January 14, 2019

A Manhattan residential brokerage was the hub of a wide-reaching illegal hotel scheme—primarily through listings on Airbnb Inc.—that earned more than $20 million over three years, a lawsuit by New York City said on Monday.

The lawsuit said that five current or former employees at Metropolitan Property Group, a firm that specializes in rentals, including its founder and president, Sami Katri, participated in an operation that included at least 130 apartments in 35 buildings.

City authorities documented a total of more than 13,600 illegal short-term rentals for nearly 76,000 guests who stayed a cumulative 55,000 nights, according to the suit.

It is the biggest lawsuit brought by the city in terms of the total value of short-term rentals. City officials say they believe that a third of all short-term listings in New York City are managed by large-scale commercial operators.

It is against the law in New York City to rent out an entire apartment for less than 30 days.

“I have no comment because I had nothing to do with it,” Mr. Katri told The Wall Street Journal, referring to the lawsuit.

His wife, Shely Katri, a broker at Metropolitan and a defendant named in the suit, said the couple was a “tiny percentage of the story” and that they didn’t know an apartment they controlled was used for illegal short-term stays. As soon as they became aware of the problem, they ended that arrangement, she said.

The suit didn’t name Airbnb as a defendant. But it said that despite an Airbnb policy to limit each host to a single account in the city, the brokers were able to set up multiple accounts, using incomplete and inaccurate listing addresses, all of which linked back to the same contact information.

The suit said that Airbnb permitted listings to appear without building numbers, or sometimes without addresses at all.

“Users who advertise housing for rent on booking platforms are allowed to use fake identities, and to create multiple host accounts, obstructing enforcement as well as consumers’ ability to receive complete information and track reviews,” the Mayor’s Office of Special Enforcement said in a press release.

Airbnb said that while it works closely with some cities, such as Seattle and Chicago, to develop regulatory frameworks that recognize and regulate home-sharing, it has been at odds with New York.

“In New York City, there is no effective framework that allows for cooperation—and that’s why we support legislation that would create exactly that in Albany this session,” said Josh Meltzer, head of northeast policy for Airbnb.

The home-sharing platform has blamed New York City’s strict enforcement on a lobbying campaign by the hotel industry to eliminate competition.

The lawsuit is another embarrassment for Airbnb, which has said it planned to be ready for an initial public offering as early as the second half of this year. Should they succeed, efforts by New York and other cities to limit short-term rentals could weigh on the company’s prospects.

Last week the city filed a lawsuit against a Manhattan developer and apartment owner, the Torkian Group, saying the firm had failed to stop a stream of more than 1,000 illegal rentals in three of its buildings.

New York City also passed a law last year that would require home-sharing companies to disclose information to the city about their listings, including their hosts’ identities.

A federal judge this month temporarily blocked that law, saying it was overly broad. Airbnb cheered that decision, and the company is pressing for a state law that would legalize many short-term rentals that now violate the law.

On its website, Metropolitan Property Group said it has more than 200 agents in three downtown offices, but city investigators say they found nearly 3,000 or 20% of the short-term rentals were paid to entities at companies with addresses at Metropolitan’s Madison Avenue headquarters.

The city’s investigation focused initially on illegal rentals at five Manhattan rental properties, from Midtown high-rises such as 230 East 30th Street to a modest four-story walk-up in East Harlem at 200 East 116th Street, where all seven units were said to be used for short-term rentals.

The city found at least 138 short-term-rental listings in the five buildings, then subpoenaed records that allowed investigators to connect those listings to others in 30 additional properties.

The suit said three Metropolitan brokers—Maxim Beckman, Simon Itah and Alon Karasenty—handled most of the listings, with Mr. Beckman hiring help to provide housekeeping for the units. One such help-wanted listing in 2014 requested a “full time girl needed for vacation rentals,” according to the suit.

The owners of the five buildings were also named as defendants in the city’s suit.

Mr. Itah and Mr. Karasenty declined to comment. Mr. Beckman said: “The city can say whatever it wants. We will find out what is going on and we will handle it.”