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August 11, 2014
July 21, 2014
A Nipomo woman was sentenced today to 36 months in federal prison
for orchestrating a tax scheme involving stolen identities, as well as a loan fraud
scheme in which she submitted false income tax returns that overstated her income in
an effort to obtain a $1.6 million loan.
Imelda Sanchez, 42, was sentenced this morning by United States District Judge Philip
S. Gutierrez, who also ordered the defendant to pay restitution of $124,649 to the
Internal Revenue Service and restitution of $721,000 to Mission Community Bank
(successor to Santa Lucia Bank) due to the loss associated with Sanchez’s defaulted
Sanchez pleaded guilty in February of 2013 to one count of making false claims against
the government and one count of making false statements on a loan application.
According to documents filed with the court, from 2005 to 2009, while working as a
bookkeeper and tax preparer in Santa Maria, California, Sanchez devised a scheme to
defraud the IRS by using the names and Social Security numbers of relatives and
clients to prepare and file fraudulent tax returns which claimed refunds of the Earned
Income Tax Credit that Sanchez deposited into her own bank account.
As part of her scheme, Sanchez created false Forms W-2 and expense schedules,
mixed and matched dependent information, and – in order to avoid detection – told the
people whose information she was using not to file their own tax returns or not to claim all of their dependents. In total, Sanchez filed 39 fraudulent tax returns for the 2004 to
2008 tax years in which she collected $124,649 in total false refunds.
In 2007, Sanchez also used her accounting skills to create false personal income tax
returns which dramatically overstated her income (claiming she earned four to five times
as much money as she claimed on the tax returns she filed with the IRS) in order to
obtain a $1,640,000 construction loan from Santa Lucia Bank.
According to court documents, two years later, Sanchez submitted more fraudulent tax
returns in order to refinance the same loan. Ultimately, Santa Lucia Bank lost $721,000
as a result of Sanchez’ fraud.
Sanchez will surrender to authorities on September 26, 2014 to begin serving her prison
The investigation of Sanchez was conducted by IRS Criminal Investigation and the
Federal Bureau of Investigation, in conjunction with the United States Attorney’s Office
for the Central District of California.
July 20, 2014
The Detroit News reported that the projected number of foreclosed homes sold at auction in 2014 was on track to be the lowest since 2004. If trends for the first six months of 2014 follow to the second, less than 2,000 sheriff’s deeds will be recorded. According to the report, 2010 saw the highest number of homes sold at auction in Macomb, with 7,415 deeds recorded.
So what to make of this good news? What does it mean for the housing market? Ralph put it pretty well himself in the article: “People are back to work, making money. It’s great for the economy of southeast Michigan.”
The article points out that redemption rates, which indicate how many homeowners are able to keep their home after it is listed for auction, have been steadily improving. This indicates that while people are still falling into hard times, as they will in any economy, they are now better able to rescue themselves from those bad spots. According to statistics in the article, less than one percent of foreclosed homeowners in 2008 were able to redeem their properties from auction. In 2013, the redemption rate was nearly 20 percent. In any growth situation, going from nil to 20 percent is fantastic–and hopefully indicates a much stronger housing market on the horizon.
July 16, 2014
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and Drew J. Breakspear, Commissioner, Florida Office of Financial Regulation, announce that Karl Oreste, 56, of Miramar, pled guilty today before U.S. District Judge Robert N. Scola, Jr., to one count of conspiracy to commit wire fraud affecting a financial institution, in violation of Title 18, United States Code, Section 1349.
Sentencing has been scheduled for November 14, 2014 at 8:30 a.m. At sentencing, Oreste faces a maximum possible statutory sentence of up to 30 years in prison.
According to documents filed with the court and statements made in court during the plea, Oreste, president of KMC Mortgage Corporation of Florida, a mortgage lending business in North Miami Beach, along with co-defendants, Okechukwu Josiah Odunna, a/k/a “O.J. Odunna,” Marie Lucie Tondreau, a/k/a “Lucie Tondreau”, and Kelly Augustin, operated a multi-million dollar mortgage fraud scheme in Miami-Dade and Broward Counties, between December 2005 and May 2008. Oreste and Tondreau hosted several radio show programs in the South Florida area which catered to the South Florida Haitian community. During these programs they advertised the services offered by KMC Mortgage. Oreste and Tondreau recruited and paid some of the listeners who responded to those advertisements, as well as other individuals, to pose as borrowers to purchase properties identified by Oreste. Augustin, an employee of KMC Mortgage, also recruited straw borrowers.
According to statements made in court, Oreste, Odunna and other co-conspirators prepared or caused to be prepared applications on behalf of straw borrowers. Odunna was an attorney previously licensed to practice law in Florida and president of O.J. Odunna, P.A. and Direct Title and Escrow Services. These loan applications included false information relating to employment, wages, assets and intent to make the property being purchased a primary residence. The loan applications and documents were submitted by co-conspirators to various mortgage lenders throughout the United States. Once the loan applications were approved, the defendant wired loan funds to O.J. Odunna, P.A., Direct Title or other title companies for closing.
In some instances Oreste, Odunna and other co-conspirators created and submitted duplicate HUD-Settlement Statement Forms, which grossly inflated the true purchase price of the properties. Lenders were not told how the loan proceeds were being disbursed.
At closing, a portion of loan proceeds were disbursed to Oreste through his company, JR Investment and Mortgage Corporation, or other bank accounts controlled by him. A portion was in some instances diverted to accounts controlled by O.J. Odunna, P.A. and Direct Title. Oreste disbursed some of the proceeds that he received to pay recruiters, such as Tondreau and Augustin, and straw borrowers. Oreste also transferred a substantial portion of the funds to the bank account of LTO Investment Corporation’s, a company controlled by Tondreau. Tondreau used funds deposited in LTO Investment Corporation’s bank accounts to make payments on the falsely and fraudulently obtained mortgages in order to maintain the loans, and to conceal and further the fraud. She also used a portion of the funds deposited into LTO Investment Corporation’s bank accounts for her own personal use and benefit.
Over the course of the conspiracy, the defendants fraudulently obtained loans on approximately 20 properties, for which the lenders have suffered losses in the amount of approximately $11,000,000.00.
Mr. Ferrer commended the investigative efforts of the FBI and Florida Office of Financial Regulation. The case is being prosecuted by Assistant U.S. Attorney Lois Foster-Steers.
July 14, 2014
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Donnell Young, Acting Special Agent in Charge, Internal Revenue Service, Criminal Investigation (IRS-CI), and George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, announce the filing of charges against Frank Preve, 70, of Coral Springs, for conspiring to commit crimes associated with the operation of the former Fort Lauderdale law firm of Rothstein, Rosenfeldt and Adler, P.A. (RRA). In 2009, it was discovered that RRA was being utilized by its Chairman and Chief Executive Officer, Scott W. Rothstein, to commit a massive Ponzi scheme stemming from the sale of fictitious confidential settlements.
The information, which was filed earlier today, charges Preve with conspiracy to commit wire fraud, in violation of 18 U.S.C. ‘ 371. If convicted, the defendant faces a maximum statutory sentence of up to five years in prison.
According to the information, Preve worked for a number of companies, referred to as “the Banyon Group,” which solicited lenders and investors into the confidential settlement business being offered by Rothstein. The information further charges that, from in or about July 2009 through October 2009, Preve defrauded investors by not disclosing that Rothstein had failed to make payments that were due to the Banyon Group, that Rothstein had frozen certain bank accounts that were holding investor funds, that certain paperwork was not being prepared, and that verification of the investments was not taking place, all in violation of a private placement memorandum which had been circulated to potential investors by the Banyon Group. The information further charges that, through these material misrepresentations and omissions, Preve caused more than $20 million to be paid by investors to the Banyon Group.
Mr. Ferrer commended the investigative efforts of the IRS-CI and FBI. This case is being prosecuted by Assistant U.S. Attorneys Lawrence D. LaVecchio, Paul F. Schwartz, and Jeffrey N. Kaplan.
Any information is only an accusation and a defendant is presumed innocent unless and until proven guilty.
July 7, 2014
Miami Jury Convicts Four Defendants of Conspiracy and Bank Fraud Offenses Arising from $49.6 Million Mortgage Fraud Scheme
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and Jason T. Moran, Special Agent in Charge, Federal Deposit Insurance Corporation (FDIC), Office of Inspector General, Atlanta Regional Office, announce the convictions of Domenico “Dom” Rabuffo, 77 of Miami, Mae Rabuffo, 75, of Fort Lauderdale, and Williston Park, New York, Raymond E. Olivier, 52, of Land O’ Lakes, and Curtis Allen Davis, 51, of Tampa. The defendants were convicted after an eleven day-jury trial before Chief United States District Judge Kevin Michael Moore. The jury found each defendant guilty of conspiracy to commit bank fraud and wire fraud affecting a financial institution, in violation of Title 18, United States Code, Section 1349. The jury also convicted Domenico Rabuffo, Olivier, and Davis of multiple counts of bank fraud, in violation of Title 18, United States Code, Section 1344.
Domenico Rabuffo, Mae Rabuffo, Olivier, and Davis are scheduled to be sentenced by Chief Judge Moore on September 25, 2014. The defendants face a maximum sentence of 30 years in prison for each count of conviction.
According to the indictment and evidence at trial, from 2003 to 2008, the defendants conspired to perpetrate a complex $49.6 million mortgage fraud scheme against various FDIC-insured lenders, including Bank of America, Regions Bank, SunTrust Bank, and Wachovia Bank. Domenico Rabuffo and Mae Rabuffo used shell companies to acquire ownership and control of a purported residential property development known as Hampton Springs, located in Cashiers, North Carolina. Then, Domenico Rabuffo, Olivier, and Davis recruited numerous straw borrowers to purchase building lots in the development. Several of the straw borrowers testified at the trial. According to their testimony and other evidence, Domenico Rabuffo paid the borrowers to obtain lot purchase loans and construction loans for building lots in Hampton Springs. To obtain the loans, Domenico Rabuffo, Mae Rabuffo, Olivier, Davis, and other conspirators, submitted fraudulent loan applications and related documents to the lenders and the lenders’ closing agents.
Among other things, the loan applications and settlement statements for the lot loans contained fraudulent statements that the borrowers paid earnest money deposits and cash due at the closing. In fact, the deposits and cash-to-close were paid by Domenico Rabuffo and Mae Rabuffo using proceeds from the fraudulent scheme. Further, Domenico Rabuffo and Mae Rabuffo sent fraudulent correspondence to the closing agents, including letters bearing the forged signatures of borrowers, to create the false impression that the deposits and cash due at closing had been supplied by the borrowers from their own funds.
Olivier and Davis recruited straw borrowers for the fraud scheme and submitted fraudulent loan applications to the lenders. Further, Olivier and Davis caused their private companies to be disclosed as the employers of straw borrowers whose actual employment was inconsistent with the inflated income stated on their loan applications. Then, when they were contacted by the lenders, Olivier and Davis provided fraudulent verifications of employment for those borrowers.
Three other defendants, Diane M. Hayduk, 64, of Miami, Victor Miguel Vidal, 49, of Miami, and Lazaro Jesus Perez, 44, of Miami Springs, pled guilty to the charged conspiracy. Hayduk assisted Domenico Rabuffo and Mae Rabuffo with the misappropriation of loan proceeds and the transmission of fraudulent correspondence to the lenders and the closing agents. Vidal served as a loan officer at SunTrust Mortgage, where he sponsored fraudulent loan applications for lots in Hampton Springs, including fraudulent applications for $33 million in construction loans. Perez furnished fictitious accountant’s letters to Vidal, in support of fraudulent loan applications submitted to SunTrust Mortgage. Hayduk, Vidal, and Perez are awaiting sentencing by Chief Judge Moore.
Mr. Ferrer commends the investigative efforts of the FBI and FDIC, Office of Inspector General. The case is being prosecuted by Assistant U.S. Attorneys Dwayne E. Williams and Jerrob Duffy.
June 13, 2014
On June 11, 2014, Marvin Solis was sentenced to 27 months in prison and ordered to pay restitution for an investment fraud scheme he perpetrated against his relatives, announced U.S. Attorney Melinda Haag, Office of the Special Inspector General for the Troubled Asset Relief Program, Special Agent in Charge Scott O’Briant, and FBI Special Agent in Charge David J. Johnson.
Solis, 30, of Richmond, California, pleaded guilty on January 29, 2014. According to the plea agreement, Solis admitted to defrauding his then-wife’s family members of approximately $244,000. The fraud, which stretched from September 2008 through March 2009, involved three parts. First, Solis solicited approximately $207,000 from several relatives of his wife, telling them that he would invest the money in real estate. Contrary to his promises, Solis spent the money that he received from them and lost it making risky commodities trades. He never invested their money in real estate. Second, he encouraged his victims to open credit card accounts to fund renovations of the properties he had promised to purchase for them. Instead, he ran up approximately $10,000 in charges on these credit cards. Third, he used the personal information of one of his victims, without the victim’s knowledge, to open a credit card account in the name of Solis’s company and then charged approximately $26,600 on the card, again without authorization.
Solis, was indicted by a federal grand jury on September 5, 2013, on two counts of wire fraud, in violation of 18 U.S.C. § 1343. He pleaded guilty to both of these counts.
The sentence was handed down by the Honorable Edward M. Chen, U.S. District Court Judge. Judge Chen also sentenced the defendant to a three year period of supervised release and restitution. The defendant will begin serving the sentence on August 11, 2014.
Benjamin Kingsley is the Assistant U.S. Attorney who is prosecuting the case, with the assistance of Mary Mallory and Rawaty Yim. The prosecution is the result of an investigation by SIGTARP and the FBI.
The Securities and Exchange Commission today charged four Northern California residents with insider trading in Ross Stores stock options based on nonpublic information about monthly sales results leaked by one of the retailer’s employees.
The SEC alleges that Saleem Khan was routinely tipped by his friend Roshanlal Chaganlal, who was a director in the finance department at Ross headquarters in Dublin, Calif. Khan used the confidential information to illegally trade on more than 40 occasions ahead of the company’s public release of financial results. Besides trading in his own brokerage account, Khan traded in his brother-in-law’s account as well as an account belonging to another acquaintance. Khan also tipped his work colleagues Ranjan Mendonsa and Ammar Akbari so they too could trade in Ross stock options based on the nonpublic information. The insider trading resulted in collective profits of more than $12 million.
The SEC further alleges that at the outset of the scheme, Chaganlal gave $17,000 to Khan for the purpose of insider trading in Ross securities using the brother-in-law’s account. They attempted to disguise the exchange by using two cashier’s checks for $8,500 purchased in the name of Chaganlal’s wife of a different surname. Khan later funneled $130,000 of the generated trading profits back to Chaganlal by using third-party intermediaries. For example, Khan wrote Akbari a check for $35,000, and Akbari in turn wrote two checks totaling $35,000 to Chaganlal’s wife. Another $75,000 was routed in a roundabout way to a title company so it could be credited at closing toward Chaganlal’s purchase of a newly-built home.
“Khan and Chaganlal took advantage of confidential company data to systematically trade in Ross securities and reap millions of dollars in profits,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office. “Even when insider traders try to conceal their profits and kickbacks by using other accounts and intermediaries, we’re committed to piecing together these widespread schemes and catching the perpetrators.”
According to the SEC’s complaint filed in federal court in San Francisco, Khan separately made approximately $450,000 in illicit profits by insider trading in stock options of software company Taleo Corporation ahead of its 2012 acquisition by Oracle Corporation. Khan began purchasing large numbers of options in Taleo six days before the merger announcement based on nonpublic information he received from an insider he knew at Oracle. Khan had never previously traded in Taleo securities.
The SEC alleges that the serial insider trading involving Ross securities began in August 2009 and continued until December 2012, when Chaganlal was terminated by the company. He had access to confidential sales figures on an internal webpage limited to a relatively small group of Ross employees. Chaganlal regularly communicated the confidential details to Khan so he could trade ahead of impending monthly sales announcements by Ross. Khan generated $5.4 million in profits in his own account, and $6 million in profits in his brother-in-law’s account. Khan’s supervisor Mendonsa made approximately $800,000 in insider trading profits based on the nonpublic information that Khan in turn tipped to him. Akbari made approximately $2,000 by insider trading on Khan’s illegal tips.
The SEC’s complaint names two relief defendants – Khan’s acquaintance Michael Koza and Khan’s brother-in-law Shahid Khan – for the purposes of recovering insider trading profits in their brokerage accounts through trades conducted by Khan. They each have agreed to settle the matter by paying the court the entire amount of insider trading profits remaining in their accounts, which total $240,741 for Shadid Khan and $31,713 for Koza.
The SEC’s complaint charges Saleem Khan, Chaganlal, Mendonsa, and Akbari with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, disgorgement of illicit profits plus interest, and financial penalties. The complaint also seeks an officer-and-director bar against Chaganlal.
The SEC’s investigation, which is continuing, has been conducted by Victor Hong and Elena Ro. The case has been supervised by Steven Buchholz and Jina L. Choi of the Market Abuse Unit and San Francisco Regional Office as well as Joseph G. Sansone of the Market Abuse Unit. The SEC’s litigation will be led by Aaron Arnzen. The SEC appreciates the assistance of the Options Regulatory Surveillance Authority.
June 12, 2014
As the US Department of Justice reportedly negotiates an agreement with Bank of America over soured mortgage securities, the California Reinvestment Coalition is urging the DOJ to require the bank to disclose who is helped under the consumer relief provisions of a potential agreement- and who is not. CRC is calling on the DOJ to require BOA to publicly disclose homeowner race, ethnicity, and census tract level data for people who seek assistance under the reported $5 billion in homeowner relief which may be included in the settlement. Bank of America has already demonstrated that it can provide this type of information, since it did so in order to bid on a contract to provide banking services to the City of San Francisco in 2013.
Sharon Kinlaw, Executive Director of the Fair Housing Council of San Fernando Valley, states: “We’ve seen a number of mortgage settlements that were supposed to keep people in their homes- and yet, people are still being foreclosed on, especially in communities that were targeted for the worst loans. The DOJ should seize this historic opportunity to increase transparency and ensure equal access to any potential homeowner relief.”
Kevin Stein, Associate Director at the California Reinvestment Coalition, explains: “Over half of the housing counselors we recently surveyed believe that communities of color and homeowners with limited English proficiency receive worse outcomes when they seek help to avoid foreclosure from their mortgage servicer. Our concerns were reaffirmed by a February 2014 GAO report that analyzed nonpublic data from the federal Home Affordable Modification Program (HAMP). The GAO found statistically significant differences in the rate of denials and cancellations of trial modifications and in the potential for re-default for homeowners who are protected by fair lending laws.”
Divya Rao, CRC’s Legal Fellow adds: “The GAO analyzed nonpublic data from four mortgage servicers to reach its conclusions, and the GAO did not disclose the names of these four servicers. We believe the public has a right to know, so we are submitting a Freedom of Information Act request to the Department of the Treasury today. We are asking the US Treasury Department to identify which four banks provided the data, and to disclose any steps the Department has taken to address the potential fair lending violations identified in the GAO report.”
June 11, 2014
The Securities and Exchange Commission today charged the founder of an investment advisory firm located in suburban Chicago with defrauding investors in connection with a real estate venture for which his firm offered securities.
After an SEC examination of Kenilworth Asset Management LLC detected potential misconduct that was referred to the agency’s Enforcement Division, the ensuing investigation found that Robert C. Acri misled clients in the offer and sale of promissory notes issued for the redevelopment of a retail shopping center near Hammond, Ind. Despite saying the investments would specifically be used for this project and secured by a security interest in real estate, Acri misappropriated $41,250 of the proceeds for other uses and took no action to ensure that a security interest was recorded. Acri failed to disclose several other material facts to investors, including a primary purpose behind the investment offer – Kenilworth was attempting to rescue money that other Acri clients had previously invested in the developer of the same real estate project. Acri also concealed from investors that Kenilworth was to receive a five percent commission on each sale of notes.
Acri, a licensed attorney who lives in Winnetka, Ill., agreed to settle the SEC’s charges by disgorging the misappropriated investor funds and undisclosed commissions plus interest and an additional penalty for a total of approximately $115,000 in monetary sanctions. Acri also agreed to cease and desist from violations of the antifraud provisions of the federal securities laws and to be barred from the securities industry, from participating in penny stock offerings, and from appearing before the SEC as an attorney on behalf of any entity regulated by the agency. Acri resigned from Kenilworth in August 2012.
“Acri wasn’t honest with his clients and hid serious conflicts of interest from them while blatantly disregarding his fiduciary duty as an investment adviser,” said Robert J. Burson, senior associate regional director of the SEC’s Chicago office.
According to the SEC’s order instituting a settled administrative proceeding, Acri controlled Kenilworth’s bank accounts, hired employees, and made significant decisions about the firm’s policies, practices, and investment offers to clients. In early 2011, Acri decided to raise funds from Kenilworth clients for the Hammond, Ind., project when the project’s developer Praedium Development Corporation was unable to obtain financing from banks and other traditional lenders. As part of this effort, Praedium created a new entity Prairie Common Holdings LLC to issue the notes. One of Acri’s primary purposes for selling Prairie’s notes to Kenilworth clients was to give other Kenilworth clients who had invested in Praedium through a private fund several years earlier a chance to recover their money from that investment. Praedium had previously defaulted on a half-million-dollar loan from the private fund.
The SEC’s order finds that Acri purposely failed to disclose significant facts and conflicts of interest when offering the promissory notes to clients, who were not told about the prior loan or that Praedium and an affiliate had been delinquent in the payment of its mortgage, property taxes, and some contractor invoices. In fact, Acri did not even disclose that Praedium was the developer behind the Prairie project or that one of Praedium’s owners was having personal financial difficulties and was Acri’s personal friend.
According to the SEC’s order, Acri misappropriated $41,250 from the client funds that were supposed to be used to develop the Hammond, Ind. Project. Acri instead used that money to repay other clients and former clients, pay an individual to purportedly seek a loan for Praedium, and toward a settlement in a separate lawsuit that had been brought against him. Acri also did not inform investors about the $13,750 that Kenilworth received in commissions for selling the promissory notes.
The SEC’s investigation was conducted by James J. Thibodeau and Sruthi Koneru of the Chicago Regional Office and supervised by James A. Davidson. The examination that led to the investigation was conducted by Teresa A. Tyson, Matthew D. Harris, Gena M. Kusiak, and Erik J. Lillya of the Chicago Regional Office and supervised by Louis A. Gracia.
Loan Broker And Attorney Plead Guilty To Defrauding Investors Of More Than $1 Million And To Obstructing Judicial Proceedings
Baltimore, Maryland – Mervyn A. Phelan, Sr., age 74, of Newport Beach, California, and Gregory E. Grantham, age 56, of Oceanside, California, pleaded guilty late yesterday to a wire fraud conspiracy, wire fraud and obstruction of justice.
The guilty pleas were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; and Special Agent in Charge Thomas J. Kelly of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office.
Phelan operated a small company called IAG Underwriters, LLC that maintained an office in Newport Beach, California. IAGU was in the business of underwriting loan applications submitted by real estate developers and then locating project financing from banks and other financial entities. Grantham, an attorney, held the position of IAGU’s general counsel on a part-time basis as a contract employee.
According to their plea agreements and court documents, between mid-2010 and August 2011, Phelan and Grantham became involved in a fraudulent scheme carried out by Patrick McCloskey and Brian McCloskey, who both resided in Baltimore County. McCloskey owned a real estate development business known as the McCloskey Group, LLC, while Belzner, a home builder, began working with McCloskey in late 2008 or early 2009. Phelan and IAGU began working with the McCloskey Group trying to locate sources of financing for its projects in about 2009.
Beginning in 2009 and continuing through June 2011, Belzner and McCloskey persuaded a series of private money lenders to loan them funds to establish that the McCloskey Group had additional reserves of liquidity that would supposedly help it obtain loans it was seeking in connection with real estate development projects through IAGU. Belzner and McCloskey falsely represented that the funds would be maintained in an escrow account under the control of Kevin Sniffen, a licensed attorney and escrow agent in Baltimore County; that the funds would not be used for any other purpose; and that the money would be returned to the lender, either upon the funding of the loan or after a specified period of time. In return for this temporary use of the lender ‘s funds, Belzner and McCloskey promised to pay substantial fees or interest. In fact, once the lenders transferred their funds into the escrow accounts, Belzner directed McCloskey to remove those funds from the escrow accounts without the knowledge or permission of the lenders. Belzner and McCloskey then used the majority of the stolen funds to pay for their personal and business expenses. The total losses resulting from the scheme were approximately $20 million. Belzner, McCloskey, and Sniffen have all previously entered guilty pleas in connection with their role in the scheme.
Beginning in about the late summer of 2010, Phelan and Grantham co-operated with Belzner and McCloskey in their scheme to defraud by (1) making false representations to help persuade private lenders and investment partnerships to loan sums of money to the McCloskey Group for the purposes of meeting “liquidity” requirements imposed by IAGU or various prospective lenders and to place these funds in an escrow account controlled by Kevin Sniffen; and by (2) making false representations to dissuade previous escrow account lenders from demanding the return of their funds when the original time period established for the loan expired without the McCloskey Group obtaining financing for the project in question. In particular, Phelan and Grantham repeatedly advised various escrow account lenders that funding on a particular project was imminent when they knew this was not the case, and in one case represented that they were now holding millions of dollars in escrow funds tendered by one group of lenders when this was not true.
While Phelan and Grantham admitted that they made false statements to escrow account lenders during the scheme at Belzner’s and McCloskey’s behest, they asserted that for most of the time period in question, they did not know that Belzner and McCloskey had previously stolen the escrow account funds. Under his plea agreement, however, Grantham admitted that he was criminally responsible for the loss of $1.2 million funds suffered by an investment entity named Murcielago, LLC in June 2011. As part of his plea agreement, Phelan admitted that he was criminally responsible for the loss of more than $2.5 million in escrow funds and pled guilty to a count charging him with making false representations about the control of $4.350 million in escrow funds to an escrow account lender in November 2011. The government continues to maintain that Phelan and Grantham shared criminal responsibility for the loss of over $20 million in escrow funds. The Court will consider evidence and make a finding on this issue at the defendants’ respective sentencings.
Phelan and Grantham also pleaded guilty to obstructing grand jury proceedings from September to December, 2012. During the summer and fall of 2012, a grand jury sitting in the District of Maryland was continuing the investigation of the fraud scheme. By this time, Belzner had already been indicted for conspiracy to commit wire fraud and this fact was publicly known. On September 26, 2012, FBI agents served Grantham and Phelan with grand jury subpoenas which called for the production of documents relating to the scheme. Thereafter, Phelan and Grantham agreed that they would not produce certain responsive records that were then on their computers or in their possession, because those particular records would reveal their cooperation with and assistance to Belzner and McCloskey in providing false information to the escrow account lenders and their counsel. The records that Phelan and Grantham were willing to produce were provided to the FBI on November 19, 2012; incriminating records were not produced or were deleted from their computers and compact discs.
Phelan and Grantham face a maximum sentence of 20 years in prison each on each charge of conspiracy and wire fraud, as well as a maximum sentence of five years in prison for obstruction of justice. U.S. District Judge James K. Bredar has scheduled sentencing for Phelan and Grantham on September 8 and 15, 2014, respectively.
Patrick J. Belzner, a/k/a “Patrick McCloskey,” age 45, of Glen Arm, Maryland, Brian McCloskey, age 42, of Baltimore and Kevin Sniffen, age 52, of Phoenix, Maryland have each pleaded guilty to their roles in the conspiracy and are awaiting sentencing.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.
United States Attorney Rod J. Rosenstein praised the FBI and IRS – Criminal Investigation Division for their work in the investigation. Mr. Rosenstein thanked Assistant United States Attorneys Jefferson M. Gray and Kathleen O. Gavin, who are prosecuting the case.
June 6, 2014
Washington State Man Sentenced to 16 Months Imprisonment for his Participation in a So Cal Mortgage Fraud Scheme
– A Seattle, Washington man was sentenced today to 16 months in
federal prison for his participation in a Southern California mortgage-elimination
scheme that promised to prevent foreclosure through the paying off of the
distressed homeowner’s mortgage.
William Beard, 40, was further ordered by Chief U.S. District Judge Marsha J.
Pechman to pay restitution of $1,343,618 to the IRS and victim banks and spend
3 years on supervised release following his prison term.
In February of this year, Beard pleaded guilty to a one-count information charging
him with evading taxes on his 2005 tax return for his failure to report as income
the proceeds of the mortgage-elimination scheme.
According to documents filed with the court, after falling behind on his mortgage payments for his Los Angeles home in 2005, Beard enrolled in a mortgage-elimination program recommended by his mother. That scheme, run by Jeff McGrue, Ronald
Morgan, and another defendant whose indictment is under seal, involved a series of
false documents, including a fraudulent Full Reconveyance purportedly authorized by
the lender that was instead signed by Beard’s two roommates. The purpose of the
Reconveyance was to make it appear as if Beard had paid off his mortgage through the
false representation that Beard’s roommates were authorized to declare the mortgage
In June of 2005, the unidentified co-schemer obtained a $800,000 loan from WMC
Mortgage and purchased Beard’s Los Angeles home. Beard caused a payoff demand to be sent from McGrue’s company North West Capital for the false loan. Based on that payoff demand, the escrow company sent $800,000 to North West Capital’s bank
account in Washington. No proceeds were paid to Wells Fargo Mortgage, the true
holder of the mortgage lien, because the title company did not recognize the
Reconveyance as fraudulent and treated the Wells Fargo Mortgage lien as having been
satisfied. The $800,000 was divided amongst the co-schemers with Beard receiving the
largest portion, $400,000.
As planned by the schemers, Morgan did not issue IRS Forms 1099 to the schemers to
show their receipt of the scheme proceeds, so the payments remained off of the IRS’
radar. Beard filed his 2005 tax return failing to report the $400,000 of scheme
proceeds, causing a tax loss to the government of at least $117,905.
Beard remains obligated to pay his original mortgage, which was not satisfied through
the mortgage-elimination scheme. In addition, Beard participated in a second
mortgage-elimination scheme involving a residence owned by his friend, John Pierre
Rivera. In the second scheme Beard received just over $40,000, again failing to report
the proceeds of the scheme as income on his individual income tax return.
This case is related to three cases filed against a total of five defendants in the Central
District of California, all of which arose out of the same or similar mortgage-elimination
schemes. Jeff McGrue, the mastermind of the scheme that involved duping 300
homeowners to pay thousands of dollars for mortgage elimination, received a 300-
month sentence of imprisonment in 2011.
Cooperators Gerald Guidry and Ronald Morgan received 36 and 33-month sentences,
respectively. John Pierre Rivera, a homeowner whom Beard told about the scheme
awaits sentencing based on his expected cooperation against a fifth defendant, whose
indictment is under seal.
This investigation was conducted by IRS Criminal Investigation and the Federal Bureau
of Investigation, in conjunction with the United States Attorney’s Offices for the Central
District of California and Western District of Washington.
Two Local Businessmen Plead Guilty to Multiple Federal Fraud Charges Involving Elderly Victims in St. Louis
Robert Palmer and Mark Driver pled guilty late Thursday to defrauding numerous elderly victims of approximately $3,000,000, beginning in 2004 and continuing through 2010.
According to the indictment, Princeton Partnership LLC was an insurance brokerage business involved in the sale of life insurance products. Princeton operated out of offices in the Hill area of St. Louis at 1928 Marconi Street (also known as 5149 Daggett Avenue). Palmer and Driver both ran the day to day operations of Princeton, solicited customers, marketed the company’s services, and had financial oversight of the company with authorization over the company’s two operating bank accounts. Palmer and Driver solicited Princeton customers with the false promises that they would invest the customers’ funds in suitable investments including but not limited to real estate, stocks, and life insurance annuities. Examples of those victims include:
During 2004, Palmer solicited several members of a family who had received funds upon the death of their elderly aunt with the false representation that Princeton would place those funds in a real estate investment for the benefit of those customers. Based upon his false representations, the family members transferred some or all of those funds to Princeton.
In 2005, Palmer solicited funds from an elderly individual and her family with the false representation that they would place those funds in a real estate investment for her benefit. Based on those representations, the family transferred her funds to Princeton.
During 2006 through 2010, Palmer solicited investment funds from two elderly sisters with the false representations that Princeton would make suitable investments with those funds. They transferred their funds and control of their stock holdings to Princeton and, later Palmer and Driver sold and liquidated the stocks and persuaded one of the sisters to liquidate a life insurance policy as well and transfer the funds to Princeton.
During 2007 through 2009, Driver solicited investment funds from an elderly woman who transferred her funds as well as control of her stock holdings to Princeton.
In 2006, an elderly woman was solicited by Driver to invest her personally held funds in a series of life insurance annuities through Princeton. Princeton used her funds to purchase four life insurance annuities. As a further part of the scheme, during in or about 2008 and 2009, at Driver’s direction she liquidated three of her life insurance annuities and provided those funds to Princeton based upon the false representations of the funds would be placed in suitable investments for her benefit.
Most or all of the funds transferred to Palmer, Driver, and Princeton by the numerous victims were used by Palmer and Driver for their own personal uses and the general operating expenses of Princeton. Palmer and Driver also engaged in Ponzi-type transactions where they used some funds provided by new customers to pay old customers who falsely believed they were receiving the returns on their purported investments.
In all cases, Palmer and Driver obtained approximately $3,000,000 from Princeton customers based upon their false representations, which they used for their own personal use and for the expenses of their company Princeton.
Palmer, 45, Kansas City, Missouri, and Driver, 50, St. Louis, pled guilty to all charges contained in the indictment, including two felony counts of mail fraud and two felony counts of wire fraud, before United States District Judge Rodney Sippel. Sentencings have been set for September 12, 2014.
Each count of mail and wire fraud carries a maximum penalty of 20 years in prison and/or fines up to $250,000. In determining the actual sentences, a judge is required to consider the U.S. Sentencing Guidelines, which provide recommended sentencing ranges.
This case was investigated by the Federal Bureau of Investigation and the Postal Inspection Service, with assistance of the Missouri Secretary of State’s Office. Assistant United States Attorney Hal Goldsmith is handling the case for the U.S. Attorney’s Office.
June 3, 2014
The Securities and Exchange Commission today filed an emergency enforcement action to halt an ongoing fraud by an investment adviser based in Albany, N.Y., who is charged with lying to clients about the success of their investments while stealing their money for his personal use.
The SEC alleges that Scott Valente and his firm The ELIV Group LLC have fraudulently raised more than $8.8 million from approximately 80 clients by falsely claiming they achieve consistent and outsized positive returns among other misrepresentations about the safety of the investments. ELIV Group has in fact earned no positive results at all, instead sustaining consistent investment losses for the past three years. Meanwhile, Valente has been making substantial cash withdrawals of client funds and spending their money on his home improvements and mortgage payments as well as jewelry and a vacation condominium. Valente’s unsuccessful trading strategies and misappropriations have severely diluted the amount of client funds on hand at ELIV Group, and the SEC is seeking an asset freeze to halt the fraud as Valente continues to solicit new clients with his false claims. ELIV Group has offices in Albany and Warwick, N.Y.
“Valente used his one-man advisory firm to fraudulently lure unsuspecting investors in the Albany and Warwick communities to invest millions of dollars with him as advisory clients,” said Andrew M. Calamari, director of the SEC’s New York Regional Office. “He said all the right things to make investors believe he was making the right investments and taking the right precautions with their money, but he was merely telling blatant false tales about the safety and success of the investments.”
Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York office, added, “Beyond the lies to his clients regarding his investment performance, Valente’s abuse of his fiduciary obligations included the theft of at least $2.66 million in client funds for personal spending, including hefty credit card bills, a vacation home, and jewelry.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Valente misleadingly told his clients that he has a 30-year record of investing experience “dedicated to the highest standards of service” and that he founded ELIV Group after leaving the “corporate financial industry” upon concluding there “had to be a better way for clients to achieve financial independence.” What he failed to disclose was that he twice filed for bankruptcy and started ELIV Group only after the Financial Industry Regulatory Authority (FINRA) permanently expelled him from the broker-dealer industry in 2009 for engaging in serial misconduct against numerous customers.
The SEC alleges that Valente and ELIV Group attracted clients by falsely assuring them that the principal amount of their investments was fully liquid and “guaranteed” because it was backed by a large money market fund. Client funds were in fact never guaranteed or backed by any money market funds, and the majority of ELIV Group’s investments were in highly illiquid investments in privately-held companies. Valente and ELIV Group also assured clients that the firm’s books and records were audited independently. However, ELIV Group never had an auditor, and the firm sent clients monthly investment reports in which they actually inflated the monthly returns, assets under management, and client account values.
The SEC’s complaint charges Valente and ELIV with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b) as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The SEC is seeking a temporary restraining order to freeze their assets and prohibit Valente and ELIV from committing further violations of the federal securities laws. The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties.
The SEC’s investigation, which is continuing, has been conducted by Gerald Gross, Richard Primoff, and Barry O’Connell of the New York Regional Office. The inquiry that led to the investigation was conducted by Richard Heaphy, Yvette Panetta, Dee-Ann DiSalvo, and Edward Cody of the New York Regional Office. The SEC appreciates the assistance of the Federal Bureau of Investigation.
May 30, 2014
The United States Attorney’s Office for the Middle District of Pennsylvania announced the sentencing yesterday of Andrew Brosnac, age 48, of Mansfield, Texas. Brosnac, a real estate agent and investment consultant, pled guilty to conspiracy to commit bank fraud and wire fraud in connection with the sale and leaseback of businesses in Pennsylvania, New York, West Virginia, North Carolina, South Carolina, Alabama, South Dakota, California, Oregon, and Wyoming.
According to United States Attorney Peter Smith, between 2006 and 2008 Brosnac and co-conspirator Samuel Pearson, age 47, Hanover, York County, Pennsylvania, admitted using a group of companies to buy Jiffy Lube stores, automotive service businesses, convenience store/gas stations, and other commercial properties, then selling them to investors in Pennsylvania and California. The investment properties included a Jiffy Lube store in Sayre, Bradford County, Pennsylvania.
In pleading guilty, Brosnac admitted arranging funding from banks and credit unions for investors to purchase the properties and then used other companies controlled by him and Pearson to lease and operate the properties for investors. Brosnac also admitted that he and Pearson provided investors and lenders with false and fraudulent financial information concerning the investment properties which induced loans and investments totaling approximately $19 million. In the plea agreement, Brosnac agreed that he received approximately $2.4 million in commissions and consulting fees from the sales of the properties.
Judge Yvette Kane sentenced Brosnac to five years in prison, followed by a period of three years’ supervised release, and a special assessment of $100, and ordered Brosnac to pay to victim investors and lenders restitution totaling $2,409,924.04 representing the commissions and consulting fees that he received as a result of the offense. Under the federal Sentencing Guidelines, the advisory imprisonment range was 60 months, which is also the maximum statutory term of imprisonment.
Pearson, operator of Peanut Oil, was charged separately with conspiracy to commit bank and wire fraud in a criminal onformation filed in March 2011 and pled guilty in April 2011 pursuant to a plea agreement. He is awaiting sentencing before Senior U.S. District Court Judge William C. Caldwell.
The investigation was conducted by the Federal Bureau of Investigation. The case was prosecuted by Assistant United States Attorney George J. Rocktashel.
May 21, 2014
On May 21, 2014, in Raleigh, North Carolina, Mark Henry Tkac was sentenced to 42 months in prison, five years of supervised release and ordered to pay $1,612,612 in restitution. On May 24, 2012, Tkac pleaded guilty to conspiracy to commit mail, wire, and bank fraud. Between August 2006 and May 2008, Tkac was a licensed real estate broker who worked in the Wake County area. Tkac participated with others, including developer David Lewis Johnson, developer Arthur Lee Barnes, mortgage broker Mark Thomas Bowe, and attorney Jeffrey Scott Taggart, in a real estate flipping scheme which defrauded various banks and lenders. Johnson, Barnes, Taggart, and Bowe were previously sentenced to prison for their roles in the scheme. Tkac participated in the conspiracy first by acting as a straw buyer, and later recruiting others to serve as straw buyers for Johnson and Barnes. Tkac, Johnson, and Barnes arranged for straw buyers to execute a contract to purchase a home for an inflated price. Tkac, Johnson, and Barnes then directed the straw buyers to attorney Taggart to close the transactions. Taggart prepared false HUD-1 settlement statements for execution by the straw buyers as a part of the real estate closing and loan funding process. Taggart then caused the false HUD-1 settlement statements to be transmitted via mail and wire to banks and mortgage lenders, including FDIC regulated financial institutions, under the pretense that they reflected the economic truth of the underlying transaction. However, the HUD-1 settlement statements prepared by Taggart as a part of the scheme routinely contained false statements that were material to the lenders’ funding decisions including the existence and degree of the buyer’s down payment, as well as kickbacks to the buyers and other conspirators. Tkac and other conspirators generally received several thousand dollars in kickbacks from each fraudulent transaction closed by Taggart. Ultimately, borrowers defaulted on many of the transactions brokered by Tkac, resulting in substantial losses to various banks and lenders.h
May 19, 2014
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida; George L. Piro, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office; and Drew J. Breakspear, Commissioner, Florida Office of Financial Regulation, announce that Karl Oreste, 56, of Miramar; Marie Lucie Tondreau, a/k/a “Lucie Tondreau,” 54, of North Miami; Okechukwu Josiah Odunna, a/k/a “O.J. Odunna,” 49, of Lauderdale Lakes; and Kelly Augustin, 57, of North Miami, have been charged with conspiracy to commit wire fraud, in violation of Title 18, United States Code, Section 1349, and six counts of wire fraud, in violation of Title 18, United States Code, Section 1343. According to the allegations in the indictment, between December 2005 and May 2008, Oreste, president of KMC Mortgage Corporation of Florida, a mortgage lending business in North Miami Beach, identified residential properties in South Florida that were for sale. Oreste and Tondreau hosted several radio show programs in the South Florida area in which they advertised the services offered by KMC Mortgage. Oreste and Tondreau recruited and paid some of the listeners who responded to those advertisements, as well as other individuals, to pose as borrowers to purchase properties identified by Oreste. Augustin, an employee of KMC Mortgage, also recruited straw borrowers.
Thereafter, the indictment alleges that Oreste and Odunna and other co-conspirators prepared or caused to be prepared loan applications on behalf of straw borrowers. Odunna was an attorney previously licensed to practice law in Florida and president of O.J. Odunna P.A. and Direct Title and Escrow Services. These loan applications included false information relating to employment, wages, assets, and intent to make the property being purchased a primary residence. The loan applications and documents were submitted by co-conspirators to various mortgage lenders throughout the United States. Once the loan applications were approved, the lenders wired loan funds to O.J. Odunna P.A., Direct Title, or other title companies for closing.
The indictment alleges that in some instances, Oreste, Odunna, and other co-conspirators created and submitted duplicate HUD-1 Settlement Statement Forms, which grossly inflated the true purchase price of the properties. HUD-1 Settlement Statements also falsely and fraudulently represented to the mortgage lenders that the straw borrowers had met their down payment and cash to close obligations, when, in fact, the straw borrowers had never made any such payments.
At closing, a portion of loan proceeds were disbursed to Oreste through his corporation, JR Investment and Mortgage Corporation, or other bank accounts controlled by him. In some instances, a portion of the loan proceeds was diverted to O.J. Odunna P.A. or Direct Title accounts. Oreste disbursed some of the proceeds he received to pay recruiters—such as Tondreau and Augustin—and straw borrowers. Oreste also transferred a substantial portion of the funds to bank accounts of LTO Investment Corporation, a corporation controlled by Tondreau. Tondreau used funds deposited in LTO Investment Corporation’s bank accounts to make payments on the falsely and fraudulently obtained mortgages in order to maintain the loans and to conceal and further the fraud. She also used a portion of the funds deposited into LTO Investment Corporation’s bank accounts for her own personal use and benefit.
The indictment alleges that over the course of the conspiracy, the defendants fraudulently obtained loans on approximately 20 properties, for which the lenders have suffered losses in the amount of approximately $8,000,000. If convicted, each defendant faces a maximum term of 30 years in prison.
Mr. Ferrer commended the investigative efforts of the FBI and Florida’s Office of Financial Regulation. The case is being prosecuted by Assistance U.S. Attorney Lois Foster-Steers.
An indictment is only an accusation, and a defendant is presumed innocent until proven guilty.
May 16, 2014
On Fri., May 16, Judge Avern Cohn sentenced Grosse Ile real estate agent Richard Dean Woolsey to 90 months in federal prison and to afterwards serve an additional three years of supervised release.
Woolsey was convicted on charges of wire fraud and conspiracy in October 2013 in the Eastern District of Michigan U.S. District Court. The court ruled that the damages were greater than $2.5 million but less than $7 million. A separate hearing was ordered 90 days from the sentencing to arrange restitution for the defrauded.
The court accused Woolsey of defrauding mortgage lenders through a variety of tactics, including overvaluing properties for sale and doctoring buyers’ credit scores and incomes to make them appear more attractive to lenders. Woolsey ran his operation through ReMax Experts and The Valuation Group, an appraisal service he owned.
According to the FBI press release, Special Agent in Charge Paul M. Abbate stated, “As reflected in the investigation of Mr. Woolsey’s criminal activity and his sentence today, the FBI takes mortgage fraud very seriously. These crimes, particularly those as egregious as Mr. Woolsey’s, not only negatively impact real estate markets, banks, and the financial industry, but hurt our entire community. The FBI will continue to aggressively investigate these crimes.”
May 14, 2014
On May 14, 2014, in Grand Rapids, Michigan, Seamus Dillon, of Ada, was sentenced to 24 months in prison, three years of supervised release and ordered to pay $755,693 in restitution. Dillon pleaded guilty to conspiracy to commit mortgage fraud. According to court documents, during 2007, Dillon and others defrauded a bank in connection with a mortgage using a series of false statements. Dillon and his cohorts obtained approximately $850,000 which they used for their own purposes.
On May 14, 2014, Pensacola, Florida, Andrea Lorraine Avery, of Los Angeles, California, was sentenced to 84 months in prison and ordered to pay $10,323,369 in restitution to the FDIC as Receiver for Washington Mutual, GMAC Mortgage, SunTrust Mortgage, Wells Fargo Bank, USBank, and others. Avery pleaded guilty in December 2013 to conspiracy to commit fraud, mail fraud affecting a financial institution, and conspiracy to commit money laundering. According to court documents, beginning in 2005 and continuing through 2008, Avery and others entered into contracts to purchase 24 residences located in Florida, Georgia, Louisiana, Texas, and California. Thereafter, fraudulent loan applications were submitted to financial institutions to fund the purchases. In the loan applications, Avery and other borrowers made false statements to the lenders, which included providing false names and social security numbers; overstating the borrower’s income and assets; and falsely stating the earnest money deposit was not borrowed. In support of the loans, Avery and other borrowers submitted fraudulent supporting documents to the lenders. Approximately $16 million in loans were issued by the lenders in connection with the fraudulent scheme. Avery and her company received more than $3.5 million in kickbacks as a result of the scheme.