Sea Gate residents take homeowners’ association to court for release of financial records

A small group of homeowners is suing the Sea Gate Association for the release of its financial records, saying that the group has inconsistently reported its revenue and spending for years.
Photo by Derrick Watterson

Three residents from a gated community in southern Brooklyn are taking their homeowners’ association to court to force the release of its financial records — claiming that there are more than $5.1 million in discrepancies between the governing body’s tax returns and financial statements over the course of four years.

The homeowners say that the Sea Gate Association — which manages the Sea Gate community at the western tip of Coney Island — inconsistently logged its revenue from government grants and spending on construction projects, among other items, between 2015 and 2018. 

“This is not providing correct information, it’s hiding information and falsifying information,” said Gary Daniels, a Sea Gate resident, who claimed that board members have not been forthcoming about their finances. “You can’t get answers out of them.”

The Sea Gate Association, a 501(c)4 non-profit run by volunteers elected every two years, collects fees from homeowners to fund garbage collection, a small police force, infrastructure repairs, and other services throughout the 4,000-person community. 

Since Superstorm Sandy devastated Sea Gate in 2012, the organization has also received tens of millions of dollars in government grants for storm resiliency projects, the association’s president said.

“We brought over 60 million into our community so far,” said David Wynn, a homeowner who has been a member of the association for more than 10 years. 

The repairs include a $4.8 million bulkhead and a new sewer system whose construction is well underway. But several local residents say that the association’s refusal to make its finances public, along with the inconsistent records, raise questions about the projects and the association’s finances. 

Daniels and a small group of other homeowners began looking into Sea Gate’s finances after attending a public meeting in 2018 about the association’s financial statements from the previous year, which Daniels said looked strange to him.

“Quite frankly, something on the financial statements from 2017 just didn’t smell right,” said Daniels, a financial consultant and longtime resident of Sea Gate. 

Daniels gained access to the association’s tax returns and financial statements between 2015 and 2018, and noted discrepancies between the separate filings. While the association’s total expenses and income remained fairly consistent across documents, the original tax returns tended not to list significant amounts of money paid to independent contractors, legal expenses, or the amounts the association received in government grants. Sometimes, the returns listed some of those numbers under separate sections, such as “insurance recovery income.” 

Following Daniels’ criticism, the association amended its 2016 and 2017 tax returns, revealing some of the gaps in its previous reporting. For example, the original 2017 return listed $275,011 in insurance recovery while the amended return listed no insurance recovery and $643,320 in government grants instead. The original return also listed no independent contractors paid over $100,000 while the revised return listed four contractors who were paid $800,270 in total.

“They’re mislabeling money. They’re moving it around,” Daniels said, adding that many of the maneuvers are “100-percent illegal.” 

As a non-profit, the association doesn’t pay taxes, and its tax returns are purely informational. But Daniels said the inconsistent filings help obscure the association’s revenue and spending.

“Many people play with their tax returns. But this is $5.1 million dollars in discrepancies,” he said. 

The association, however, said that the differences in the returns are minor — especially since all the documents report the same amount of total costs and revenue.

“[The accountants] amended [the return] to read that one plus one is two, rather than one plus one plus one equals three,” said Barbara Garafalo, a member of the board for about 16 years. “Our accountant certified our audits. We’ve been audited and they’ve never found anything wrong.”

The board members added that the state closely tracks funding for government funded-projects, such the bulkhead project.

“Grants don’t just come to us, we have to lay out funds and we get reimbursed,” Garafalo said. “It’s not like we’ve gotten money for grants. Nobody’s throwing money at us.”

After noting the discrepancies, Daniels and two other residents, Olga and Vincent Scarcella, demanded in December that the association hand over the minutes to its executive meetings as well as hundreds of documents regarding most of the association’s finances over several years — citing a law requiring homeowners’ associations to allow homeowners to review minutes and records upon request.

In a January meeting, members of the board told the three homeowners that they could see some documents, but would have to sign a non-disclosure agreement first. The protesters declined to sign it.

“I’ve seen NDAs before, and this is an NDA you can barely breathe in,” Daniels said. 

President David Wynn defended the non-disclosure agreements, saying that all board members sign them and that they serve to keep the homeowners from blasting sensitive documents on social media. 

“The reason is that in this day and age of whats going on on social media, we run a business at the end of the day,” Wynn said. “If people think we’re doing something wrong, they can look at the books and go to the authorities.”

Wynn added that the association is willing to show the protesters documents, but can’t hand over hundreds at a time, especially since lawsuits with homeowners are confidential. Daniels and the Scarcellas argued they could sift through documents on the association’s computer or look through boxes of papers. 

Olga Scarcella filed an Order to Show Cause in late February, which would require the association to hand over the requested documents to the homeowners. The hearing was postponed because of the coronavirus outbreak, and is rescheduled for June 25, Daniels said.