The city’s $173 million deal to buy 17 apartment buildings and convert them to permanent affordable housing has come under fire for months, but there is an unknown, and equally unsettling, story about how the shady landlords who sold the properties obtained them in the first place.
The landlords, Jay and Stuart Podolsky, wrested control of the Bronx and Brooklyn pre-war buildings from their former lawyer Charles Wertman after he scooped them up through extensive mortgage and bank fraud, seven sources with knowledge of the situation told the Daily News.
George Dfouni, who pleaded guilty to wire fraud and tax evasion and is now serving time in federal prison, told the Daily News that Jay and Stuart Podolsky and their associate Charles Wertman acquired 17 properties the brothers recently sold to the city with “fraudulent funds.”
“I gave numerous statements to the FBI and the US Attorneys in NY and NJ and provided back-up proving the fraud,” he wrote in an email sent from federal prison in Pennsylvania.
Another source with knowledge of the Podolskys’ businesses, who asked to remain anonymous and claims to have spoken with the FBI as well, said Wertman took out second mortgages on the properties and didn’t report them to investors and other lenders.
The $173 million deal with the city has been a magnet for controversy since The News revealed in January that the Podolsky brothers — who pleaded guilty to more than two dozen felonies in connection with their Manhattan properties in the 1980s — were in negotiations with city officials.
Critics have attacked it because several appraisals commissioned by the city valued them at lower than the sales price — with one valuing the land at $49 million and another setting its worth at $143 million. They have also questioned whether the presence of the lawyer handling the deal for the Podolskys — Frank Carone, a friend of Mayor de Blasio who donated $5,000 to the mayor’s Fairness PAC — creates a potential conflict of interest.
Dfouni, who worked as chief operating officer for the Podolsky-controlled Amsterdam Hospitality Group for 19 years, claimed in his self-published autobiography that Wertman took money without the Podolsky’s authorization from a company escrow account and used it to buy the properties the city is now purchasing.
Wertman also used fraudulent rent rolls to obtain multiple loans — some from NY Community Bank, Dfouni said. He then allegedly attracted investors with the promise that the properties were unencumbered with mortgages.
Several sources, who all had direct knowledge of at least one aspect of the transactions, backed up Dfouni’s story, saying Wertman obtained multiple mortgages without the consent or knowledge of investors.
Dfouni recalled that when the brothers found the money missing from the escrow account — instead of reporting it to authorities — they instructed Dfouni to get to the bottom of it. Dfouni and another informed source said the brothers siphoned cash from the account to pay for personal expenses such as cars, vacations and chartered airplane flights — raising the specter of possible income tax implications.
“The lawyer [Wertman] had defrauded NY Community Bank by obtaining mortgages by providing them with inflated rent rolls. In addition, he had sold shares to many of his friends and associates,” Dfouni wrote in his book. “The brothers, not wanting to risk a lawsuit from all their partners in that deal by exposing Chuck and thereby exposing themselves as well, decided to pay all of the partners their invested money back to calm things down, following some threats from the partners that they would go to the district attorney and file criminal charges.”
Marc Thomaes, a senior vice president at New York Community Bank who did business with Amsterdam Hospitality, did not respond to calls.
Dfouni’s narrative of the events is supported by two men who said they gave loans to Wertman for one or more of the properties and two others who said they invested in Wertman properties.
“Charles Wertman defrauded us,” said Thomas Borek, a managing member of Newell Funding who made loans to the lawyer.
Borek, an accountant who state records show was convicted of “offering a false instrument for filing,” claimed Wertman obtained multiple mortgages illegally and had a title insurer vouch for him on loans he could not repay.
Borek and business associate Robert Stockel both said that after Wertman took out the loans, Wertman’s lawyer told them they could either spend years trying to recover the debt in court or cut a deal.
“The attorney said, ‘Look guys this is where it’s at: You can make charges or you can take this and walk away,'” recalled Borek.
Borek and Stockel chose the deal, which involved the Podolskys acting as “angel investors” and paying off a portion of the debt. Wertman declined to comment.
“He was in default on his payments,” Stockel said.
State records support their narrative. Articles of organization for companies that controlled Borek-Stockel investment properties show Wertman’s law firm listed in 2002 as the mailing address for the company that controlled 594 Park Place in Brooklyn. In 2005, re-stated articles of organization filed with the state list Borek as a managing member of the company controlling the property. Stockel’s name shows up as a managing member on a form filed in 2006. In 2008, Dfouni — who is listed as a manager of the Podolsky-controlled Tristate Realty Holdings — appears to take control of the property.
A similar pattern emerges in records for shell companies that controlled 1629 Eastern Parkway and 1180 President St. in Brooklyn, both of which are included in the portfolio purchased by the city.
Mark Rottenberg of Lawrence, NY invested in one of the Bronx properties, 1058 Teller Avenue. He recalled losing about $80,000 on it when he cashed out.
“The rent roll wasn’t covering expenses,” Rottenberg said.
The properties were allegedly put under the control of a Podolsky associate with connections at the city Department of Homeless Services, who began taking on homeless tenants through the city.
“New York City was paying us almost six times more than what Chuck was getting paid from regular tenants,” Dfouni wrote in his autobiography. “This portfolio that landed in the brothers’ laps accidentally started generating over $1 million a month, bringing the homeless portfolio in our company to an excess of $40 million annually.”
Federal prosecutors in New Jersey say Dfouni embezzled $13.8 million from Amsterdam Hospitality and failed to report $27.7 million in income over a seven-year period. Dfouni admits to breaking the law, but claims he did not steal from the Podolskys.
“I don’t blame the Podolsky brothers for my decisions. I take full responsibility for my actions, and I am paying for them now,” he wrote in an email. “The money that I received was my earned money and not taken without their knowledge. My mistake was I never declared that part of my income on my tax returns.”
In what appears to be a connected case, federal prosecutors in Manhattan were probing the Podolskys’ business dealings as of January, according to the Wall Street Journal. A US Attorney’s Office spokesman declined to comment. Podolsky spokesman George Arzt said “we’ve been told there is no investigation,” but refused to say where that information came from.
It remains unclear whether the city examined the financial history of the properties it is buying.
“Following the allegations raised in the WSJ, we conducted an additional review and found there was nothing preventing us from moving forward through eminent domain or out of court to convert these cluster units to permanent affordable housing,” City Hall spokeswoman Jaclyn Rothenberg said.
She declined to detail what the city’s reviews encompassed and refused to answer questions about whether it hired a forensic accountant to vet its deal with the Podolskys.
Podolsky spokesman George Arzt called Dfouni “an inveterate liar” and suggested the Podolskys’ felonious past stemmed from being “good sons,” who “pled guilty so that their father could get a reduced sentence.”
“The Podolskys have no knowledge of any allegations that Wertman engaged in bank fraud or was the subject or target of any investigation,” he said.
