Justice, IRS Enter Koger Investigation
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Justice, IRS Enter Koger Investigation

Homeowners' associations encouraged to notify IRS of Koger irregularities.

The United States Attorney is "overseeing" an investigation of the Koger Management Group by several federal and local law enforcement agencies, according to a letter received by homeowners associations that used the services of the embattled real estate management company.

The letter, mailed Sept. 24 from the U.S. Attorney for the Eastern District of Virginia, asked that "if your community or homeowner association has noticed financial discrepancies, accounting irregularities, or missing funds, potentially because of actions at Koger Management Group," then associations should fill out a form and mail it to Internal Revenue Service Special Agent Anthony Cook, criminal investigation, PO Box 1038, Baileys Crossroads, VA 22041.

The letter asks that the associations enclose any "official financial reviews, tax audits, or other documents that clearly identify specific dollar amounts and dates of the discrepancies, irregularities or missing funds."

The letter comes nearly a year after Robert Koger, the president of Koger Management Group, reported to the Fairfax City police that his son Jeff Koger had allegedly misdirected some $800,000 through wire transfers to Jeff Koger’s own businesses. Jeff Koger resigned from the company in November 2006.

This action vastly expands the criminal investigation that had been handled by City of Fairfax and Alexandria police departments.

IN A SEPARATE action, Federal Bankruptcy Court Judge Stephen S. Mitchell was urged to remove Robert Koger from the helm of the company after lawyers for creditors charged him with dissipating the assets of the firm and hiding records from the creditors and the court. A hearing was set for Oct. 3, at 3:30 p.m., after the Connection went to press, to hear the motion in the Chapter 13 bankruptcy case.

Christopher Jones, a lawyer representing several of Koger’s biggest clients, wrote the court that in "2005 and 2006, Jeff Koger, the CFO of the Debtor and son of Bob Koger … embezzled hundreds of thousands, maybe even millions of dollars of funds from the client accounts managed by Koger. Late in 2006, Bob Koger acknowledged that funds had been taken. However, rather than assisting the Associations in determining the extent of their losses so that they could possibly be made whole, Bob Koger has consistently refused to provide the Associations adequate access to the Debtor’s books and records and has failed to cooperate with a court appointed monitor."

Jones’ letter said that the "Debtor, at Bob Koger’s direction, has not taken a single step, legally or otherwise, to recover the stolen funds from Jeff Koger and other parties that received them. These failures demonstrate Bob Koger’s utter lack of regard for the interest of creditors."

Jones and other creditor lawyers claimed that Koger’s actions "have resulted in the drastic loss of value to the Debtor’s business, with apparently over 100 clients leaving the Debtor in recent months." Jones said "defections" are likely to continue since many of Koger’s contracts expire at the end of 2007.

Jones charged that Koger is playing a "waiting game" hoping the debtor will be "absolved of any further responsibilities by the imminent claims bar date in the bankruptcy case."

Bradford F. Englander who represents a group of unsecured creditors said the trustee is necessary because Koger has refused to file a bankruptcy for a subsidiary and allow the creditors to recover $555,132 paid on a loan for that subsidiary. He noted that National Realty Partners, the firm that was planning to buy the Koger company earlier this year, pulled out saying they only way they would consider it would be if Robert Koger was removed.

THE REQUESTS to remove Robert Koger came several days after he testified under oath for over an hour at a hearing before Justice Department’s bankruptcy trustee, a party that supervises bankruptcy cases for the court. One of its tasks is identifying bankruptcy fraud and the offices in Alexandria are festooned with signs reminding participants that the FBI investigates suspected fraud.

Under questioning, Robert Koger admitted that he and his wife Pamela were "semi-retired" during 2005 and 2006, the crucial years of Jeff Koger’s alleged embezzlement of funds from the firm. Jeff Koger, who was paid $192,000 a year, was chief financial officer, but for all practical purposes, he ran the company.

Robert Koger maintained, as he has done in news interviews, that he did not know of Jeff Koger’s alleged embezzlement until November 2006, but he acknowledged under questioning that he had several meetings with a woman who was chief in accounting before 2006 about her claims of things going wrong there. She also told him that his son, Jeff Koger, fired her.

Robert Koger came under sharp questioning when asked why he had not attempted to recover through the courts for 10 months from his son and others who received the alleged missing money. He said he was "too distracted" and later said he thought the police would recover the money. He said he no idea what the police were doing.

Koger disclosed that he owned a previously unidentified subsidiary, KMG, LLC that he formed in July 2004 to purchase other firms. He could recall only that KMG bought two small management companies, which were "folded" into Koger Management Group. He said KMG was owned by him and his wife and had no employees. It bought the firm’s headquarters at 4105 Rust Road in Fairfax City and with loans from the Small Business Administration and BB&T bank. He said he still owes SBA some $2.2 million. He described a series of loans and bank transactions that had come up in documents he had to produce.

Lawyers for the creditors clearly want to zero-in to these transactions: the buying of Rust and the sale of property in Stafford County. The creditors want all the sales and loan documents from those transactions.

Koger disclosed that he also had an $80,000 line of credit from Wells Fargo Bank. He said there was $340,000 in "set aside earnings" from the firm which he and his wife are entitled to.

He said he and his wife sold two company cars last year, a 2003 Lincoln and a 2003 Toyota. He said he and his wife own Koger Management Group and take $60,000 and $40,000 salaries from the firm. He claims the firm has some 275 perhaps as many of 287 clients out of 440 held in 2006.

There are 45 full-time employees, he said.

Over the summer, Koger Management began trading as Tri-State Management. "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," said Robert Koger, in August.