Why a $6.5 Million Fine is a Win (for The Manhattan Club)
Categories: Timeshare CompaniesNovember 19, 2021
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By Irene Parker
Like many, I considered the $6.5 million New York Attorney General’s settlement with The Manhattan Club (TMC) developers, Ian Bruce Eichner, Scott Lager, other associates, and a maze of at least five corporate entities, a win for TMC owners. I learned $6.5 million was anything but a win for owners.
The Manhattan Club (TMC) is part of a deluxe mid-town New York City building in which approximately half the rooms were organized into The Manhattan Club timeshare property. In 2014, the New York attorney general launched an undercover fraud investigation into their operation and sales practices. In 2017, TMC defendants agreed to the $6.5 million fine and also agreed to sell their interest to a new operator. Unique to The Manhattan Club, they admitted wrongdoing, a rarity in attorney general timeshare settlements with timeshare developers:
Under the terms of the settlement, the operators of the Manhattan Club, at 200 West 56th Street, acknowledge that they repeatedly misled shareowners about the club’s reservation process, their ability to sell back their shares, and the details of the club’s state-approved offering plan.
Lawsuits filed against The Manhattan Club (TMC) began in 2011
An amended complaint was filed on behalf of 200 plaintiffs on November 17, 2021, Case 1:20-cv-07042-GHW, in the U.S. District Court for the Southern District of New York. The Twelve Counts include allegations of:
- Federal Racketeer Influenced and Corrupt Organizations Act (RICO)
- Breach of Contract
- Tortious Interference
- Violation of New York Business Law
- Common Law Fraud
- Fraudulent Inducement
- Breach of Fiduciary Duty
- Violation of the Pennsylvania Statute Title
Oversold inventory, according to the NY AG investigation, covered the period of time from 2010 to 2014, but owners reported that they had trouble booking reservations as early as 1998-99.
According to the complaint:
Defendants Bruce Eichner, Scott Lager, and associates, received millions through a “pass-thru entity” called New York Urban Ownership Management, LLC, while over 14,000 Manhattan Club owners, who paid $23,000 to $53,000 for their timeshare, were offered, on average, $100 to $300 per unit to deed back their units. Subsidized maintenance fees in early years priced maintenance fees artificially low. Maintenance fees that escalated from $600 to $3,200 drove many owners to accept this pittance.
According to TMC annual budgets, produced during the NY AG court filings, Urban received approximately 20% of annual maintenance fee revenues amounting to over $100 million ($6 – $6.4 million over a 20 year period), despite having no employees, until alerted to the investigation.
The $6.5 settlement was reached on August 16, 2017, but members are still fighting after all these years. Having reviewed 119 pages of past and current court documents, it is apparent that the developers of The Manhattan Club escaped unfazed, suffering only the equivalent of a timeshare parking ticket. Reaping in millions per year, $6.5 million represented about one year’s revenue paid to New York Urban Ownership, or 20% of management revenues. Urban appears to be a shell company that had no employees, until shortly after the NY AG investigation was launched, at which time 12 employees were hastily added.
Under the terms of the Assurance of Discontinuance, the Eichners promised to sell their interest to a third party within three years (by 2021), and agreed to be banned for life from the timeshare industry. Bluegreen entered into an agreement to purchase TMC inventory and acquire the management contract. Bluegreen has since terminated the purchase agreement and is currently engaged in arbitration to extricate them from the property.
In March of 2015, according to court documents, there were 14,147 active TMC accounts and 2,265 inactive accounts. Today there are estimated to be less than 10,000 active accounts, but transparency has been in short supply.
It’s hard to imagine a greater travesty of justice, given the evidence obtained by the New York Attorney General’s undercover investigators. The misrepresentations and fraud are some of the same complaints directed against timeshares industry-wide.
TMC Owner Comments
According to one TMC owner, “Remember, they had all kinds of bi or tri-annual plans, and other confusing plans, that defy comprehensive analysis. The offering plan was amended 88 times.”
Owner Bob Biello reported, “We purchased a ‘Gold’ 1BR Jr Suite, which I believe means 7 nights per year. The last maintenance fee bill we received for 2020 was for $2,427.64. Maintenance fees are due on the anniversary date of your purchase. They routinely pre-billed people’s credit cards up to 9 months prematurely, or denied them bookings unless they agreed to prepay maintenance.” According to court documents, developer rented units to the general public, despite not paying maintenance fees!
One proposed change that the Federal Trade Commission should consider, is allowing the timeshare purchaser access to the resort’s booking site before the state-mandated contract rescission period has expired. Availability is typically not part of the timeshare contract. If you were promised an ocean view, you could not determine that your view is that of the parking lot, by reading the contract.
If the consumer was aware that their timeshare had little to no resale value, they would probably think twice about buying. They should think even harder about financing a product at an interest rate of 12% to 19.99%, that leaves the borrower little choice but to default if they experience an adverse life event. It is all but impossible to sell a timeshare with an outstanding loan.
Excerpts from Defendant Bruce Eichner’s bio according to Wikipedia
A J.D. from the University of Cincinnati College of Law in 1969 [3] He then took a job with the office of district attorney Frank Hogan and then as an assistant district attorney in Brooklyn with Eugene Gold.[2] From 1971 to 1975, he worked for the New York State Division of Criminal Justice services.[2]
The 1990s were difficult and Eichner lost Cityspire to the Bank of Nova Scotia, 1540 Broadway to a bankruptcy and ultimately to Bertelsmann A.G. as its headquarters,[3][4] and the Cosmopolitan of Las Vegas, a $4 billion project, to Deutsche Bank after he was unable to refinance a loan (it was ultimately completed and sold it to the Blackstone Group.[1][5]
The attorney general’s office also found evidence that the Manhattan Club’s sales tactics amounted to a bait-and-switch scheme.
Related articles:
December, 2014
https://www.redweek.com/resources/ask-redweek/manhattan-club-cnbc-update