A residential development in Fort Myers, Florida, lost half a million dollars in the second alleged fraud scheme to surface among Southwest Florida community associations this year.
A scammer gained access to The Landings Yacht, Golf and Tennis Club’s money through its payroll services company Paychex, according to the community’s attorney, documents from its board of directors and a report filed with the Lee County Sheriff’s Office.
The Landings theft has unfolded at the same time that 35 other Lee and Collier county homeowners associations have filed a civil suit against their former property manager, American Property Management Services. The associations are accusing the company of using its access to their accounts to embezzle more than $8 million. APMS has denied any wrongdoing. The Landings is not involved in that civil case.
“At this time there is no evidence our prior processes were flawed,” The Landings’ board of directors wrote in an October 2021 message to owners. “We were following common financial process used by similar organizations. The breakdown occurred outside our organization.”
An initial Lee County Sheriff’s Office report suggested the theft stemmed from a hack of Paychex’ systems.
“It appears that Paychex (payroll services) was hacked which gave the hackers the ability to gain access to (The Landings’) bank account information,” a sheriff’s deputy wrote in an incident report.
But Paychex disputed that description in a statement to this news organization, saying the result of a sophisticated fraud, not a hack.
“This was an isolated and unfortunate incident impacting one of our more than 700,000 clients. To be clear, at no time was the Paychex network inappropriately accessed and no client data have been impacted,” Paychex said in a statement.
Robert Caves, a Fort Myers-based community association attorney with the firm of Becker & Poliakoff, said in an interview that association boards should have internal controls to monitor spending and ensure employees do not abuse their access to accounts.
But even strong internal controls might not be sufficient if a scammer gains access through an external payroll company, Caves said.
“Where you have a vendor that apparently had this occur, there may not be anything that the association can do even if it is properly internally approving the payment of invoices,” Caves said. “If there’s something going on in the backend of Paychex, it’s harder to anticipate that you can prevent that.”
Caves said he does not know of any other cases where a third-party scammer may have compromised a payroll services company.
Paychex confirms theft investigation
Paychex, a $47-billion company based in Rochester, New York, confirmed to The News-Press/Naples Daily News that it is cooperating with an investigation of the alleged theft.
“While we generally cannot comment on pending legal matters, we are aware of the issue impacting The Landings, and have been cooperating with law enforcement,” Paychex director of corporate communications Chris Muller wrote in a statement. “We take fraud prevention very seriously and dedicate significant resources to risk mitigation.”
Paychex founder Tom Golisano has lived in Naples since 2009. The billionaire has become a major philanthropic force in Southwest Florida, including donations of $5 million to help launch the Golisano Children’s Museum of Naples and $20 million to establish the Golisano Children’s Hospital of Southwest Florida.
Efforts to reach Golisano through the publicist for his recent business book were unavailing.
The theft is being investigated locally by the Lee County Sheriff’s Office Economic Crimes Unit. A public information officer confirmed that the investigation is ongoing.
Federally, the Secret Service is investigating The Landings’ case and thefts against other companies possibly committed by the same Florida-based fraudsters, the community’s attorney, Jason Mikes, said in an interview. The Secret Service does not comment on the existence of investigations.
To date, no criminal charges have been filed in the case.
The Landings, which has 1,200 housing units built around a golf course, tennis courts and a marina in Fort Myers, learned of the fraud in September, said Mikes, who separately represents the 35 associations suing American Property Management Services.
“While it was a significant amount of money that was taken, fortunately they had been very prudent with their finances,” Mikes said. “There has not been any drop off in services.”
The Landings took in $10.6 million in revenue in fiscal year 2021 and has more than $1.7 million in capital reserve funds, according to minutes from its annual meeting in February. The community had two crime insurance policies from Travelers and Swiss Re and is still trying to recover the funds from its insurers, according to Mikes.
“Working with our insurance carriers is simply very frustrating. There is however no indication that any of the liability or errors happened inside The Landings,” Landings board president Gary Suhadolnik wrote in a report for the community’s annual meeting. “While sounding like a broken record this continues to give us the belief that our insurance carriers will eventually provide a recovery of the missing funds.”
Swiss Re did not return a request for comment; Travelers confirmed it is investigating.
“As a matter of policy, our company prohibits us from discussing any claim or customer details,” Travelers director of corporate communications Michael Witmer wrote in an email. “We continue to work with our insured and there is an ongoing investigation.”
$500,000 in unauthorized transactions
The Landings learned of the alleged $500,000 fraud from its accounting firm on Sept. 1, according to a report the community filed with the Collier County Sheriff’s Office six days later.
Bank records showed that unauthorized transactions from The Landings’ account began on May 21 and continued through August, according to a sheriff’s office report obtained in a public records request.
The community immediately filed a claim with its insurance carriers and tightened its internal controls, its board of directors said at an October meeting.
“We recognize many of you have feelings of anger and frustration, as does the Board,” the board wrote in an October message to owners published in board meeting minutes.
In mid-January, a Lee County Sheriff’s Office Economic Crimes Unit detective told the community’s general manager, Doug Marcotte, that the Secret Service was also investigating the case, Marcotte wrote to Mikes in an email obtained by this news organization.
Later that month, a Secret Service agent told Marcotte the theft appeared to be part of a broader pattern of fraud involving 30 “entities” and at least 13 banks.
“He said they did not believe that it was ‘high end’ thieves, but rather appeared to be low tech drug groups between Orlando and Miami,” Marcotte wrote in an email.
Paychex told this news organization that it was not aware of other related incidents.
Criminal justice investigative reporter Dan Glaun can be reached at [email protected] or on Twitter @dglaun.
Source: Golfweek https://ift.tt/GRctIlS