A PE firm bought a bankrupt condo sponsor at foreclosure and denied owning it. The Martin Act had one answer.

On August 11, 2026, Attorney General Letitia James announced that SME Capital Ventures would pay more than $700,000 to settle charges that it acquired a Hudson Yards condominium's developer at a foreclosure auction, then refused to pay the building's bills, maintain required safety inspections, or transfer board control to the nine unit owners who had been living there for years. The settlement is a precise illustration of the one enforcement mechanism New York law gives condo owners when a sponsor defaults during an active offering plan. It is also a map of where that mechanism stops.

When a lender forecloses on a condo sponsor, someone wins that auction.

The Westerley at 441 West 37th Street is an 11-story, 9-unit condominium in Hell's Kitchen, one block west of Hudson Yards. The original developer was West 37th St LLC, which filed Offering Plan CD19-0172 with the AG's Real Estate Finance Bureau in 2019 and completed construction in 2020. Like many small condominiums, not all units sold on the original timeline. The developer retained ownership of the unsold units along with the obligations attached to them: paying its pro-rata share of common charges, maintaining the building's certificate of occupancy, certifying the fire suppression system on schedule, and transferring control of the condominium board to unit owners once sales thresholds were met.

In October 2023, West 37th St LLC defaulted on its debt. SME Capital Ventures won the resulting foreclosure auction and took control of the developer entity. Under New York law and the Martin Act (General Business Law Article 23-A), that acquisition made SME the successor sponsor. Offering plan obligations do not expire with the original developer. They transfer to whoever acquires the sponsor entity, whether through assignment, merger, or foreclosure. SME inherited the plan and every duty it imposed.

What happened next is what the AG's investigation documented. SME denied owning the company. It refused to pay the building's operating bills. It did not maintain required safety inspections. It did not pursue the permanent certificate of occupancy the building had never obtained, leaving the building on temporary status. And it collected rent on the unsold units, treating them as investment property while the for-sale offering plan remained open.

Three years of residents funding a building a sponsor refused to maintain.

The nine unit owners at The Westerley absorbed the cost. Common charges went unpaid by the sponsor units. Municipal fines and real property taxes accumulated against the building. The fire suppression system operated without a current certification. And when the building's temporary certificate of occupancy needed renewal, the unit owners paid for it themselves, out of pocket, because SME would not.

The AG's settlement makes the accounting concrete:

During the same period, SME collected rent on the unsold units. The offering plan does not authorize a for-sale condominium sponsor to rent out inventory. The revenue went to SME while the building's shared expenses went unpaid.

What the $700,000 settlement actually requires.

The settlement executed August 11, 2026 has two distinct parts. The financial part: SME pays $523,000 in overdue building fees; reimburses the unit owners approximately $15,000 for the certificate of occupancy renewal they funded; satisfies the $139,918 in outstanding municipal fines and taxes; and pays a $54,000 civil penalty to the AG.

The structural part resolves the governance failure. SME must update Offering Plan CD19-0172 to formally disclose its acquisition of West 37th St LLC, obtain a permanent certificate of occupancy, repair and re-certify the building's fire suppression system, and transfer control of the condominium board to the unit owners. That last item is what nine people at 441 West 37th Street have been unable to secure through any other mechanism for the three years since SME took over.

The AG's authority derived entirely from the Martin Act. GBL Article 23-A requires sponsors to register offering plans with the Real Estate Finance Bureau, amend those plans to reflect material changes in ownership or financial condition, disclose all information a reasonable buyer would consider relevant, and fulfill the representations made to purchasers in the plan. SME's failure to update the offering plan to reflect its acquisition was itself a Martin Act violation. The pattern of refusing to pay building expenses while collecting rent on unsold inventory compounded it. The REFB's authority to bring this action, and to secure the settlement terms it did, existed because the plan remained open and active throughout the period of abandonment.

The Martin Act's jurisdiction ends when the offering plan closes.

The Westerley case shows the one condition under which the REFB has direct enforcement authority over condo sponsor conduct: the offering plan is still live. An active plan gives the bureau a regulatory foothold. The sponsor has ongoing disclosure obligations. The REFB can investigate, negotiate, and compel.

Once the plan closes, that foothold disappears. After the board control transfer and the offering plan amendment required by this settlement, the AG's Martin Act authority over sponsor conduct at The Westerley ends. The building enters the post-offering-plan world where, as this site has documented in detail, the Real Estate Finance Bureau has no governance enforcement authority. RPL Article 9-B, New York's Condominium Act, gives owners rights to inspect records and elect boards, but it provides no enforcement body. The only path is civil litigation, which unit owners bear the cost of filing and funding.

The comparison matters. At The Westerley, the AG brought and resolved an enforcement action that:

• Required no lawsuit by the unit owners
• Produced full reimbursement of the certificate of occupancy costs they absorbed
• Imposed a civil penalty on the sponsor
• Compelled the board transfer the owners could not otherwise force

A building where the same set of problems arose after the offering plan closed would have none of those tools available. The owners would be plaintiffs in a breach-of-contract or fiduciary-duty action, paying their own attorneys, litigating against a party with greater resources, waiting for a court calendar. The Westerley owners benefited from the specific timing of SME's default: it happened while the plan was open. That timing was not strategic. It was luck.

A managing agent who needed no license ran this building for three years.

Throughout the period of SME's refusal to pay or maintain the building, someone handled day-to-day operations at The Westerley. Building operations do not suspend because a sponsor defaults. A managing agent, or the sponsor entity itself, processed whatever maintenance requests were made, dealt with whatever vendor relationships existed, and administered whatever financial records were kept during three years in which the life-safety system went uncertified and the certificate of occupancy ticked on temporary status.

New York imposes no license requirement on managing agents. A licensed electrician working on the fire suppression system SME failed to certify needs a New York State license. The person overseeing the administrative and financial operations of a 9-unit condominium through an abandonment period needs nothing: no examination, no background check, no registration with any state agency, no continuing education, no insurance floor, no bonding requirement. Senate Bill S.71, the managing-agent licensure bill, has not, to our knowledge, received a committee hearing in ten consecutive sessions of the legislature.

The Westerley settlement does not address the managing agent's role. It could not. The Martin Act runs against the sponsor. What any agent did or failed to do during the abandonment period — whether they flagged the CO problem, whether they reported the fire suppression certification lapse, whether they notified anyone when the sponsor denied ownership — is not part of the settlement record and is not subject to any regulatory review, because no regulator has jurisdiction over an unlicensed person in that role.

Bottom line.

The AG's $700,000 settlement with SME Capital Ventures is a genuine outcome for nine unit owners who spent three years funding a building a private equity firm refused to maintain after acquiring it at a foreclosure auction. The Martin Act gave the REFB the authority to intervene, negotiate, and compel, and the bureau used it. What the case also shows is the exact shape of that authority: it extends to an active offering plan, and it ends the moment the plan closes. After the Westerley's board transfer and plan amendment are complete, the mechanism that just worked will no longer exist for those owners. The managing agent who administered the building during the abandonment holds no license that could be suspended or revoked. The successor sponsor provisions of the Martin Act reached SME because the plan was open. For every building where the equivalent problem arrives after the plan is closed, New York offers unit owners something much smaller: the right to hire a lawyer.

Primary sources:
AG press release: Attorney General James Secures More Than $700,000 from Private Equity Firm That Abandoned Hudson Yards Condo Building (Aug. 11, 2026)  ·  The Real Deal: AG James hits SME Capital over neglected Hudson Yards condos (Aug. 11, 2026)  ·  Commercial Observer: SME Capital Forced to Hand Over Hudson Yards Condo Building to Residents (Aug. 2026)  ·  NY General Business Law Article 23-A (the Martin Act)  ·  NY Real Property Law Article 9-B (the Condominium Act)

Companion resources: Why the AG can't help with most condo governance disputes  ·  How to write an AG REFB complaint that doesn't get ignored  ·  What the Martin Act can reach: the Fort Greene settlement  ·  NY LLC Transparency Act and condo sponsor disclosure  ·  S.71: the managing-agent licensure bill  ·  The six-year AG offering-plan enforcement gap that ended July 1