NEW YORK —Despite a depressed real estate market, mortgage fraud and other related crimes continue to be a major problem, according to Brooklyn District Attorney Charles Hynes. Today he announced charges against 12 people for a variety of unrelated housing schemes, including mortgage fraud.

Three out of the 12 scams involved people posing as landlords and collecting rent and security deposits on apartments they didn’t own.

Those charged come from a variety of backgrounds. “Included among the 12 filings today is an attorney, a resigned attorney, and a suspended attorney. In addition there’s a New York City corrections officer and also, there are incredible to me, repeat offenders,” Hynes says.

Prosecutors say two of the alleged repeat offenders, Russell Pitt and Nathan Farkas, convinced an unemployed Brooklyn woman to grant them power of attorney so they could refinance her home. Instead, prosecutors say they sold her home and kept the proceeds. Attorneys for both men could not be reached.

One victim, Jean Kemp, says she was shocked to learn a $225,000 dollar mortgage had been taken out on her home in Marine Park. “When the guy told me that I said, ‘you’re out of your mind, I never took a mortgage, our house has been paid since 1987,” Kemp says.

The Brooklyn DA’s office says it’s special real estate crimes unit continues to receive hundreds of complaints.

BEL AIR—On January 29, a former state-licensed real estate appraiser was sentenced to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks, according to the Federal Bureau of Investigation.

Rancho Santa Margarita resident, Lila Rizk, received the sentencing after her conviction the previous summer on conspiracy, bank fraud and multiple loan fraud charges.

United States District Judge Dean D. Pregerson ruled Rizk’s sentencing, and warned that other professional real estate appraisers needed to know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison,” according to the Department of Justice press release.

Evidence presented during Rizk’s trial last summer indicates that the 43-year-old was involved in a conspiracy that acquired inflated mortgage loans on homes in some of California’s most expensive neighborhoods, such as Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla, according to the release.  Those involved in the scheme sent false documentation, including artificial purchase contracts and appraisals, to the affected banks in order to mislead them into funding mortgage loans that cost hundreds of dollars more than what the homes actually valued.  Lehman Brothers Bank, one of the victim banks, was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

Rizk was found to have profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scam.  Rizk’s appraisals often placed the homes at values exceeding three times more than what they were actually worth.  Rizk referred to “comps” or comparable homes, that were far larger, more luxurious and in better areas than the ones she appraised in an apparent effort to justify the inflated appraisals.  At one point, Rizk had inflated a few dozen homes, and then used them as “comps” to allegedly justify inflated values for homes later in the conspiracy.

The release lists the following 10 real estate professionals as those who were found to be involved in the scheme, and who have been convicted of federal charges:

1)   Scheme leader Charles Elliot Fitzgerald, a developer of Newbury Park and Beverly Hills, who had formerly been sentenced to 14 years in prison.

2)    Mark Alan Abrams, of Los Angeles, a mortgage broker, who along with Fitzgerald orchestrated the scheme, who is scheduled to be sentenced on April 12.

3)    Nicole LaViolette, of Palm Springs, a loan processor, who is scheduled to be sentenced on June 14.

4)    Jamieson Matykowski, of Laguna Niguel, who found houses for the scheme, is scheduled to be sentenced on March 29.

5)    Timothy Holland, of Santa Ana, an escrow officer, who is scheduled to be sentenced on June 28.

6)    Richard Maize, of Beverly Hills, a mortgage banker, who is scheduled to be sentenced on June 28.

7)    Thomas R. Schiff, of Brentwood, a mortgage banker, who was previously sentenced to 6 months in prison.

8)    L. Scott Robinson, of Dana Point, an appraiser, who is scheduled to be sentenced on April 2.

9)  Kyle Gras, formerly of Santa Monica, a real estate agent, who is scheduled to be sentenced on February 19.

10) Joseph Babajian, of Los Angeles, a real estate agent, who is scheduled to be sentenced on February 22.

The case results from an investigation by the F.B.I. and IRS-Criminal Investigation, according to the release.

INDIANAPOLIS—Kevin Lafavers, age 46, formerly of Indianapolis, was sentenced today to 33 months in federal prison, and Donald T. Brown, age 67, Lebanon, Indiana was sentenced to 27 months in prison. Circuit Judge David F. Hamilton sentenced both individuals following Lafavers’ guilty pleas to conspiracy to commit wire fraud and wire fraud and Brown’s guilty pleas to conspiracy to commit wire fraud and money laundering. These proceedings concerned the defendants’ participation in a multi-million dollar mortgage fraud scheme operated by Robert Penn in the Indianapolis area.

Today’s sentencing follows a lengthy investigation conducted by Special Agents of the Internal Revenue Service – Criminal Investigation Division, with the assistance of the Federal Bureau of Investigation. Judge Hamilton previously imposed sentence on six other individuals charged in the scheme as follows: Robert Penn, 84 months’ imprisonment; Mark Roth, 43 months’ imprisonment; Timothy Brown, 37 months’ imprisonment; Stephen Scott Brown, 37 months’ imprisonment; Jerry Jaquess, 30 months’ imprisonment; Tamara Scott, 24 months’ imprisonment.

Between November 2003 and August 2005, at least 136 fraudulent loans, totaling $16,613,850.00, were obtained by Robert Penn and his numerous business entities, assisted by Lafavers and Brown and others. The loans were obtained from Argent Mortgage Company, The MoneyStation, and People’s Choice Mortgage/Countrywide Home Loans.

The mortgage fraud schemes carried out by the defendants were accomplished as follows. Participants in the schemes, including Lafavers, located properties and arranged to purchase them at a fair market value generally by means of an option agreement or unrecorded land contract. Other participants in the scheme located straw purchasers who invested their good credit, but no money, to be the purchasers of these properties at a much higher price than that negotiated with the seller. Co-conspirators, including Brown, funded the down payments.

Lafavers was employed by Penn to locate properties for sale, negotiate the purchases of those properties, and enter into option agreements and land contracts with the sellers on behalf of Penn and his businesses. Lafavers generally received $1,000.00 per property located. Lafavers also attended some property closings on behalf of Penn’s companies and received checks that represented illegal proceeds. Lafavers’ sentence reflected his involvement in approximately 19 fraudulent loans. The total amount of those loans was $3,771,000.00.

Brown was primarily involved in funding down payments for investors on the fraudulent real estate transactions. Brown used a bank account, which was maintained by him and his son in the name of Brown Funding Inc. to fund the down payments. Brown obtained down payment checks and provided those checks to the title company, or to another co-conspirator, to be used for the closing. After the property closing, Brown received repayment of the checks from the fraudulent loan proceeds. In addition, Brown Funding Inc. received a fee of $1,000.00 – $3,000.00 for each down payment provided. The sole purpose of Brown Funding Inc. was to fund down payments for investors.

Brown borrowed some of the money for these down payments from individuals who he knew, but did not tell these people that they were in fact funding a fraudulent real estate scheme. Brown also added investors’ names to the Brown Funding Inc. bank account in order to convince the lenders that the investors had access to money which they did not have. Brown’s sentence reflected his involvement in approximately 113 fraudulent loans, including 86 Windsor Village loans. The total amount of those loans was $12,541,000.00.

According to Assistant U. S. Attorney Susan Heckard Dowd, who prosecuted the cases for the government, Judge Hamilton also ordered Lafavers to serve three years on supervised release, and Brown to serve two years on supervised release following their incarceration. Judge Hamilton also ordered the defendants to pay restitution as follows:  Lafavers – $ 1,475,851.63  and  Brown –  $ 9,985,004.15.

Tampa, FL - Craig Adams, orchestrator of one of the largest real estate fraud rings in Florida history, has secretly spent more than a year and a half as an FBI informant, helping build cases against the people he once recruited into his schemes, the Herald-Tribune has learned.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

“We did not discuss it because of the ongoing nature of the investigation,” said Steve Cole, spokesman for the U.S. Attorney’s Office for the Middle District of Florida. “I cannot comment further.”

Sarasota County Sheriff’s Detective Jeffrey Harris is also involved in the criminal investigation, but a spokeswoman for his agency referred questions to the U.S. Attorney’s Office.

The newspaper’s investigation revealed how Adams recruited friends, family members and business associates to trade houses back and forth for phony prices. With each sale, the price of the house was artificially increased, allowing buyers to qualify for oversized mortgages.

Sources familiar with the deals told the Herald-Tribune “profits” generated from the mortgages were split among those who participated in the sales.

The Herald-Tribune also revealed that Adams or his associates forged his aunt’s signature to obtain a loan, hid outstanding loans from banks in order to borrow more money and sold properties without repaying attached mortgages.

The criminal complaint against Rotolo describes similar schemes. It lays out how Rotolo and the confidential defendant worked together to artificially inflate home values and help buyers qualify for fraudulent mortgages.

Instead of selling houses on the open market, they used “friendly sellers” so they could inflate values and hide false statements.

When a friendly seller could not be found, Rotolo, Adams and others involved in the scheme would create a fake set of closing documents. One set would go to the seller and another would go to the bank in order to hide how money was manipulated, the complaint states.

In at least one case, Rotolo took loan money that was supposed to be used to repay previous mortgages and funneled it to Adams, the complaint states.

The documents list 37 addresses and related mortgages that Adams told the FBI were fraudulent. Using mortgage records filed with the clerk of court, the Herald-Tribune determined the names of those involved.

About half of those implicated by Adams were previously named in the Herald-Tribune’s flipping series this summer. The rest were additional Adams associates, meaning Adams’ group is nearly twice as large as the Herald-Tribune originally reported.

A review of all of those names shows that the people Adams regularly used for real estate deals have defaulted on more than $123 million in mortgage loans in recent years.

Rotolo’s arrest documents describe in detail the real estate transactions on the house at 1636 Baywood Way in Sarasota.

Using his 80-year-old mother, Jocelyn Adams, as a straw buyer, Adams bought the house in March 2005 and began borrowing more money than his mother’s income could justify, the criminal complaint states.

Although Jocelyn Adams’ name is on the deed, Craig Adams and an unnamed investor retained ownership, the complaint says.

They inflated the original purchase price from $1.65 million to $1.85 million and kept the excess proceeds from the mortgages obtained in Jocelyn Adams’ name.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

“We did not discuss it because of the ongoing nature of the investigation,” said Steve Cole, spokesman for the U.S. Attorney’s Office for the Middle District of Florida. “I cannot comment further.”

Sarasota County Sheriff’s Detective Jeffrey Harris is also involved in the criminal investigation, but a spokeswoman for his agency referred questions to the U.S. Attorney’s Office.

The newspaper’s investigation revealed how Adams recruited friends, family members and business associates to trade houses back and forth for phony prices. With each sale, the price of the house was artificially increased, allowing buyers to qualify for oversized mortgages.

Sources familiar with the deals told the Herald-Tribune “profits” generated from the mortgages were split among those who participated in the sales.

The Herald-Tribune also revealed that Adams or his associates forged his aunt’s signature to obtain a loan, hid outstanding loans from banks in order to borrow more money and sold properties without repaying attached mortgages.

The criminal complaint against Rotolo describes similar schemes. It lays out how Rotolo and the confidential defendant worked together to artificially inflate home values and help buyers qualify for fraudulent mortgages.

Instead of selling houses on the open market, they used “friendly sellers” so they could inflate values and hide false statements.

When a friendly seller could not be found, Rotolo, Adams and others involved in the scheme would create a fake set of closing documents. One set would go to the seller and another would go to the bank in order to hide how money was manipulated, the complaint states.

In at least one case, Rotolo took loan money that was supposed to be used to repay previous mortgages and funneled it to Adams, the complaint states.

MANY MORE INVOLVED

Several of Adams’ business associates, contacted by the Herald-Tribune this week, were shocked to learn that Adams was cooperating with federal investigators.

When informed by phone, Adams’ associate Heather Kabobel began crying. “I feel sick to my stomach,” she said.

Kabobel, a Sarasota real estate appraiser, is one of more than 30 people Adams implicated as a participant in real estate fraud, the Rotolo criminal complaint shows. Her husband, Jonathan Glucker, a mortgage broker with Prospect Mortgage, also appears on loan documents that Adams said were fraudulent, the complaint shows. Glucker did not return phone calls.

The documents list 37 addresses and related mortgages that Adams told the FBI were fraudulent. Using mortgage records filed with the clerk of court, the Herald-Tribune determined the names of those involved.

About half of those implicated by Adams were previously named in the Herald-Tribune’s flipping series this summer. The rest were additional Adams associates, meaning Adams’ group is nearly twice as large as the Herald-Tribune originally reported.

A review of all of those names shows that the people Adams regularly used for real estate deals have defaulted on more than $123 million in mortgage loans in recent years.

Rotolo’s arrest documents describe in detail the real estate transactions on the house at 1636 Baywood Way in Sarasota.

Using his 80-year-old mother, Jocelyn Adams, as a straw buyer, Adams bought the house in March 2005 and began borrowing more money than his mother’s income could justify, the criminal complaint states.

Although Jocelyn Adams’ name is on the deed, Craig Adams and an unnamed investor retained ownership, the complaint says.

They inflated the original purchase price from $1.65 million to $1.85 million and kept the excess proceeds from the mortgages obtained in Jocelyn Adams’ name.

Rotolo played a key role in the fraud, according to the criminal complaint against her. It says she prepared two sets of closing documents — one for the unwitting sellers and another for the bank that provided a loan on the inflated value.

Rotolo prepared the legal documents for several more loans on the property over the years, the complaint says. In most of the paperwork, Adams forged his mother’s signature and Rotolo notarized it, the complaint shows.

APPROACHING THE FBI

The criminal complaint filed by investigators against Rotolo does not explain what led Adams to turn FBI informant.

The documents show that in May 2008, a Tampa attorney contacted the FBI’s Sarasota office and expressed “his client’s desire to provide information to law enforcement about his and other individuals’ involvement in wide spread (sic) mortgage fraud in Sarasota, Florida.”

The informant agreed in principle to plead guilty to criminal conspiracy on condition that prosecutors not pursue any additional charges. Federal sentencing guidelines show criminal conspiracy carries a sentence of up to five years.

At the time Adams approached the FBI in 2008, his real estate career had come crashing down, with at least six of his multimillion-dollar properties falling into foreclosure. In April that year, Oriente, a business associate who had lent Adams $700,000, sued Adams and went to police and FBI agents, hoping to spark a mortgage fraud investigation.

Oriente said he thought the case had stalled until two months ago, when he learned about Rotolo’s arrest and read the court documents mentioning a confidential defendant.

Special Agents and State Investigators Warn Utahns to Beware

• Is someone letting you live in a home for free?
• Did a builder offer you deep discounts to move into a newly constructed house?
• Has a company offered to refinance your mortgage for a fee?

If the answer to any of these questions is “yes,” then you may be a victim of a scam. FBI special agents and the state investigators with the Utah Division of Real Estate have compiled a list of top five mortgage related scams in 2010.

1. Reverse Mortgage Scam: Reverse mortgages can be a legitimate way for senior citizens to take equity from their homes without a monthly payment. However, con artists convince senior citizens they can live in a home for free, obtain a home loan under the occupant’s name, and disappear with the equity, leaving the victim to repay the mortgage.

2. Short Sale Fraud: A “short sale” transaction involves a lender agreeing to sell a property for less than the mortgage amount. Fraud occurs when a distressed homeowner finds a prospective buyer and they secretly set a low sale price. Unbeknownst to the lender, the buyer is willing to pay more for the property and the homeowner pockets the difference.

3. Builder Bailouts: Simply put, builder bailouts are a “kick-back” scheme. They may be more common in a troubled real estate market where builders may have a surplus of unsold properties. The builder offers excessive “incentives” to the purchaser. These incentives are disclosed as a down payment which leads the lender to believe there is equity in a home. Under these circumstances the builder and the buyer are committing fraud.

4. Loan Modifications: The FBI Salt Lake City Field Office issued a consumer alert about loan modifications in the fall of 2009. Special agents and state investigators are concerned homeowners may fall for this same scam in 2010. Companies charge up to $2000, promising to make a homeowner’s mortgage payment more affordable. But some homeowners report that they didn’t get what they paid for.

5. Affinity Fraud: Affinity fraud is an ongoing concern for the Salt Lake City FBI Field Office and the Utah Division of Real Estate. Fraudsters who promote affinity scams frequently are, or pretend to be, members of a particular religious, ethnic, or professional group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme. They convince those people that a fraudulent investment is legitimate and worthwhile. Many times those leaders become unwitting victims of the fraudster’s ruse.

Jeffrey H. Sloman, United States Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office; and C. Ed Slagle, Special Agent in Charge, Federal Deposit Insurance Corporation, Office of Inspector General, Southeast Region, announced the January 26, 2010 unsealing of an Indictment charging Yamil L. Herrera, 38, of Miami; Alain C. Hernandez, 41, of Miami; Ricelda M. Hernandez, 44, of Miami; Maria G. Herrera, 40, of Miami; Ana G. Blanco, 35, of Hialeah; Samantha Portales, 43, of Miami; Edel Martinez, 37, of Miami; Osiris Garcia, 41, of Miami; Luis R. Martinez, 42, of Hialeah; and Silvio De Paz, 46, of Miami, with one count of conspiracy to commit wire and bank fraud, in violation of Title 18, United States Code, Section 1349, 11 counts of substantive wire fraud, in violation of Title 18, United States Code, Section 1343, and five counts of substantive bank fraud, in violation of Title 18, United States Code, Section 1344.

Through this scheme, the defendants are alleged to have defrauded three financial institutions of more than $24 million in loan proceeds. If convicted, the defendants face a maximum statutory sentence of 30 years’ imprisonment for the conspiracy and bank fraud counts, and 20 years’ imprisonment for the wire fraud counts.

More specifically, the Indictment alleges that the defendants were involved in the financing of six residential properties in Miami-Dade County. According to the Indictment, Yamil L. Herrera, Alain C. Hernandez, and Ricelda Hernandez would identify properties that could be used to defraud lenders and then recruited friends and family to pose as purchasers of the properties. In addition, through a mortgage brokerage company called “Miami Dade Mortgage Professionals,” Alain C. Hernandez, a licensed mortgage broker, and Ricelda M. Hernandez would prepare loan applications that contained fraudulent statements about the purchasers’ employment, assets and intention to live in the properties. Ricelda M. Hernandez was also acting as a real estate agent.

Among the defendants who acted as straw purchasers for the properties were Maria G. Herrera, Samantha Portales, Edel Martinez, Osiris Garcia, Luis R. Martinez, and Silvio De Paz. The defendants conducted all of the real estate closings at Ana G. Blanco’s Trinity Closing Group. Since the defendants were often re-selling or “flipping” the properties among themselves, Blanco would disburse the money owed to the seller before the closing, and the seller would transfer the money to the defendant who was purchasing a property, so that money could be used as a ‘down payment.’ Once the property was purchased, the defendants allegedly arranged to make the mortgage payments until they could flip the property at an inflated purchase price. With the profits made from “flipping” the properties to each other, the defendants continued to buy additional properties and pay outstanding mortgage payments during the scheme. Eventually, the defendants ran out of money, stopped making the loan payments and the properties went into foreclosure. The foreclosures resulted in more than $7 million in losses to Washington Mutual, Impac Lending Group, Loan City and other lenders.

NEW YORK CITY-State Attorney General Andrew Cuomo on Thursday filed suit against Bank of America and its former CEO Kenneth Lewis and former CFO Joseph Price, charging that the banking giant misled shareholders and federal regulators over its merger with Merrill Lynch. The suit comes as the Securities and Exchange Commission announced a settlement with BofA.

Cuomo’s complaint, filed Thursday in state Supreme Court in Manhattan, charges that BofA hid Merrill’s “staggering losses” that had reached $16.2 billion by the time shareholders voted in December 2008 to approve the merger. Following the shareholders’ approval, BofA’s management then manipulated the federal government by falsely claiming that they would back out of the deal through a clause in the merger agreement unless they received billions of dollars in Troubled Assets Relief Program funds, according to the complaint.

“This was an arrogant scheme hatched by the bank’s top executives who believed they could play by their own set of rules,” Cuomo says in a statement. “In the end, they committed an enormous fraud and American taxpayers ended up paying billions for Bank of America’s misdeeds.”

A BofA spokesman tells GlobeSt.com that the bank is “disappointed” that Cuomo filed the charges, “which we believe are totally without merit. The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations. In fact, the SEC had access to the same evidence” as the New York AG, but reached the conclusion “that there was no basis to enter either a charge of fraud or to charge individuals. The company and these executives will vigorously defend ourselves.”

Earlier on Thursday, the SEC and BofA announced a settlement whereby BofA would pay $150 million and strengthen its corporate governance and disclosure practices to settle SEC charges that the company failed to properly disclose employee bonuses and financial losses at Merrill before shareholders approved the merger. Under the terms of the proposed settlement—subject to approval by Judge Jed S. Rakoff of US District Court, who is presiding over the SEC’s suit against the bank—the $150-million penalty will be distributed to BofA shareholders who were harmed by “the bank’s alleged disclosure violations,” according to an SEC statement.

The settlement also stipulates that the bank agrees to a series of new oversight provisions. They include: hiring an independent auditor and outside counsel to monitor financial statements and disclosure; a provision guaranteeing that BofA’s CEO and CFO personally review all annual and merger proxy statements; and a requirement that directors on the bank’s compensation committee follow a “super independence” standard to prevents them from accepting other compensation from the bank. In a statement, BofA said Thursday that it has also settled with the North Carolina attorney general over an investigation related to the Merrill merger.

A United States District Court Judge sentenced a 52-year-old Andover man Friday (Feb. 5) to 37 months in prison for his role in orchestrating a residential real estate loan scam.

Eric Krahnke, a loan officer at Associated Bank, bypassed normal loan-approval channels to get 21 real estate loans totaling more than $4 million between March 2003 and October 2003, according to the United States Attorney’s Office in Minneapolis.

The real estate loans were given to Michael Striker, 56, of Minetonka. Judge Joan Ericksen sentenced Striker Feb. 3 to 41 months in prison.

Krahnke and Striker pleaded guilty in August 2000 to one count of bank fraud and one count of money laundering. They had been indicted in federal court in August 2008.

The two men described what their scheme was to the United States Attorney’s Office

The 21 loans were approved either directly for Striker or his real estate company called U.S. Equities of Minnesota. Striker received in excess of $724,000 in net loan proceeds at real estate closings for the 21 loans. Krahnke got commission pay from Associated Bank for originating the loans.

Striker also gave Krahnke 3 percent of the net proceeds of each loan, which totaled over $100,000.

These transactions were labeled as “broker fees” in the loan documents and paid through Worldwide Mortgage, which was a mortgage brokerage company that Krahnke owned. Worldwide Mortgage did not broker any of the loans.

Krahnke did not advise Associated Bank that he was receiving these “broker fees” and had an ownership interest in Worldwide Mortgage, which would have been a conflict of interest given his position as a loan officer, according to the United States Attorney’s Office.

Striker said the loans were for construction rehab projects, he used some proceeds for unrelated expenses and debts. Some alleged rehab projects were actually homes in which financially distressed families still resided.

Krahnke also admitted that on Oct. 24, 2003, he executed a telephone transfer of $17,943 from a Worldwide Mortgage account at Central Bank to a personal account at the same bank. Striker said on Sept. 3, 2003 he issued a check in the amount of $13,000 from a U.S. Equities account at Bremer Bank “River Run Properties.” The defendants admitted they knew the funds subject to those transactions were criminally derived.

“These schemes need to be exposed to stop the cascading negative affect this type of fraud has on our economy and the innocent parties involved,” said Julio LaRosa, special agent in charge of the St. Paul field office of the Internal Revenue Service (IRS) Criminal Investigation Division (CID).

“These sentences send the message that mortgage industry fraudsters will not go unpunished,” LaRosa said in a written statement presented after the Krahnke sentencing.

This case was investigated by the IRS’ CID and the Federal Bureau of Investigation. It was prosecuted by U.S. Attorneys William Otteson and John Docherty.

FORT WAYNE, Ind. (AP) — Indiana broadcaster and former Hoosiers player Todd Leary has been arrested on felony charges in connection with what authorities say was a multimillion-dollar fraud scheme.

The 39-year-old Leary was booked into jail Thursday night. He faces charges in Allen County court.

The charges against Leary include conspiracy to misappropriate real estate title insurance escrow funds, by improperly transferring about $1.3 million to a bank account he controlled. Court documents also say Leary once worked for a title insurance broker who pleaded guilty in a $2.7 million scheme.

Leary played for Indiana University in 1989-94, including its 1992 NCAA Final Four team. He is an analyst for IU’s radio broadcasts.

Prosecutors and jail officials had no information on an attorney for Leary.

SHREVEPORT, LA—William Everett Nichols, 56, of Alexandria, La., President and sole shareholder of First Fidelity Mortgage, Inc., was sentenced to six years in federal prison and ordered to pay $3,903,071.00 in restitution for bank fraud, Acting United States Attorney William J. Flanagan announced today. Today’s sentence was imposed by U.S. District Court Judge Donald E. Walter in Shreveport.

Nichols pleaded guilty to bank fraud in November 2009. The FBI investigation of Nichols and First Fidelity Mortgage, Inc., doing business as Southern Funding, showed that Southern Funding was involved in the mortgage lending business and provided mortgages to customers in central Louisiana. Sabine State Bank and Peoples State Bank of Many, Louisiana, provided credit to Southern Funding for mortgages which were secured by customer notes pledged by Southern Funding to the banks. Nichols also had private investors as a funding source.

Nichols forged signatures of borrowers and provided the forged notes as collateral. He is responsible for a total amount of loss to banks and private investors of $3,903,071.00.

The case was investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Alexander C. Van Hook.

Brandon Foley, an owner of Smart Choice Realty, has agreed to plead guilty in a mortgage fraud conspiracy, operating what prosecutors call a “builder kickback” scheme in Mecklenburg County.

The Charlotte real estate agent, served as an agent for deals in which a builder “agreed to pay hidden kickbacks to buyers and promoters who recruited buyers,” according to court documents filed Monday. He was involved in the fraud ring for more than two years, starting about September 2005, documents say.

Foley is charged with one count of mortgage fraud conspiracy. He faces up to five years in prison and a maximum fine of $250,000. He declined to comment saying his attorney advised him not to discuss his case. A date in January 2010 is yet to determined for his plea to be heard.

The conspiracy generally involved an unidentified builder that had “numerous houses that were not selling at the desired price,” according to court papers. To stimulate sales, “Builder A” agreed to pay kickbacks, which were not listed on closing documents.

As the real estate agent, Foley “facilitated the hidden kickbacks,” the documents say.

Prosecutors say Foley’s case is not related to the “Waxhouse Investigation,” a mortgage fraud case in which 12 people have agreed to plead guilty since last year.

However, there are similarities, based on filings in the cases. For example, in both, participants lied to get mortgages, including misrepresenting buyers’ income, place of employment and intent to occupy the house as a primary residence.

In the Foley case, conspirators also used false identification, such as fake Social Security numbers, the filing says.

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Georgia Bowman, former wife of Nampa, Idaho real estate businessman, Jerry Gunstream was ruled innocent of fraud and embezzlement charges. Judge Juneal Kerrick of the 3rd District Court denied the fraud claim in court Dec. 10 and denied the conversion claim in an order she issued Dec. 30. Conversion is the act of taking something of value for one’s own use.

Idaho State Police are investigating Gunstream for other allegations of embezzlement. He has admitted taking $598,000 from various property owners.

Airport Partners of Oregon sued Gunstream last summer after the former Nampa commercial real estate businessman admitted that he took $125,000 of the company’s money from a property management account.

But the lawyer for the company Gunstream stole from said Ms. Bowman is still part of the company’s civil lawsuit because she may have benefited indirectly from Gunstream’s embezzlement.

“I’m not aware of any evidence at this time that Georgia (Bowman) actively handled Airport Partners’ money,” Airport Partners attorney Kevin Dinius said. “We sued her because she was an active member of Gunstream Commercial Real Estate LLC and with respect to her common interest (in the marriage.)”

Bowman’s attorney, John Sutton, said neither circumstance applies to her.

“I think they jumped to the assumption that because she’s married to this guy (GunStream), then she must be part of the business,” he said.

Airport Partners lawyers wanted to amend their lawsuit to claim Bowman committed fraud and conversion with respect to the money Gunstream took. The attorneys for Airport Partners named Bowman and Gunstream employees Monique Keck and Kim May as plaintiffs along with Gunstream in their civil lawsuit. They also named Gunstream’s former company, Gunstream Commercial Real Estate, in the lawsuit filed last year.

Kerrick dismissed the plaintiffs’ fraud claim against May and Keck but denied summary judgment on a conversion claim against May and Keck.

Bowman listed herself as 50 percent owner of her ex-husband’s commercial real estate company on loan applications and income tax returns. But her attorney maintains she did not benefit from her husband’s embezzlement from the company.

Kerrick cited Idaho law in her order, which states that the debts of a limited liability company do not become debts of a member or manager of the company “solely by reason of a member acting as a member.” Gunstream dissolved the company last year after he was sued.

Lawyers for Airport Partners of Oregon argued that some of Bowman and Gunstream’s applications and tax returns show Bowman is partly liable for Gunstream’s embezzlement. Gunstream said he took the money from Airport Partners last year to keep his business operating.

“There are situations where the individual members of (a) company can be held responsible for the company’s actions,” Dinius said last month about his argument that Bowman is liable in the case. “That’s why the tax return and the loan applications are so important at this point because they certainly are contrary to everything that Ms Bowman is saying that she wasn’t involved in the business,” he added.

But Bowman’s attorney said she had no connection to the stolen money. The two loan applications were for two pieces of subdivision property. And the listings as part owner of Gunstream’s company were for income tax purposes only, Sutton said.

“It’s community property and she’s taxable for half of it, so any income that came out of it she has to disclose,” Sutton said. “(But) she wasn’t actually an owner or an officer of the corporation. She was just married to Gunstream … She had no knowledge of what was going on with this thing.”

Sutton said attorneys for the plaintiffs are casting a wide net in an attempt to recoup money for their clients.

Georgia Bowman, who is President of the Nampa Chamber of Commerce, said in a court affidavit that “although net income from Gunstream Commercial Real Estate was characterized as community property for tax purposes, I was never by law made a member of Gunstream Commercial Real Estate.”

The Idaho Secretary of State’s Web site records list Gunstream as the only member of Gunstream Commercial Properties on its 2000 Articles of Organization.

Bowman also states in the affidavit that she was “never a party to … any contract … in respect to the management of Holly Shopping Center,” which was the shopping center Airport Partners owned and Gunstream managed.

Investors who argue that fake profit in the Bernard Madoff fraud should be included in their repayment claims must wait to see if the judge overseeing the liquidation of Madoff’s defunct business will side with them.

U.S. Bankruptcy Judge Burton Lifland in New York didn’t issue a ruling yesterday after a four-hour hearing in which he listened to arguments from investors and lawyers.

Lifland will determine how much money, if any, victims may get from the industry-financed Securities Investor Protection Corp., which must repay as much as $500,000 for each qualifying claim.

“There are very complex issues here,” Lifland said at the end of the hearing. “No matter how I come down and rule, it’s going to be unpalatable to some degree to one party or another.”

Lifland didn’t say when he would make a decision.

The liquidation of New York-based Bernard L. Madoff Investment Securities LLC is the biggest such case undertaken by SIPC, court records show.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Thousands of customers have objected to trustee Irving Picard’s methodology, arguing he is wrongfully calculating claims based on their cash deposits minus withdrawals instead of using amounts listed on Madoff’s final account statements.

Picard, hired by SIPC to repay victims of the $65 billion fraud, has said that using account statements to set claims would let the con man decide who gets what, and include fake profit from trades that didn’t really happen.

‘Changed Procedure’

Victims argue that SIPC, which was chartered by the U.S. in 1970 to wind down failed brokerages, is required to set claims based on customers’ legitimate expectations from their accounts. They say Picard changed the procedure to avoid massive payouts.

“They’re wrong — they’re wrong about their positions,” Picard’s lawyer, David Sheehan, told Lifland. “The statute is clear. The legislative history is clear.”

Sheehan told the judge that “the last customer statement, being a concoction of a fraudster, cannot be something upon which you rely. No one in their right mind would suggest you should use the last statement.”

“As soon as we give money to someone who took all their money out, we’re taking money from another customer — stolen money,” Sheehan said.

Sheehan said the claims must be set fairly to ensure no victim gets more than a fair share of money recovered by Picard through lawsuits, which he estimated could eventually be close to $10 billion.

Laughs, Murmurs

Lifland threatened to remove some observers in the packed courtroom after Picard’s lawyer was twice interrupted by laughing and murmurs.

“I’m not swayed by your reactions,” Lifland said. “Let’s have some decorum in the courtroom.”

The U.S. Securities and Exchange Commission in December told Lifland it generally supported Picard’s “cash-in, cash- out” method. The agency said it would be fairer to victims if Picard adjusted the claims for inflation.

“Customer claims should be partly principal and partly earnings,” the agency’s lawyer, Katherine Gresham, told the judge yesterday. “The commission agrees with the trustee that customer claims for net equity should not be based on the securities positions on the final account statements.”

A SIPC payment “is not insurance the way the FDIC insures bank deposits,” Gresham said.

Customer claims in the case will also determine what share victims receive from lawsuits filed by Picard against Madoff’s biggest investors and beneficiaries, including hedge funds and the con man’s wife, Ruth. About a dozen such cases seek the return of about $15 billion in allegedly fake profit.

Owing Money

Under Picard’s calculation, some victims may end up owing money if they took out more than they put in. Last week, the family of deceased New York real estate magnate Norman F. Levy agreed to pay Picard $220 million for victims to settle claims the family withdrew more than it deposited with Madoff.

Helen Chaitman, a victim who is representing other customers in the case, has said Picard’s method is improper and is slowing down the liquidation process by requiring in-depth analysis of customer records to set claims

Chaitman, who testified Dec. 9 in Washington at a congressional subcommittee hearing about the case, earlier sued Picard and accused him of representing the interests of the brokerage industry instead of those of victims.

“I know the people in this room feel they’ve been wronged terribly by Madoff, then the regulatory agencies, and now Mr. Picard,” Sheehan said in court yesterday. “But this is a Ponzi scheme. It’s a zero sum game. I know no one in this room wants to accept that.”

Left Destitute

Karen Wagner, a lawyer for Madoff customer Sterling Equities Inc., told the judge that “many customers who have been left destitute by this fraud will receive nothing under Mr. Picard’s definition of net equity.”

Josephine Wang, an SIPC lawyer, said in court yesterday that “we are not questioning the innocence of the victims in this case. We have great sympathy for them, but there are certain presumptions that are made under the law and if they choose to rely on the bad acts of Madoff then they have to accept the consequences.”

“Both the SEC and SIPC have had their motives questioned in this case, that our intent is not to enforce the law,” Wang said. “That is not only absolutely false, truly it goes beyond the pale.”

Madoff, 71, pleaded guilty in March and was sentenced on June 29 to 150 years in prison for using money from new clients to pay earlier investors in the world’s biggest Ponzi scheme.

An investigation that began in late 2008 has ended with the arrest of a Lehigh Acres woman for various real estate fraud and theft charges in two unrelated cases, officials said Wednesday.

Angela M. Moore, 32, has been charged with a scheme to defraud, grand theft, and operating as a real estate broker without a license in a case involving online real estate sales.

In a second case, Moore advertised a job fair on Craigslist whereby potential employees were required to purchase Magic Jacks, officials said. This investigation resulted in Moore being charged with a scheme to defraud, uttering counterfeit checks, grand theft, and petit theft.

The initial investigation began in October 2008 when the Office of the Attorney General received a complaint and referred it to the Lee County Sheriff’s Office Economic Crimes Unit. The victim had participated in an online auction with landbidz.com in June 2008. After wiring money to the seller’s account, the victim was not able to reach the seller to obtain his warranty or property deed. As per the contract, both of these items should have been provided to the victim within 48 hours of the sale.

Detectives with the Economic Crimes Unit began an extensive investigation where they discovered Moore, operating as ‘Home Design Consultants,’ had participated in fraudulent real estate activity and collected a combined total of $63,802.00 from five online victims, officials said. In addition to those victims, Cape Coral’s Island Coast High School became a victim in October 2008 after paying $5,300.00 to Moore’s business, Home Design Consultants, for a solar powered filtration system that was never installed.

In March 2009, while investigating the landbiz.com case, the Economic Crimes Unit received a fraud complaint involving a job fair that had been advertised on Craigslist. The individual being accused of this fraudulent job fair was the same Angela Moore of Home Design Consultants who was already under investigation for the online real estate fraud, officials said.

On Feb. 1, 2009, Angela Moore gave a presentation about jobs that would soon be available with “Home Design Consultants,” officials said. Potential employees were required to pay $10 for the purchase of a Magic Jack. Several individuals came forward and stated they had attended the job fair, but never received their Magic Jacks and were never hired. Many were concerned because their personal information was now in the hands of Moore. Three of the participants had been hired and each had received over $700 in paychecks. All of their paychecks had bounced as they were drawn on a non-existent account, officials said, adding this case involved 12 victims with the total theft valued at $2969.37.

Moore was arrested and transported to the Lee County Jail.

Former President of Inland Empire Mortgage Company Sentenced to 13 Years in Federal Prison in Fraud Scheme That Led to Nearly $30 Million in Losses at HUD

RIVERSIDE,CA—The former president of Mortgage One Corporation in Hesperia was sentenced this afternoon to 13 years in federal prison for defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining hundreds of federally insured loans and selling those mortgages to private lenders in a scheme that caused tens of millions of dollars in losses to the federal housing agency.

John Richard Varner, 56, of Hesperia, was sentenced to 156 months in prison by United States District Judge Virginia A. Phillips. In addition to the prison sentence, Judge Phillips ordered Varner to pay $29,749,239 in restitution.

Last April, following a nearly four-week trial, a federal jury convicted Varner of one count of conspiracy to defraud HUD, one count of bank fraud, and two counts of subscribing to false income tax returns. Varner was the 15th defendant convicted in relation to the scheme. Varner and co-defendant Richard Elroy Giddens, 69, of Riverside, were at the center of the fraud that was run out of Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. Giddens, the former CEO of Mortgage One, pleaded guilty to the same charges Varner was convicted of at trial and in September 2009 was sentenced to 78 months in federal prison.

From 1997 until 2002, Mortgage One and M-1 Capital were in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance on the loans from the Federal Housing Administration, which is an agency within HUD. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved Direct Endorsement Lenders. They obtained and kept Direct Endorsement Lender status by submitting false documents, including bogus audits, to HUD.

Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents.

As a result of the scheme, HUD lost $23,628,857 on 905 fraudulent loans, and a total of $29,638,011 when interest paid by HUD during the foreclosure and resale process is included.

Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry, and more than $150,000 deposited into a personal investment account.

In sentencing papers, prosecutors argued that Varner’s testimony at trial last year “consisted of a series of breathtaking lies that appeared designed to shift responsibility for defendant’s crimes to others and to mislead the jury about the true facts.” For example, Varner “denied knowingly approving fraudulent loan applications, despite testimony from numerous brokers that they discussed the fraud in the loan files and [Varner] indicated they should continue to submit the fraudulent loan files,” according to court documents that concluded Varner “gave blatantly false testimony.” At this afternoon’s sentencing hearing, Judge Phillips agreed with prosecutors, finding that Varner’s testimony “was knowingly untruthful on a number of points.”

Former President of Inland Empire Mortgage Company Sentenced to 13 Years in Federal Prison

Real Estate Appraiser Sentenced to Three Years in Prison in Mortgage Fraud Scheme That Led to $46 Million in Losses

LOS ANGELES—A former state-licensed real estate appraiser was sentenced today to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks.

Lila Rizk, 43, of Rancho Santa Margarita, received the three-year prison term after her conviction last summer on conspiracy, bank fraud and numerous loan fraud charges.

Rizk was sentenced by United States District Judge Dean D. Pregerson, who warned that other professional real estate appraisers should know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison.”

The evidence presented at Rizk’s trial last summer showed that she was part of a wide-ranging and sophisticated scheme that obtained inflated mortgage loans on homes in some of California’s most expensive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach, and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars more than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

The evidence presented at trial showed that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme. Her appraisals typically valued the homes three times higher than what the homes really cost. In order to supposedly justify these inflated values, Rizk used “comps,” or comparable homes, that were far bigger, more luxurious, and in better neighborhoods than the homes she appraised. Once she had inflated a few dozen homes, she then used those homes as “comps” to supposedly justify inflated prices for homes later in the scheme.

Ten other real estate professionals have been convicted of federal charges related to the scheme. They are:

Scheme leader Charles Elliott Fitzgerald, a developer formerly of Newbury Park and Beverly Hills, who previously was sentenced to 14 years in prison;
Mark Alan Abrams, of Los Angeles, a mortgage broker who along with Fitzgerald orchestrated the scheme, who is scheduled to be sentenced on April 12;
Nicole LaViolette, of Palm Springs, a loan processor, who is scheduled to be sentenced on June 14;
Jamieson Matykowski, of Laguna Niguel, who found houses for the scheme, is scheduled to be sentenced on March 29;
Timothy Holland, of Santa Ana, an escrow officer, who is scheduled to be sentenced on July 19;
Richard Maize, of Beverly Hills, a mortgage banker, who is scheduled to be sentenced on June 28;
Thomas R. Schiff, of Brentwood, a mortgage banker, who was previously sentenced to 6 months in prison;
L. Scott Robinson, of Dana Point, an appraiser, who is scheduled to be sentenced on April 2;
Kyle Grasso, formerly of Santa Monica, a real estate agent, who is scheduled to be sentenced on February 19; and
Joseph Babajian, of Los Angeles, a real estate agent, who is scheduled to be sentenced on February 22.

Kansas City Man Pleads Guilty in $3.6 Million Mortgage Fraud, Money Laundering Scheme

KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced that a Kansas City, Mo., man pleaded guilty in federal court today to his role in a mortgage fraud conspiracy that involved loans on 34 properties in the inner city and midtown areas of Kansas City totaling more than $3.6 million.

Quentin Henley, 37, of Kansas City, pleaded guilty before U.S. Chief District Judge Fernando J. Gaitan this morning to the charges contained in a July 14, 2009, federal indictment.

Henley did business as Quality Remodeling, as All and One Construction and as Corporate Remodeling Associates. Henley admitted that he participated in a mortgage fraud conspiracy from July 2003 to January 2009, in which he acquired residential properties at reduced rates for the stated purpose of rehabbing the properties, then renting or selling them. In reality, Henley did little or no work to rehab some of the properties.

Henley and his co-conspirators submitted materially false, fraudulent and misleading loan applications and supporting documentation to mortgage lenders, all to induce the lenders to approve the applications and lend funds. Henley admitted that he caused mortgage lenders to make loans regarding at least 34 properties in the amount of at least $3,600,482.

In addition to the mortgage fraud conspiracy, Henley also pleaded guilty to money laundering. Henley admitted that he engaged in a financial transaction that involved funds obtained by fraud.

Under federal statutes, Henley is subject to a sentence of up to 15 years in federal prison without parole, plus a fine up to $500,000 and an order of restitution. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

Four Sentenced in Mortgage Fraud Scheme

DAYTON—Four participants in an extensive mortgage fraud scheme that affected 210 residential properties, including 205 in Montgomery County, were sentenced today in federal court by U.S. District Judge Michael R. Barrett.

Carter M. Stewart, United States Attorney for the Southern District of Ohio, Keith L. Bennett, Special Agent in Charge, Federal Bureau of Investigation; Jose Gonzalez, Special Agent in Charge, Internal Revenue Service Criminal Investigation, and other members of the Dayton Mortgage Fraud Task Force announced the sentences handed down today by U.S. District Judge Michael A. Barrett.

Edward McGee, 76, was sentenced to three years’ probation and fined $140,000. Edward McGee pleaded guilty on May 11, 2009 to one count of conspiracy to commit money laundering.

His son, Kenneth O. McGee, 50, was sentenced to 32 months in prison and fined $12,500. Kenneth McGee pleaded guilty on May 11, 2009 to one count of conspiracy to commit mail fraud, wire fraud, and money laundering, and one count of conspiracy to commit money laundering.

Robert Mitchell, 43, Vandalia, was sentenced to 32 months in prison and fined $12,500. Mitchell pleaded guilty on March 11, 2009 to one count of conspiracy to commit mail fraud, wire fraud’ and money laundering, and one count of conspiracy to commit money laundering.

Kamal J. Gregory, 36, Centerville, was sentenced to 10 months in prison and fined $12,500. Gregory pleaded guilty April 14, 2009 to one count of conspiracy to commit mail fraud, wire fraud’ and money laundering, and one count of conspiracy to commit money laundering.

These cases stem from a 13-count indictment involving six defendants which was originally handed down on June 25, 2008. The four sentenced today were part of a conspiracy that operated and controlled various Dayton-based real estate mortgage and title insurance related businesses and corporations that schemed to defraud 33 mortgage lending institutions out of over $7 million in loan proceeds and other things of value. This scheme involved arranging, facilitating, and manipulating documents associated with real estate sales and closings in order to fraudulently obtain excess mortgage loan proceeds generated from the sale of residential properties for the personal benefit of the co-conspirators.

Two others involved in the scheme were previously sentenced. Julian M. Hickman, 32, formerly of Centerville and now living in East Cleveland, pleaded guilty on December 15, 2008 to conspiracy and tax crimes. Hickman was sentenced on December 10, 2009 to 33 months’ imprisonment. Jessica A. Zbacnik, 42, of Monroe, pleaded guilty on July 29, 2009 to one count of conspiracy to commit money laundering and one count of conspiracy to commit mail fraud, wire fraud, and money laundering. She was sentenced on December 3, 2009 to 30 months’ imprisonment.

Leader Pleads Guilty in Family Scheme to Conceal Millions in Profits from the Purchase and Sale of Foreclosed Properties
Concealed from IRS Millions of Dollars of Profits Made from “Flipping” Hundreds of Properties Bought at Foreclosure Auctions

GREENBELT, MD—Minh-Vu Hoang, age 59, of Bethesda, Maryland, pleaded guilty today to conspiracy to defraud the Internal Revenue Service and the U.S. Bankruptcy Trustee in connection with a scheme to conceal millions in profits earned from the purchase and sale of foreclosure properties.

The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge C. André Martin of the Internal Revenue Service - Criminal Investigation; Montgomery County State’s Attorney John McCarthy; and Special Agent in Charge Richard McFeely of the Federal Bureau of Investigation.

“People who create elaborate schemes that have no purpose but to mislead others and defraud the IRS run the risk of prosecution,” stated C. André Martin, Internal Revenue Service-Criminal Investigation Special Agent in Charge. “Those Americans who file accurate, honest and timely tax returns can be assured that the Government will hold accountable those who do not.”

According to Hoang’s plea agreement, Minh-Vu Hoang, her husband and other family members purchased property at foreclosure auctions beginning in 1999, and resold some of the properties at a profit. Hoang and others deposited and withdrew money from an escrow account for the purchase and sale of properties, and transferred money from the escrow account to business entities they controlled in order to conceal Hoang’s financial interests in the properties. From 2000 to 2005, Hoang and others purchased and sold hundreds of foreclosure properties using the names of their agents or business entities to conceal their involvement in the purchase and sale of the properties, and thereby avoid taxes.

On May 10, 2005, Minh-Vu Hoang filed for a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Maryland. On May 27, 2005, Minh-Vu Hoang filed several false schedules and a false Statement of Financial

Affairs with the Bankruptcy Court, in support of her petition. In her Schedules, Minh-Vu Hoang reported a financial interest in only six properties, knowing that she had an interest in other properties, and further reported income in 2003 and 2004 of only $96,000 each year, knowing that her income for those years was substantially higher. She also failed to report her interest in various bank accounts.

For example, on or about May 10, 2005, the same day that she filed her bankruptcy petition, Minh-Vu Hoang withdrew $10,000 from an account she controlled in order to purchase property located at 9807 Moreland Street in Fort Washington, Maryland in the name of Cybele GP. Neither that property nor her interest in Cybele PG was reported in the bankruptcy schedules submitted in conjunction with her bankruptcy petition. Similarly, in July 2005, Minh-Vu Hoang’s sister, Van Vu, opened a bank account in the name of Madison Plus LLC. Van Vu was the sole signatory on the account. Over the course of the next several months, proceeds from the sale of real estate controlled by Minh-Vu Hoang were deposited into the Madison Plus LLC account. Over the life of the Madison Plus LLC account, more than $1 million flowed through the account.

The government contends that the tax loss and the loss from the bankruptcy fraud exceeded $2.5 million but was not more than $7 million. The defendant contends that the loss was less. Chief U.S. District Judge Deborah K. Chasanow will determine the amount of loss at Minh-Vu’s sentencing, which has not yet been scheduled. Minh-Vu Hoang faces a maximum sentence of five years in prison.

Minh-Vu’s sister, Van Thanh Vu, age 55, of Bethesda, and Van Vu’s ex-husband, Hai Duc Ngo, age 61, of Fairfax, Virginia pleaded guilty on Monday and Wednesday this week to misprison of a felony, for attempting to conceal Minh-Vu’s interest in the Madison Plus LLC account. Specifically, in July 2005 Van Vu filed a voluntary Chapter 11 bankruptcy petition. Hai Duc Ngo, with Van Vu’s knowledge and consent, submitted an affidavit in Van Vu’s bankruptcy proceeding, claiming that the Madison Plus LLC account was to be managed by Van Vu for Hai Duc Ngo’s exclusive benefit. At the time this affidavit was filed, Van Vu and Hai Duc Ngo knew that Minh-Vu Hoang was in bankruptcy and that Minh-Vu Hoang did not disclose that she had a financial interest in the Madison Plus LLC account on her bankruptcy schedules or in her Statement of Financial Affairs. Knowing that Minh-Vu Hoang had an interest in the Madison Plus LLC account, neither Van Vu nor Hai Duc Ngo made that fact known to any law enforcement personnel, including the IRS.

Van Thanh Vu and Hai Duc Ngo face a maximum sentence of three years in prison. Judge Chasanow has scheduled their sentencings for May 3, 2010 at 2:00 p.m. and July 19, 2010, at 9:00 a.m., respectively.

Minh-Vu’s husband, Thanh Hoang, age 64, of Bethesda, pleaded guilty to conspiracy to impede the IRS for his role in the scheme and is scheduled to be sentenced on June 14, 2010 at 9:00 a.m. Hoang faces a maximum sentence of five years in prison.

Annapolis Mortgage Broker Charged in Fraud Scheme
Allegedly Stole Millions of Dollars to Day Trade and Pay Personal and Business Expenses; SEC Files Civil Action to Enjoin Against Future Securities Violations

BALTIMORE, MD—A criminal information was filed today charging mortgage broker David Wehrs, Sr., age 54, of Annapolis, Maryland, with wire fraud in connection with a scheme to defraud investors and financial institutions of approximately $2.3 million.

The charge was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

According to the information and court documents, Wehrs owned Maryland Title and Escrow Company, Inc., located in Annapolis, and operated a small home remodeling company called Show-Me. From 2007 to October 2009, Wehrs allegedly induced individuals to invest money through Maryland Title into a purported FDIC-insured money market fund that Wehrs “guaranteed” would pay monthly interest payments of 10.85 percent. Instead of depositing the money into an “American Funds Fixed Rate Money Market” as promised, Wehrs allegedly deposited investor funds into one of two bank accounts he controlled in the name of his title company. Wehrs then wire transferred a large portion of these investor funds to a brokerage account in the name of his title company at Terra Nova Financial LLC located in Chicago, Illinois.

The information alleges that Wehrs then used the money he obtained to “day trade.” Day trading is the rapid buying and selling of securities throughout the day in the hope that the stocks will continue climbing or falling in value for the seconds to minutes that they are owned, allowing a person to lock in quick profits. During the scheme, Wehrs is alleged to have conducted millions of dollars of stock trades per month.

In addition to day trading, Wehrs allegedly used some of the investor funds to: pay “monthly interest” and “redemptions” to other investors; pay expenses of his other businesses, including Show-Me; make escrow payments for his title company; buy real estate and personal property; and pay other personal expenses.

The information further alleges that when Wehrs had no money left in his personal bank accounts or day trading accounts to pay interest due to investors, he used $630,611 earmarked to pay lending institutions for mortgage payoffs from his escrow account at Maryland Title to pay investors, causing a loss of such amount to a title insurance company. He also allegedly used $100,000 from the Maryland Title escrow account that was earmarked as earnest money for the purchase of an individual’s home to pay interest to investors, causing a loss of $100,000 to the home buyer.

As a result of the scheme, Wehrs is alleged to have caused a total loss of $2,371,06 to investors and the title insurance company.

Wehrs faces a maximum sentence of 20 years in prison. No court appearance has been scheduled.

An information is not a finding of guilt. An individual charged by information is presumed innocent unless and until proven guilty at some later criminal proceedings.

Simultaneous with the filing of the information, the Securities and Exchange Commission filed a parallel civil action and a proposed settlement today in U.S. District Court for the District of Maryland against Wehrs and Maryland Title, arising out of the same scheme to persuade investors to participate in the purported FDIC-insured fund. The SEC complaint seeks a permanent injunction of future violations of the Securities Act, the Exchange Act, and the Advisers Act; disgorgement of fraudulent gains; prejudgment interest and money penalties. A proposed settlement was also submitted to the court in which Wehrs, without admitting or denying the allegations in the SEC complaint, consents to the entry of the permanent injunction and to entry of an administrative order that will permanently bar him from association with any investment adviser.