City of New York Seeks $20 Million for Airbnb Fraud Scheme
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GUEST BLOGGER
Hallie Ayres
Contributing Writer
Airbnb currently has around 50,000 listings within New York City, making the tourism capital its largest market in the U.S. As Airbnb has experienced a steady climb in short-term rentals within NYC, the municipal and state governments have grown more keen on curbing Airbnb’s permissions for local rentals to keep more living spaces available for New York City residents, who already face a tight rental market. According to the New York State Multiple Dwelling Law, buildings with three or more units cannot offer rentals for fewer than 30 days at a time unless the owner or tenant of the unit is present while the guest is renting.
At present, investigations into illegal Airbnb listings are dealt with by the Mayor’s Office of Special Enforcement, a task force that estimates that nearly one-third of all listings on Airbnb and similar websites are commercial listings, i.e. managed by an enterprising company rather than simply listed by a full-time tenant. To combat this proliferation of illegal listings, violators caught offending the Multiple Dwelling Law must pay penalties in fines of thousands of dollars and, in the most severe cases, may even face lawsuits.
While the potential penalties of listing illegal rentals on Airbnb are high, so are the profits. These payoffs were certainly the motivating factor for the defendants in a lawsuit filed this January in which the City of New York seeks more than $20 million for the largest Airbnb scheme the city has witnessed thus far.
Max Beckman, a former real estate broker, began renting an apartment on the Upper East Side in Manhattan in 2012. Realizing he could make money by renting out his room for short-term guests, Beckman quickly started turning a profit by pocketing the difference after paying his rent. By 2015, he had quit his job and enlisted the help of two friends, Alon Karasenty and Simon Itah. The city’s lawsuit also charges Beckman’s former employer at Metropolitan Property group and its chief executive officer, Sami Katri, and his wife, Shely Katri, with involvement in the scheme due to utility bills and payouts from Airbnb listed under their names. In addition to these key players, the city is also suing the owners of five of the buildings that Beckman rented out of for knowing about the illegal, short-term rentals and allowing him to continue offering them.
At the height of Beckman’s operation, he and his partners managed nearly 130 illegal rentals in 35 different buildings from TriBeCa and SoHo and continuing northward through the Upper East Side and into Harlem. Over three years, Beckman booked 55,331 nights, housing approximately 76,000 guests and generating more than $20 million in revenue.
As his enterprise grew, Beckman shifted from decorating the apartments with used furniture himself to hiring interior designers and a troupe of housekeepers, each paid $500-$800 per week, according to a job listing authored by Beckman. Occasionally Beckman and his partners worked alongside the building management and owners, looping them into their scheme. In all cases, Beckman and his partners signed the leases and paid rent through different corporations set up under their names.
In addition to avoiding New York City’s lodging taxes and short-term rental regulations, Beckman and his partners devised various means of circumventing other city and Airbnb policies. The fraudsters created 18 corporations to manage the financial aspect of their hustle, while more than 100 Airbnb host accounts interfaced with tourists. Using different email addresses, names of relatives and slightly varied spellings of their own names, Beckman and his associates bypassed Airbnb’s “One Host, One Home” regulation and, to remain untraceable, supplied incorrect addresses for apartments.
Yoram Nachimovsky, the defendant's’ lawyer, remains convinced that the lawsuit is a political move by New York City Mayor Bill de Blasio, whom Nachimovsky believes is being influenced by large hotel companies. While de Blasio has asserted that Airbnb exacerbates the city’s affordable housing crisis, Beckman contends that the majority of the apartments he rented out were high-end and in expensive neighborhoods, not with the intention of occupying low-income housing options.
While Airbnb has condemned the use of their platform for elaborate schemes such as Beckman’s, the potential for and the allure of this type of fraud remains exceedingly potent. Faced with this lawsuit, Beckman has suggested that municipal lawmakers redirect their focus away from regulating rentals and, instead, toward taxing rentals as if they were hotels, thus funneling more income into the city’s tourism industry. The result of the lawsuit still undecided, Beckman and his partners represent a breed of fraudster eager to seek out loopholes for enterprising opportunity and financial gain. The fate of this court decision will surely dictate the extent to which alleged offenders like Beckman will be able to succeed in the future.