Category Archives: Fraud

There’s lots of interest in condo fraud and theft allegations

My Civil Beat story this week about the theft of funds from a Waianae condominium drew much more attention, and many more comments, than I expected (“This Waianae Condo Development Has Lost Hundreds Of Thousands Of Dollars To Embezzlement“).

It shouldn’t have been a surprise. About one-third of all residential housing units are in condominiums, which have common problems and management issues.

One of the things that was clarified in the comments received is that the routine annual audit required by state law is not the same as a forensic fraud accounting. They are two different types of examinations, following different rules, have different standards, different goals, and different methodologies.

You can check it yourself. Just do an online search for “audit v forensic accounting” and you’ll find a lot of slightly different explanations of the differences. The bottom line: A routine audit isn’t done to prevent fraud, although it might identify conditions conducive to fraud. An forensic accounting is specifically looking for fraud.

Here’s an example from the CPA Now blog.

Auditing is a process of determining whether a company’s reported financial position and performance are fairly represented and in accordance with certain standards. A forensic investigation is an examination of specific records and information to help determine facts related to a suspicion or allegation of fraud. Audits and forensic investigations are different services that are planned and performed to accomplish unique objectives. While both have a responsibility to detect fraud, the degree of that responsibility is substantially different.

Auditors help provide confidence in the world’s financial system by performing audits of financial statements to provide assurance that company management is presenting a “true and fair” view of a company’s financial position and performance. Forensic accountants assist entities in conducting an investigation by providing their expertise, from the initial allegation or suspicion of fraud to resolution, whether the end result is restitution, litigation, an insurance claim, or a referral to a law enforcement agency.

…The overall objective of an audit is to obtain reasonable assurance about whether financial statements as a whole are free from material misstatement, whether due to fraud or error. This enables the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial statements, and communicate as required by generally accepted auditing standards (GAAS), in accordance with the auditor’s findings.

…An auditor owes primary allegiance to the investing public, and the objective is general in nature. A forensic accountant is not concerned with reaching a general opinion on the financial statements as a whole; his or her objective is more specific in nature as defined by the scope of services in the engagement letter, and the work is typically directed through counsel and, therefore, privileged and confidential. In addition, the forensic accountant may be asked by the company to advise on internal controls that can be implemented to prevent a discovered fraud from happening again.

I also ran into the website of the Association of Certified Fraud Examiners, an international association of anti-fraud professionals, and it’s “Fraud Talk Podcast.”

There are 38 episodes currently available, ranging from 19 minutes to nearly an hour in length. Each is a case study of a different type of fraud that provide “tools to spot, fight and prevent fraud.”

There’s a lot to learn here, and these podcasts appear to all be available for free to the general public.

City appears to have rescinded tax credits previously claimed for home at 91 Coelho Way

Tips are welcome. But tips always have to be checked out. This is an example of why that’s necessary,

A reader submitted a comment earlier this week questioning how James Hall, who holds title to the property at 91 Coelho Way, was allowed to benefit from a city tax credit, reducing the tax he had to pay on the home valued at over $4 million, to just $300 per year.

…there is a tax fraud being committed here! Why is no one in the City following and doing anything about this?

The tax credits were received for 2021 and 2022, over $20,000!

Hall is claiming low income while renting AirBnb, though short term rentals are illegal at this location, owning another property at Skyline which he is renting AirBnb and while receiving PPP Loans in the amount of $49,000 claiming to run a hotel/BnB.

I have discussed the $215,000 in PPP loans Hall received in a prior post, but the tax credits were new to me.

There are two types of tax credits available to Honolulu property owners that could cover all but $300 of property tax otherwise owed.

The first applies to historic properties.

Which properties qualify for the real property tax exemption?

Historic residential properties that are one or two-family detached dwellings or duplex units, including associated structures (carriage houses, ‘ohana units, outbuildings), and that are designated on the Hawai‘i Register of Historic Places are eligible to apply for the exemption.

Since the Coelho Way home doesn’t appear on the Register of Historic Places, it couldn’t qualify for this exemption.

A second exemption applies to low income homeowners.

The City and County of Honolulu offers a real property tax credit to property owners who meet certain eligibility requirements. If you qualify, you are entitled to a tax credit equal to the amount of taxes owed for the 2022 – 2023 tax year that exceed 3% of the titleholders’ combined total gross income.

Honolulu real property tax records confirm that the home did receive tax credits.

Below is data for 2021 and 2022 reported on the city’s real property tax website.

For the 2021 tax year, it clearly shows two payments of $150 each were made, while the balance owed was covered by tax credits.

For the 2022 tax year, it appears to have been similar until an “adjustment” of $22,574.20 was made. That amount is the exact total of the previous tax credit applied to the two years.

So it appears city tax officials did follow up and rescind the previous tax credits.

The account is now listed as owing a balance of $22,574.20.

Just click on the data below to view a larger version.

As to the PPP laons, here’s an excerpt of a prior post in October 2021.

…Hall applied for and received received four federal Payroll Protection Program loans during 2020 and 2021 that totaled over $215,000, including two that classed his businesses as operating a hotel or motel.

In each year, separate loans went to Greentree Properties LLC, the Nevada company owned by Hall since 2018, and to a sole proprietorship also owned by Hall, PPP loan records show.

All four loans were made by First National Bank Texas. These were the only PPP loans made by the bank in Hawaii.

Greentree received a PPP loan of $96,656 in 2021. Greentree’s loan application was approved on April 9, just two days before Myeni’s shooting. Despite applying for and receiving the PPP loan, based on a prior year’s payroll, Greentree Properties is not listed among companies registered to do business in Hawaii, state business registration records show.

Hall’s sole proprietorship received $29,165 in 2021, according to the PPP lookup at the website, FederalPay.org. Both company’s applications reported they were in an industry category for “Hotels (except Casino Hotels) and Motels.”

Given Hall’s own history, and the history of the property, it seems questionable whether his hotel-related businesses actually produced enough income to qualify for the PPP loans. But it’s hard to say from the outside. So I’ll leave that as a gray area for now.

The continuing saga of the property at 91 Coelho Way

On March 22, Circuit Court Judge James H. Ashford signed an order requiring the registered owner of the large house at 91 Coelho Way in Nuuanu to allow access to the part of the property where an unnarmed man, Lindani Myeni, was confronted, shot, and killed by Honolulu police officers in April 2021.

Attorney’s for Myeni’s widow, who has sued the city over his death, maintain he entered the house by mistake and left quietly when questioned by short-term renters he met after entering the unsecured home. The lawsuit alleges mistakes by police in handing the situation, including failing to identify themselves as police officers, led to the shooting.

Access to the property for a total of four hours had been requested in order to allow experts for the plaintiff, and the city, to collect data regarding lighting conditions and visibility at the time of the shooting.

It was, according to attorneys representing the plaintiff, “a simple request to obtain an inspection of the Property by experts that will address a central factual issue in the case: whether under the lighting conditions at the location and date of the incident that is at the center of the case, Lindani Myeni could see that the person who was pointing a gun and flashlight at him, and telling him to “get on the ground,” was a police officer. To answer this question, experts need to inspect the area where the incident occurred under similar lighting conditions.

From the plaintiff’s motion to compel:

As there was no moon present in the sky at the time and this was a residential street in Nuuanu, it was dark. The Officers were armed with (1) guns, (2) Tasers, and (3) high intensity “tactical” flashlights. The high-intensity lights are blinding at night and, when pointed towards a person, make it impossible for him or her to see anything other than the light and objects in the path of the light beam.

As Mr. Myeni stood still, unarmed, on the side of the driveway of the Subject Property just a few feet off the street, one of the Officers — while hysterical screams of “that’s him” emanated from a person standing in the doorway of the house on the Property – – suddenly shone the flashlight directly in Mr. Myeni’s eyes and held a pistol in the flashlight beam pointed at Mr. Myeni and demanded that he “get on the ground” without stating he was a police officer. Plaintiff alleges that the Officer holding the pistol knew or reasonably should have known of the effect of the high-intensity flashlight on Mr. Myeni’s vision and his inability to discern the identity of the officer or any lawful purpose in his action.

And from a later legal memo:

The police officers will undoubtedly testify to what they saw and could see, and how the lighting was. Mr. Myeni – who Plaintiff contends could not see Defendant Orosco given his statement “who are you, who are you’ – is not here to testify to what he saw and perceived in the moments before he was shot. Plaintiff, his widow, was not there and cannot testify to contradict the Defendants. Her experts are the only way the jury can be shown the truth.

The owner of record of the property is identified in real estate records as James H. Hall. Hall took title to the property via a quitclaim deed in a somewhat murky 2018 transaction. The purchase came less than a year after he and his family were evicted from the last of a series of homes where they had squatted without payments for several years. Hall purchased Greentree Properties LLC for a reported $3 million from now disbarred Honolulu attorney Gary Dubin, who had represented Hall in efforts to block his eviction. Greentree’s only asset was the Coelho Way home, which Hall immediately deeded to himself.

However, a pending foreclosure lawsuit alleges that the home is still owned by Dubin, who took out a $2 million mortgage loan used for his original purchase of the property. Dubin alleges the property fell into foreclosure because Hall failed to fulfill his part of the deal, which required Hall to pay all of the property’s current expenses, including the mortgage, property taxes, etc. When payments on the mortgage loan stopped, the bank eventually went to court to foreclose on the property.

Dubin claims in legal filings in the foreclosure case that he retained a small interested in the Coelho Way property, giving him grounds to seek the return of some or all of the property from Hall.

The dispute between Hall and Dubin is playing out in the foreclosure case, but is not at issue in the Myeni lawsuit against the city, where Hall’s attorneys had fought for months to block any access to the property to study lighting conditions, saying their client, Hall, had raised a string of objections. Hall’s attorneys eventualy said obtaining a court order would be the only way to proceed.

Longtime readers of this blog might recognize the Coelho Way address, and Hall’s name, since they were the focus of several previous posts on this blog.

Warning–it’s a long, convoluted tale, and the overall picture is murky at best. Hall is not a party to the current civil lawsuit against the city, although the strange history of the property’s title is very much part of the background of the case.

The squatters next door,” 1/20/2020

The hotel next door,” 10/12/2021

A history of dubious deals, Part 1,” 3/5/2022

A history of dubious deals, Part 2,” 3/6/2022

Excerpts from Hall’s 2021 deposition taken in the Myeni lawsuit are attached to the motion asking the court to require Hall to allow inspection of the property by technical consultants.

In the deposition, Hall describes himself as a property manager. “I manage real estate,” he said, including Airbnb rentals of the Coelho way house, and a Waikiki condominium unit.

Hall said that in addition to income as a property manager, he also has some income property from non-real estate investments.

In addition, Hall said that he owns seven cars which he offers for rent.

Hall described his purchase of Greentree Properties, and the Coelho Way property, as a $3 million “structured arrangement.”

In response to a question, he said he was unsure of how much he had paid to date, but said it was between $500,000 and one million.

A dispute between Hall and Dubin over the Coelho property is playing out in the foreclosure case, in which Dubin has filed a counterclaim against the lender what he alleges were procedural defects in the foreclosure, and against Hall, who Dubin alleges has not fulfilled his financial obligations in the deal.

Next: Suggestions of tax fraud

Two cases of legal fraud linked to prominent firm

Earlier this month, Civil Beat published a very good story by John Hill reviewing a precendent-setting decision by the Hawaii Supreme Court in a case involving foreclosure of a Big Island home due to a dispute over a $500 repair (“How A Reverse Mortgage Lender Took A Hawaii Man’s Home Over A $500 Repair“).

The high court found the lender, James B. Nutter & Co., and its attorney had “committed fraud against the court, assuring a judge that all the proper steps had been taken for a foreclosure when they hadn’t,” Hill reported. “Not only that, the Supreme Court said in its decision last week – basic fairness should have prevented a person being ejected from his home over a $500 repair anyway.”

Civil Beat mistakenly identified the lender as “Joseph B. Nutter & Co.”

The case underscores both the dangers of fine print used by unscrupulous lenders, but also the issue of fraudulent practices by attorneys and law firms representing lenders.

Hill identified the attorney who had represented Nutter in the foreclosure action where the fraud occurred as Robert Ehrhorn who, Hill notes, “has since voluntarily made his law license inactive, meaning he is no longer eligible to practice.”

Although not reported in Hill’s story, Ehrhorn was an associate in the law firm known at the time as Clay Chapman Iwamura Pulice & Nervell, which recently changed the firm’s name to Clay Iwamura Pulice & Nervell, dropping named partner Robert Chapman.

The Supreme Court’s allegation of fraud in this mortage foreclosure case is not the only recent fraud allegation against attorney’s with Ehrhorn’s former law firm.

The firm’s name change followed the resignation of Robert Chapman, a named partner, who “voluntarily” surrendered his law license in lieu of discipline after being accused of fraud by the state’s Office of Disciplinary Counsel.

An ODC investigation had found Chapman committed numerous “egregious violations” of the court’s Rules of Professional Conduct over a five year period by fraudulently pursuing collection $2 million in “unclaimed property” belonging to a former client without their knowledge or consent by creating and using “fraudulent Power of Attorney documents.”

In an affidavit filed with the Supreme Court when turning in his original law license, Chapman said he had not arranged to return case files to any clients because each client for whom he performed any services were clients of the firm.

“Each and every one became a client of the Firm, not of myself personally,” Chapman wrote.

The firm’s responsibility, if any, in the apparent fraud was not addressed in either case.

And, as a footnote, the U.S. Department of Justice filed suit against Nutter Home Loans, formerly known as J.B. Nutter & Co., in September 2020 for “forging certifications and using unqualified underwriters to approve Federal Housing Administration (FHA) insured Home Equity Conversion Mortgages (HECM).”

Late last year, in the wake of the DOJ lawsuit, the company closed its doors and went out of business.

See:

Fraud allegations lead to resignation of prominent business attorney,” iLind.net, Dec 29, 2022.

News media turn a blind eye to attorney misdeeds,” iLind.net, Jan 17, 2023.