Koger Management Group, Inc. filed for bankruptcy protection in federal court in Alexandria on Thursday, July 26, listing 407 creditors most of which were homeowner associations in Northern Virginia.
Mary Broz-Vaughan, director of communications for the Virginia Real Estate Board said the Virginia court-ordered investigation of alleged irregularities in Koger’s management of homeowner associations will continue and the board will continue to rely upon reports of the court-appointed monitor and a forensic certified public accountant who have been analyzing Koger Management’s accounts.
Koger filed under Chapter 11 of the federal bankruptcy code, which permits the company to reorganize and try to continue its business under the direction of the court.
On July 27, 2007, the day after Robert A. Koger, the president of the company, filed for bankruptcy, he sent a three-page, single-spaced letter to hundreds of his clients saying "we will be under the direction of the Federal Bankruptcy Court whose job it will be to make sure claims are paid from funds available."
Koger said that "most people, when they hear bankruptcy, think the company is going out of business. This is not the case and simply gives KMG/Tri-State the opportunity to continue operating on a day-to-day basis without daily harassment from attorneys and creditors."
He said the company is now trading as Tri-State Management "and we have made this name change to get a fresh outlook on our business and quite frankly to eliminate the Koger name as a lightning rod."
Koger said he has known many of his clients "for years" and he thanked clients "for your prayers and the strength you have provided us."
He acknowledged that some clients had left. "I thank all of you who choose to stay with us and see us through this next hurdle."
Koger’s letter criticized Richard Mendelson, the court monitor, and Jeff Barsky, the forensic CPA, claiming that on July 19, the two men reported to the Virginia Real Estate Board that $2 million "was stolen from the associations."
"There is no evidence to support that claim," Koger wrote, and "no one has been indicted for theft. Without the completed audits there is nothing to support that claim."
Koger said the "Commonwealth’s main effort was to have all associations audited for years 2005 and 2006. We assumed we would have their support in this area; however as of today with approximately 400 associations only 26 have audits completed for these years."
Actually, Barsky’s report said nothing about money being stolen. "The results of my analysis, based on the documents I have available at this time indicate that during 2004 and 2006 $2,239,000 has been withdrawn from the BB&T ACH Account and transferred to either Jeff Koger or Tri Fitness." Barsky said he made "use of bank statements of Jeff Koger and Tri Fitness." But Barsky’s report said he could not identify the reasons for these transfers.
Tri Fitness is an Annandale health club. It lists Tony Harris as the proprietor. Court documents claim that Jeff Koger had an interest in this club.
Between 2004 and 2006, Jeff Koger, Roger Koger’s 38-year-old son, was in charge of the accounting at KMG. Robert Koger himself reported to the Fairfax City Police in January 2007 that some one within the company had embezzled $800,000 by electronic transfer. Koger’s offices are located in the City of Fairfax, although its business extends across multiple jurisdictions in the Washington, D.C. area. The police announced an investigation on Jan. 11, 2007 and have made no public statement since. A spokesperson for the Fairfax City Police did not return telephone calls by press time.
On Feb. 26, 2007, Robert Koger had entered into an agreement in Fairfax Circuit Court that he would cooperate with the Real Estate Board’s investigation and pay the fees of the monitor and accountant.
He listed both men as creditors on his bankruptcy filing. The telephone operator at Koger’s office said he is on vacation and a member of management did not return telephone calls.
Under bankruptcy rules, Koger had to list the 20 creditors "holding the largest unsecured claims." Many of those creditors were homeowner associations.
The bankruptcy was filed by Thomas P. Gorman, of Tyler Bartl Gorman and Ramsdell of Alexandria. Gorman’s voice mail said he was out of town until Aug. 3.
No information was available on whether Koger’s Chapter 11 filing would delay or affect the Fairfax Circuit Court hearing the company faces on Aug. 7.