral.
In a seemingly unprecedented action, several banks loaned this individual millions of dollars for the alleged purpose of funding construction defect litigation. The banks did this because, at the time, multi-million-dollar CD recoveries were common and considered by the banks to be a “sure thing.” However, this was an expensive scheme given the number of HOAs and resulting units involved (over 40 were actually purchased as part of the scheme). Thus, towards the end of the conspiracy the units were refinanced and the equity obtained was used as a downpayment on additional units. These purchases were all Federal felonies in that the banks were defrauded on multiple counts of misrepresentation as the true intent of the loans was to facilitate a criminal conspiracy.
Once the units were purchased, a percentage of the unit was often deeded to a prospective straw board member. These individuals would then run for positions on HOA boards. Victories were assured through election rigging and often bribery of the association’s community manager or attorney. Once the straw board members obtained seats on the association’s boards, “plants” at meetings would read scripted statements prepared by the conspirators raising alleged issues of construction defect and requesting immediate action. This tactic was intentional and specifically designed to remove suspicion from the newly elected straw board members. The board members would then request the association’s manager or attorney to contact attorney’s specializing in CD matters to investigate the claims raised by the planted audience members. Not surprisingly, the conspirator attorney was always brought in and eventually hired to pursue CD litigation against the builder and associated subcontractors. This individual always won the contract through bid rigging as the conspiracy controlled the CAM and the CAM controlled which bids were accepted and brought before the boards.
Thereafter, Chapter 40 notices were immediately filed, and inevitably litigation followed. The conspirators had a rule of thumb in this regard. Specifically, their moto was “sue high, settle low, and do as little repair work as possible.” Thus, in the end, the conspiracy not only defrauded the homeowners by illegally taking control of their boards for personal benefit, they defrauded them again at the end of the scheme by destroying the value of their homes through the filing of CD litigation and failure to actually conduct repairs. Additional damage was done to the associations through the eventual default of mortgage payments on the units used to qualify plants for their positions on the HOA boards. Almost every one of these units eventually went into default, thus significantly damaging surrounding property values for years.
Given the constraints of today’s hearing, there is not enough time to detail even a fraction of the illegal, intrusive, and damaging actions taken by the conspirators in this matter. However, it is my hope that a summary of the following key issues will assist and guide you in your decision making process with respect to Section 8 of AB-421 (HOA Standing):
• Affordable Housing: At the inception of the case I and other investigators met with a wide variety of government and private officials involved in the CD industry. Based on the information obtained in these meetings, it became patently clear that a by-product of the criminal scheme was a direct increase in the value of condominium housing in Las Vegas. Specifically, it was learned that the price of a condominium in Las Vegas at the turn of the century was approximately $10,000 to $15,000 more than it would have otherwise been due to increased insurance premiums caused by the perceived inevitability of CD litigation. These increases were directly passed on to homebuyers. This was viewed as a major issue as the impact was felt most by those who could least afford it—young individuals just starting their careers and senior citizens. Similarly, due to the extensive loss in value and negative publicity caused by the investigation, one complex (Chateau Versailles) lost its HUD Certification, thereby making it virtually impossible to obtain a bank-secured loan on properties. At the apex of the investigation in 2010-12, this resulted in units that previously sold at over $200,000 being sold at approximately $50,000 to cash only purchasers.
• Limited Scope of Scheme: It has been argued by those supporting AB-421 that Operation GrandMaster was a “limited” problem involving only a small group of criminals in Las Vegas. This statement is patently false. Operation GrandMaster was in fact a mob inspired scheme conceptualized by Chicago LCN associates and brought initially to Las Vegas. Not only did the group target over 2400 HOA’s throughout the entire state of Nevada, by 2008 the scheme had expanded to include efforts in Arizona, Texas and Florida. In one of the most flagrant acts of the entire scheme, the lead Las Vegas attorney associated with a Florida law firm and actually flew several associated Florida attorneys to Las Vegas to teach them how to conduct the scheme. These attorneys later filed CD law suits in Florida and were subject to a spinoff criminal investigation in that state.
• Many of the CD cases that were filed were not supported by actual defects: It has also been argued that Operation GrandMaster should be viewed in a limited manner as all of the defects supporting the CD law suits were in fact real. This is also incorrect. Rather, there were multiple instances in which the conspirators could not prove actual defects, or deceived the homeowners about the likelihood of potential defects, in order to file a CD law suit. In many instances this was accomplished through deceptive presentations to home owners during the pre-Chapter 40 filing process. The following two examples are illustrative of the type of deceptive techniques used to deceive and manipulate homeowners:
o Fictitious Constructions “props”: The lead attorney had a demonstrative “prop” created and used it to incite homeowners and gain support for filing CD litigation. The prop consisted of an alleged section of wall that contained a “half-empty” can of Mexican beer allegedly discovered left in a wall during construction and found during destructive testing. The implication was that the construction companies commonly used non-union, illegal aliens to build the units and they were often so drunk while working that they actually left half-empty beer cans inside the walls during the process. This was a clear phycological ploy designed to enrage home owners by praying in biases against illegal aliens and non-union workers. This prop was found and seized by the FBI during the execution of search warrants on the primary attorney’s office.
o Fictitious Water Damage & Stripers: The conspirators knew that the greatest fear of homeowners was defective construction related to health and safety issues. As a result, they often utilized the fear of water leaks resulting in dangerous mold growth to motivate homeowners to support destructive testing, a required precursor to CD litigation. This was a dual-purpose deceptive technique as it is commonly difficult to obtain homeowner’s permission to conduct destructive testing because it often results in the homeowner being displaced from their unit for extended periods of time. This was the case at Pebble Creek Village HOA. As a result, the conspirators concocted a scheme involving strippers who would knock on the doors of units owned by single men on Sunday mornings, background information provided illegally by the CAM who was receiving kickback payments in return for cooperating in the scheme. The strippers were essentially dressed in bathing suits or G-Strings and a jacket from an alleged water intrusion detection company. The strippers would inform the owners that they believed there might be water damage in the unit and asked permission to enter the unit and inspect the walls. They would then run a rigged radar detector over several walls, claiming the device was a water intrusion detector. During the alleged inspection they would cause the device to alert with a loud beep in front of the homeowner and claim that this was proof of defective pipes, water intrusion, and likely mold growing in the walls. Finally, they would flirt with the homeowner, offer him their telephone number, and then ask them to sign a consent form authorizing destructive testing.
• Character Assassinations of Legitimate Opposition: As with any criminal scheme of this size, there were many moving parts and often times the conspirators made mistakes which, at least in part, exposed what they were doing. This was especially true at Vistana, the epicenter of the scheme in 2005, when several legitimate homeowners identified planted board members and exposed a rigged election. In response, the conspirators utilized the services of a well-known lobbyist and political consultant to create negative advertising and character assassination efforts designed to discredit those individuals who opposed the scheme. This included, but was not limited to, circulating anonymous fliers and confronting homeowners with allegations of racism and criminal records. In at least one instance the conspirators had an opposition member arrested by the involved LVMPD command staff on bogus charges as a means of intimidation.
• Non Completion of Repairs—“Value Added Engineering”: As noted above, the purpose of the scheme was to obtain as much money from the HOA, through any means available, not to correct defective construction. As a result, in almost every instance the repair work done subsequent to settlement of the CD litigation was either not completed at all, or done at substandard or deceptive levels. To conceal this practice, the conspirators would refer to the work completed as “value added engineering.” One of the best examples of this was the roof repair at Vistana. This work was alleged to have cost, and billed to Vistana, at several million dollars and supposedly included a complete replacement of all identified building roofs. However, in reality, the conspirators arranged for an unwitting subcontractor to conduct a simple repair of several problem areas. The repair job cost several hundred thousand dollars and the conspirators simply pocketed the difference. In a similar situation at Vistana, the conspirators failed to correct an alleged issue with the firewalls between garage areas and living spaces that were not sufficient to meet fire-code standards (a serious health-safety violation). Rather, they simply used a special type of fire-proof paint (Elastomeric) to cover the existing firewall and claimed the problem had been corrected. Again, the money saved through this “value added engineering” was not passed on to the homeowners, but rather pocketed by the lead conspirator. In 2012, at the height of the investigation, several meetings were held with the investigators and prosecutors assigned to Operation GrandMaster. This was a result of the fact that members of this body, the Nevada State Senate, had reached out to the Justice Department in an attempt to obtain assistance in crafting legislation that might prevent the criminal scheme from happening again. During this meeting several issues were identified as the key legal issues that facilitated and encouraged the conspirators to initiate the HOA take-over/CD litigation scheme. While there were multiple issues identified, the two most critical were the following:
1. Lack of Legal Penalties for Bribing CAMs, HOA Board Members, and Rigging HOA Elections: The most pressing issue was the fact that, under Nevada law at the time, there were no statutes criminalizing the bribing of licensed CAMs and HOA Board Members. Similarly, there were no criminal prohibitions on rigging HOA elections. In response, a meeting was held with a leading member of this body and a criminal statute was drafted correcting this glaring omission. Later that year the legislation was enacted into law.
2. Authority of HOA Boards to Unilaterally Initiate CD Litigation on behalf of Homeowners Without their Specific & Individual Consent: The second most important issue, which lead directly to the success of the criminal scheme, was the fact that the HOA boards were allowed to unilaterally initiate CD litigation on behalf of entire associations, without the specific consent of individual homeowners. Because of this, the conspirators only needed to control a majority of any given HOA board in order to initiate the scheme.
In 2012 and 2015, legislation was passed by this body, and later enacted into law, correcting both of these issues. While AB-421 does not seek to revoke the criminal prohibitions on bribing board members and CAMs, it does take a dangerous step back, in my opinion, by allowing board members to once again unilaterally initiate CD litigation on homeowner’s individual property without their specific consent. As I have detailed, the HOA/CD litigation scheme was a sophisticated, far reaching, mob inspired criminal scheme motivated by millions of dollars in potential illicit gain at the expense of hard-working Nevada homeowners. The lynch-pin of the scheme was the ability to easily corrupt HOA boards and then use the authority of the board to unilaterally file CD law suits without individual homeowner’s specific consent. If this body decides to pass AB-421 in its current form, it will reinstate the ability of board members to file such lawsuits. Based on my extensive experience investigating HOA boards, CAMs, industry lawyers, and sophisticated public corruption and organized crime schemes, I can tell you with virtual certainty that, if this body approves the HOA standing provision of Section 8 of AB-421, there is no question as to whether this scheme will happen again in Nevada. Rather, the only honest question is when it will happen. The evidence and outcome of Operation GrandMaster clearly demonstrates this fact. It is simply too easy to manipulate and control HOA boards and there is too much money at stake in unilateral CD litigation to believe otherwise (estimated to be approximately $1.5 billion in recoveries in Nevada to date). I respectfully submit this statement on the record and welcome any questions the committee members might have regarding my experiences as the case agent of Operation GrandMaster and how it guided my opinions with respect to the HOA standing issue of AB-421 contained in Section 8 of the proposed bill.
TAGS: FBI claims Mafia is a "civil matter", Crime Victims' Rights Act, restitution, reparations, State Secrets Privilege Coverup, U.S. Constitution Article 4, Section 4, First Amendment Free Speech-Right to Redress Grievances, Fourth Amendment - illegal civil forfeitures, FISA (unconstitutional wiretaps and surveillance of victims), Fifth Amendment - due process, Sixth Amendment - legal representation deprived, Eighth Amendment - cruel and unusual treatment, Fourteenth Amendment - disparate treatment of victims, equal rights violations, ADA disability discrimination, U.N. human rights treaty violations, human rights violations, HOA assessments, extortion, embezzlement, rigged contracts and elections, La Cosa Nostra, Mafia, Nevada, Arizona, Texas, Florida.
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