Posted by CotoBlogzz
Laguna Woods Village, CA – we are going to make the case that
the April 16, 2011 United Mutual Press release supports the argument that Laguna Woods Village governance continues to
hammer around the community, that HOA Hero Mike Curtis has been vindicated and
that Stanley Feldstein, the Ely’s and other community activists have been right all along
While we give the United Mutual an A for effort for
pro-actively looking into theThird
Laguna Woods Mutual lawsuit against
PCM, Milt John, and PCM’s Financial
Services and Finance and Administration Director Janet Price, we give it a F
for its hammer approach: “If the
only tool I have is a hammer, I tend to see everything as a nail” –
Maslow. Let me explain:
The United Press
Release acknowledges that the Third complaint alleged “serious and profound
fraud and abuse” arising out of a “Pay for Results” incentive compensation plan
originated by and utilized by PCM between 1996 and 2007,” and “because of the seriousness of the
allegations in the Third Mutual lawsuit, United retained David F. Feingold,
Esq. and the law firm of Ragghianti Freitas LLP as Special Independent Counsel
to investigate the Incentive Plan on behalf of
United. The board’s mandate to Mr. Feingold: Complete a comprehensive
investigation of Third’s allegations and provide an unbiased report as to
whether United should/must take action against PCM, Johns and Price, and/or any
and all of them.”
Feingold’s own website states that he “ ,,,,,has been in practice since 1986. The majority
of his practice is devoted to representing community associations and
homeowners in construction and real estate related issues.” This is akin
to LA Dodger’s owner Frank McCourt hiring
an attorney specializing in intellectual property to advice him on how to
proceed with his messy marriage, for instance.
Community activist Paul
Loughery has been trying to educate the community that in order to dismiss and or prove fraud, a forensics expert is required. As to the compensation issue,
that is why there are so many competent compensation experts. Skeptics can argue that either the Third
board is really dumb, or it is simply availed itself of an insurance policy, by
being exonerated by a non-expert in the field. However, what happens to that
insurance policy if the IRS, HUD the DOJ and or other government agencies
find merit on the multiple whistle-blowing incidents?
Nore Damning however is that Mr. Finegold’s own findings do
not reveal anything new bu are more like a subset of what has been documented in the Red Book.
For instance, the United Press Release states that some of Mr.
Finegold’s findings include:
“The United Board of Directors “knew” of the
Incentive Plan when the relevant management contracts between United and PCM
were executed. Corporations are held to knowledge that their directors or
officers, acting as agents for the corporation, receive relating to material
factual issues."
Note:
“knew” is legalize for “we provide you with misleading information,
it is up to you to discern whether you understand it or not, if you don’t,
don’t sue us” This is exactly the
Enron defense and what the Sarbanes-Oxely Act
intended to avoid: 1) Have management sign reports certifying it “knows.”
2) Have management certify it
“knows” to be correct and 3) certify it
knows, it is correct and a process is in place to avoid problems in the future.
The reported
findings also state that “ The relevant management agreement included language
that was broad enough to permit a pass-through of all PCM compensation-related
expenses, including Incentive Plan payments.
The 2007-2011 agreement expressly allowed a pass through of Incentive
Plan payments. That agreement was approved by United’s then legal counsel.”
Note: In
this case the operative statement is “broad language” and approved by “then
United’s legal counsel.” So, who’s on
first? Who’s on Thrid?
But wait, there is
more findings: “ Although not
transparent, nor easy to understand, the Incentive Plan was developed in 1996
with the involvement of a professional consultant and in consultation with the
Presidents of the corporations. The Incentive Plan was utilized by PCM on a
company-wide basis, with every Division participating, and a large percentage
of eligible PCM employees receiving Incentive Plan payments. While the justification for some of the
almost 1,000 Incentive Plan payments made between 1996 and 2007 may be subject
to question, the Plan provided a process by which Plan payments were approved
and evaluated, including an analysis as to whether financial savings or
service."
The message is
clear: HOA need to be independently competent and
tell service providers what they want, not the other way around.
The Vindication
of Mike Curtis and Stanley Feldstein
Part of Mr. Feingold’s criticism is that “during
the years that the Incentive Plan was in effect, PCM did not disclose to the
Presidents or the Boards of Directors the actual payments made under the
Incentive Plan, even in an aggregate or general manner. With the
typical turnover of Board members, this resulted in many Directors being
unaware of the Plan’s existence, let alone Plan payments. The lack
of transparency can be explained in part by the unique history of the community
and its “pass-through” management cost structure. However, a general disclosure
of Plan payments to the Boards on an annual basis could have been made without
adverse legal consequences."
Do you recall what Stanley
Feldstein, a former member of the Third
Mutual Board said about the lawsuit? “Maybe
even worse than the actual fraud they committed, the defendants counted on
mental confusion, memory lapses, and foreshortened life spans of Board members
to count in their favor. They relied on
the fact that there would be no one who could connect the dots over the years
to find out about the hidden plan, and how much money they awarded themselves.” And by the way, this artifact is common to a
HOA/CID environment and not unique to Laguna Woods.
Other criticism
contained in the press release includes: 1. PCM did not provide
information to the Boards of Directors regarding consistent Incentive Plan
payments to certain employees when reporting on PCM salary levels
and 2) Independent Counsel did
have criticism of the manner in which PCM responded to questions
and provided information regarding the Plan when it became
controversial in late 2006. The
intense controversy over the Incentive Plan was and is real…,
he did find that PCM failed to ensure that the Plan was administered in a
transparent manner and that meaningful disclosures were made to the Boards as
to Plan payments.
The shared
management for the Laguna Woods Village communities and the unique “pass
through” of all management expenses has existed since the inception of the
community almost fifty years ago. It was developed as a way to take advantage
of the large economies of scale and has certain advantages. This
system also requires meaningful financial oversight by the Boards of Directors,
who are the stewards of the communities’ trust. The Boards necessarily rely on
management to provide all relevant information so that they can provide that
oversight. In regards to the Incentive Plan.
So what is the board
going to do? “ In the future, the United Board of Directors
will be taking a more active role in annually receiving and reviewing
information regarding management staff compensation, including salaries,
benefits, and any and all incentive or bonus programs. A requirement that
management provide this information so that the Board can carry out a
meaningful review, without any adverse legal consequences, will be included in
any future management agreements.”
Akin to wallowing in the never never nebulosities of open ended
possibilities.
The fundamental
question is, what specifically is local governance going to do to repair a broken
system, when all it seems to have is a hammer? What happens when it encounters "broad language approved by legal counsel," for example?
Editor's Note: We have contacted representatives from the boards of all of the Laguna Woods Village's Mutuals - we have yet to hear from them.
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