EastSouthWestNorth: The Nancy Kissel Case

JACK HABER rues the day that he and other board members of 200 East 74th Street agreed to crank up the maintenance charges that homeowners in the building were assessed to keep the place running.

The nearly 20 percent increase they proposed back in 1998 posed special hardships for those on fixed incomes, Mr. Haber recalled. But the revenue-raising measure had the backing of the co-op's treasurer at the time, Andrew M. Kissel, a wealthy real estate developer who lived in the building and who enjoyed the confidence of the board. It was also endorsed by the majority of residents as an unavoidable fact of life.

Now, Mr. Haber looks back at that time wishing he could do things differently. The increase was higher than it had to be, and the co-op's respected treasurer later admitted taking millions of dollars without permission. Mr. Kissel repaid the money, and the co-op agreed not to press charges. But last month, a grand jury in Manhattan charged Mr. Kissel with grand larceny and other crimes in connection with the $4.7 million that he admitted owing the co-op because of money he took during the seven years he was treasurer.

"We thought this case was a dead letter and we had filed it accordingly," said Mr. Kissel's current lawyer, Philip Russell. "We thought everybody was made whole and had gone about their business and had moved on. We certainly did."

The indictment in New York County followed a separate arrest this summer by federal authorities, who charged Mr. Kissel with perpetrating phony million-dollar real estate deals in Connecticut, New Jersey and Vermont that saddled banks and investors with losses.

Though Mr. Kissel has pleaded not guilty to the charges in Manhattan and has yet to enter a plea on the federal complaint, he reached a confidential civil settlement with the co-op in October 2003. Essentially, in exchange for restitution, he received assurances from the building that it would not pursue the matter further.

Similarly, in Greenwich, Conn., where Mr. Kissel and his family decamped after the incident on the Upper East Side, Mr. Russell has been busy selling off pieces of Mr. Kissel's empire - from the $3.6 million yacht that Mr. Kissel bought last year to the 30 classic cars he took turns driving - to raise money and placate his client's new creditors. Included in their ranks is Mr. Kissel's wife, Hayley, whose divorce papers paint her as a victim, like so many others, of her husband's deceptions.

It has been the latest challenge for a family already grappling with the brutal murder of Andrew's brother Robert in Hong Kong by his wife, Nancy, and the ensuing custody fight over the couple's three young children.

"Andrew took money from everybody possible," said his father, William Kissel. "From his father-in-law, from friends, from Robert, from everybody, and they're all holding the bag."

Mr. Kissel's former neighbors on the Upper East Side fared better than others in terms of what they recovered. Many of them believe they got back every bit they were owed. But the episode continues to rankle and divide people who, like it or not, live together under one roof.

While Mr. Haber has fielded calls from the news media since Mr. Kissel's predicament came to light, his successors on the board have declined to comment. "I have to live with these people," said one board member, apologizing for his inability to break rank with the rest of his board and discuss the case.

What's clear to many inside and outside the building's white-brick walls is that the experience has been an opportunity to learn some hard-earned lessons about the perils of communal living and that their lessons may be applicable to others in a city where more than 300,000 residential units are held in co-op or condo form.

Topping the list of hazards, real estate lawyers say, is giving anyone sole signing authority over a common checkbook or bank account, something Mr. Kissel obtained after he became treasurer in the fall of 1995. Members of the co-op acknowledge being remiss but say they were relieved that someone with a knack for business had taken on the role. They didn't have time, they said, to oversee or second-guess him.

That mind-set is pervasive at many co-ops and condos. "Keep in mind that co-op boards are made up almost always of volunteers," said Aaron Shmulewitz, the real estate lawyer who ultimately helped board members at 200 East 74th Street root out where their money went. "If one co-op board member volunteers to assume a larger burden with regard to a large areas like financing, co-op board members are naturally going to be happy about that."

Mr. Kissel's neighbors also failed to notice when he became the only person receiving statements from Salomon Smith Barney, the investment bank where the co-op kept its reserve fund. The 10-count indictment in Manhattan charged Mr. Kissel with creating phony bank statements for three years, something that might have been harder to accomplish if the building's managing agent or outside auditor had continued getting their copies from the bank.

Some residents also fault themselves for failing to scrutinize a $12 million refinancing initiated in late 1998, which led the board to raise the maintenance charges to service the debt better. While the reason for the refinancing was sound - the co-op's owners wanted to acquire the land underneath the building, built in 1962, and terminate a ground lease that could some day impair the value of their homes - the new borrowing included a cushion for contingencies that left $802,000 in the building's reserve fund.

A confidential 20-page forensic audit commissioned by the co-op's board in 2003 and shared recently with The New York Times concluded that the $802,000 was eventually siphoned off by Mr. Kissel into accounts that he, and he alone, controlled.

Members of the co-op say they could have also done a better job examining representations made by Mr. Kissel, who is 46, about his income, job history, wealth and education when he and his wife bought three apartments in the building that they combined into a duplex and later sold for roughly $3 million. Each purchase required board approval, and rather than being wary of the couple's claims of sudden wealth, some residents wonder if the Kissels' lavish ways only made them seem more desirable.

The lackadaisical vetting stands out even more considering that the building went so far as to create a "canine interview committee" in 1999 to screen potential newcomers' pets. "We don't want to be tyrants," Mr. Kissel was quoted as saying in an article about the policy change that ran in The Times in January 2000. "But this is your worst fear; you get somebody in the building and their dog turns out to be a nightmare."

At the time the Kissels moved into the building in 1992, she was a securities analyst on Wall Street and he had a low-level job at W&M Properties, a commercial real estate firm in New York. According to the Manhattan district attorney's office, they paid $295,000 for a one-bedroom on the 10th floor.

By 1994, Mr. Kissel had started his own real estate firm, the Hanrock Group. He agreed to serve as the co-op's treasurer in late 1995.

According to the Manhattan indictment and the forensic audit, Mr. Kissel wasted little time dipping into building funds, particularly a reserve fund, which held money for contingencies. As early as January 1996, prosecutors and the forensic audit noted, he made the first of many transfers from the co-op's reserve account into his own with a wire transfer of $55,000.

The Kissels sought the building's permission to buy a studio apartment near their original unit in 1996, the year before their first daughter was born, and a second studio in 1999, the year before their second daughter arrived. Those purchases cost them $160,000 and $350,000, respectively, according to the district attorney's office.

By then, people in the building recall, Mr. Kissel was making representations that he and his wife were worth more than $20 million. He was also in the habit of telling potential investors and business associates that he had a master's degree in business from New York University, a claim the university recently refuted.

Once he and his wife got the go-ahead on the purchases and the renovation, the Kissels' duplex soon became the showpiece in the building. "He had the nicest everything in the building," Mr. Haber said. "The nicest floors, the nicest doorknobs. He lived big."

The family came and went in a top-of-the-line Mercedes, crammed with electronics. "He liked fancy cars," Robert M. Morgenthau, the Manhattan district attorney, told reporters before the arraignment.

At board meetings, Mr. Kissel was sometimes curt with people who challenged him, according to the board member who declined to be quoted. At the same time, he was quick to invite neighbors to the couple's ski house in Stratton, Vt., and pass out gift baskets containing olive oil that he imported from Italy in one of his business ventures.

"He was a very affable guy," said Alan D. Handler, a lawyer who lives in the building and was president of its board for a time. "I worked closely with him, and he had me completely fooled."

Although the state's indictment was somewhat hampered by a five-year statute of limitation, Mr. Kissel's questionable dealings with the co-op spanned the seven years between January 1996 and December 2002, according to the forensic audit.

The audit found that he made several transfers within those first years as treasurer that drained the $538,000 that was in the building's reserve fund as of Jan. 1, 1996. He then turned his attention to arranging the $12 million in new bank borrowing that was needed to buy the land under the building, retire some high-interest debt and embark on a $250,000 renovation of the hallways and lobby. The board urged unit owners on Oct. 19, 1998, to approve the borrowing and the purchase, as well as a step-up in their annual maintenance from $29.78 a share to $35.44 a share to help the co-op meet the larger debt burden.

That deal replenished the co-op's reserve fund by about $802,000, but Mr. Kissel eventually transferred the new funds into his own accounts, the forensic audit found.

Marc J. Luxemburg, the president of the Council of New York Cooperatives and Condominiums, said he was not surprised to hear about the possible misuse of a reserve account. Reserve accounts, he said, are more prone to manipulation than operating accounts, which are reviewed frequently by other parties, from the managing agent to the outside auditor.

One complication in this case involves doctored Salomon Smith Barney statements that Mr. Kissel is alleged to have created on or about Oct. 29, 2000, and Oct. 28, 2001, and fake Citibank statements he created on Oct. 31, 2002, according to the indictment. Without going into detail, a statement issued by the Manhattan district attorney's office noted that the co-op's outside accountants had relied on the forged statements when going over year-end financial statements.

Neither the managing agent at the time, the Charles H. Greenthal Management Corporation, nor the outside auditing firm at the time, Jacobs & Schwartz, returned telephone calls seeking comment.

The forensic audit also uncovered some questionable, and possibly inflated, payments made to vendors. For instance, the audit noted that the co-op's reserve fund, not the operating account, had been used to pay Metro Partnership a total of $404,500 in early 1999 and Meridian Contracting a total of $242,473 in June 2001. State prosecutors have reasons to believe the companies are controlled by Mr. Kissel.

By late 2002, neighbors had enough questions about the building's ballooning debt and costly capital projects that they began pressing Mr. Kissel for answers.

According to the statement from Mr. Morgenthau's office, Mr. Kissel eventually responded by giving a board committee bank statements and invoices that only raised more questions. For instance, the building's balance sheet for 2001 listed the lobby and hallway renovation project as a fixed asset worth $1.049 million, four times what the neighbors had been told it would cost. Neighbors were aghast. "It doesn't cost $50,000 a floor," said Michael Assael, an owner in the building, who, e-mail messages show, demanded answers from Mr. Kissel as a member of that year's board.

A call by Mr. Handler to a lawyer who had handled the $12 million refinancing also revealed that Mr. Kissel had on his own retained the lawyer a second time to raise the building's credit line by $2 million. None of the other board members whose signatures appeared on the supporting documents recalled signing the papers, Mr. Handler said.

Mr. Shmulewitz ultimately tracked Mr. Kissel down at his Vermont ski house, and called him there. When asked about their conversation, Mr. Shmulewitz declined to discuss the matter. Mr. Haber, who by then was president of the board and on the line, said Mr. Kissel admitted then and there to taking money that was not his and pleaded to be allowed to make restitution in light of his two small children.

Around the same time, Mr. Kissel resigned his seat on the board, and within a month, the co-op was in possession of $1 million he wired to make amends. But Mr. Haber and other board members became convinced that Mr. Kissel was understating the size of the loss and hired a forensic accounting firm, Marcum & Kliegman, to assess the damages. The partner at the forensic accounting firm who handled the audit declined all comment.

Accompanied by the lawyer he hired for the matter, Charles Clayman, Mr. Kissel met with the board's representatives at Mr. Clayman's Midtown office on April 4, 2003, and informed them that the misappropriation began in mid-2001. His own recitation did not account for more than $2.1 million that the forensic audit later concluded he took from 1996 to 2000. Land records also show that Mr. Kissel put his Stratton ski house in his wife's name on May 21, 2003, two days after the forensic audit was issued.

Growing impatient, the board hired Paul Grand, a defense lawyer who also happens to be a son-in-law of the district attorney, Mr. Morgenthau, to help it collect whatever it was due.

By Oct. 23, 2003, Mr. Grand and Mr. Clayman struck an agreement that had Mr. Kissel make a final payment to the co-op, bringing his total restitution, including interest and fees, to $4.7 million, roughly $31,000 per apartment in the building. He, in turn, walked away with a written promise that the board would never discuss the matter, short of needing to respond to a subpoena.

That concession was valuable because without a complaining party, lawyers say, prosecutors might have been reluctant to pursue the case. And while the concession struck some in the building as onerous, Mr. Grand explained in an interview that his main concern was getting all the money back.

Without such an understanding, he said, Mr. Kissel might have had to spend money on lawyers and might not have been able to repay the co-op in full. "The logic of the situation is," Mr. Grand said, "if I want to collect what you took from me, I'm better off settling it than going to the authorities."

Despite Mr. Grand's repeated warnings to residents to let things be, more than one has acknowledged alerting the Manhattan district attorney's office of the findings in the hope of seeing Mr. Kissel prosecuted. An investigation was opened, but was slow to boil until federal investigators arrived a few months ago in hot pursuit of the same man.

A spokeswoman for the district attorney's office has defended her office's slow handling of the case, echoing arguments made in court this month by an assistant district attorney before a judge. They both said that white-collar fraud investigations are complex and that local prosecutors were simply conducting a thorough investigation.

After settling with his neighbors in New York, Mr. Kissel jumped at the fresh start he was given. He relocated his family to a rented house in Greenwich, began adding to his real estate holdings in Connecticut, and worked out of Hanrock's office in Stamford.

According to the federal complaint, in those first few weeks he began a new enterprise: filing fictitious mortgage "releases" on his real estate holdings. Prosecutors say these brief notices, tucked in land records, falsely claimed that old lenders had relinquished claims on the properties and tricked new lenders to make fresh loans on them without proper collateral.

He filed one such release on Nov. 10, 2003, and another one two days later, both connected to a four-acre lot he owned at 58 Quaker Lane in Greenwich, where he was building a dream house for his family. The project sits unfinished, awaiting resolution.