In a highly unpublicized development, Wells Fargo Bank (NYSE: WFC) and one of Fidelity National Financial, Inc‘s (NYSE: FNF) companies–the Ticor Title Agency of Arizona–agreed last week to pay over $4 million and $200k respectively for their roles in preparing and submitting false claims to the Federal Housing Administration (FHA).

According to the Office of the United States Attorney District of Arizona, Well Fargo Bank submitted more than 70 false claims to FHA under the pre-foreclosure sales program, and Ticor Title prepared inaccurate escrow documents which allowed lenders to submit false claims to the FHA. The U.S. Attorney for Arizona estimates loses of more than $2.1 million dollars as a result )$2,156,078.00 to be exact), and for their part, Wells Fargo Bank and Ticor Title deny any wrongdoing yet still agreed to pay $4,046,786 and $265,370 respectively.

Under certain circumstances, the FHA’s pre-foreclosure sales program allows homeowners with federally-insured loans to avoid foreclosures by listing their homes for sale. If a sales price is not enough to pay-off a loan, then the lender submits an insurance claim to the FHA, which will pay the lender the balance owing on the loan.

What’s most interesting about this case is that neither company–not Wells Fargo & Company (NYSE:WFC) or Ticor Title Agency’s parent company, Fidelity National Financial, Inc. (NYSE:FNF)–have any information about the settlement on either of their corporate websites. Moreover, none of the national news media outlets picked up on the story, and even the New York Stock Exchange’s (NYSE) own stock quote pages for each company makes no reference whatsoever to the development, which first broke 10 days ago, on the 20th of June.

In February of 2006, I posted a blog entry here on FlippingFrenzy.com about a real estate education-related offer that just seemed too good to be true. From my February 22, 2006, blog entry titled “Is This Offer Too Good To Be True?”:

According to the voice booming from my television, a woman from Colorado claims to be able to teach me how to take my last $10 and turn it into $10,000 or more using her real estate investing techniques. The narrator went on to say, and I’m paraphrasing here, “anyone can become a millionaire using Dwan’s system… let Dwan show you just how easy it is.”

Now, nearly two-and-a-half years later, proof may finally exist that Millionaire Mindset, LLC, and its owners–Bill and Dwan Bent-Twyford–and an advisor to the company, Sharon Restrepo–are running what is perhaps a very questionable business operation that may be taking advantage of customers.

Here is a letter I received just the other day from a former Millionaire Mindset customer (Gayle Bu of Georgia) who found our February 2006 post and wants to spread the word about her own experience in dealing with Bill Twyford, Dwan Bent-Twyford, and their advisor and friend (and now Dwan’s co-author), Sharon Restrepo:

On March 9, 2007, I invested $5,995.00 to be personally mentored by Bill and Dwan Bent-Twyford as part of their Millionaire Mindset “FastTrack” course. The “boot camp” I attended, where I learned about their real estate investing coaching services, was hosted by the Millionaire Mindset, LLC., a.k.a. The Investors Edge University, a.k.a. Financial Freedom Through Foreclosures. The course I paid for began around one month later, on April 16, 2007, and lasted for approximately one year (it included four modules – “Level I” thru “Level IV” — each encompassing seven weeks of once-a-week scheduled coaching calls plus unlimited coaching on-demand).

During their very compelling sales presentation, Bill and Dwan Bent-Twyford spoke about their huge success in real estate investing and how successful their students were. They promised unlimited daily coaching, which I–along with several other students–did not receive. What coaching I did receive was not “unlimited” and was not provided by Dwan Bent-Twyford as promised, but rather by an employee of their company–someone named Jayson Norris.

Long story short, I completed Level I of the program, but since my calls to the Millionaire Mindset office were often taking 72 hours or longer to be returned, were not daily as promised, and since I never received coaching from Dwan Bent-Twyford (and I received coaching from Bill Twyford only two or three times at most), I attempted to share my concerns with the Twyford’s and the Millionaire Mindset office.

I tried several times by email and phone to get a response from the Twyford’s as to if they were going to provide the coaching as promised and paid for, but my requests were ignored. They then ignored further requests from both myself and an attorney that I hired to look into the matter on my behalf, the Georgia Real Estate Investors Association (GaREIA), and even the Better Business Bureau (BBB). Despite the fact that they ended up with a poor rating with the BBB and that GaREIA is no longer endorsing them as speakers,Bill Twyford and Dwan Bent-Twyford remained non-responsive.

Editor’s Note: At this stage, Gayle decided to take Millionaire Mindset, LLC a.k.a. The Investors Edge, into small claims court in Gwinnett County Magistrate Court in Lawrenceville, GA (about 45 minutes north of Atlanta).

When a court date was set (4/3/08), the Twyford’s postponed it, and then did not appear at the re-scheduled hearing. This lead to a judgment in my favor on 4/17/08 in the amount of $7,682.59 (which is accruing interest at a rate of 8.25% per year).

Editor’s Note: A copy of the judgment against Dwan Bent-Twyford can be found here. Again, from Gayle…

On 4/25/08, my attorney sent a letter to Millionaire Mindset’s Colorado and Florida business addresses requesting payment in full within 10 days.

On 5/16/08, I sent a fax to Dwan Twyford’s home requesting payment.

On 6/9/08, after a year of non-communication from Bill and Dwan Bent-Twyford and Millionaire Mindset, LLC, I finally received communication from the company. Sharon Restrepo, Registered Agent of Millionaire Mindset, LLC, called me in response to a conversation I had with an online moderator at the Real Estate Exchange Forum on www.foreclosure.com. Sharon was appearing as a guest speaker on a foreclosure.com “Live Presentation” (delivered via the phone) and I had called Foreclosure.com to inform them of the judgment against Millionaire Mindset, LLC. For their part, Foreclosure.com asked Sharon to deal with the matter herself.

Sharon told me that she broke ties with Millionaire Mindset on October 1, 2006, and that it would appear that Dwan Bent-Twyford did not file the appropriate paperwork with the Florida Secretary of State’s office reflecting the change. She stated that she was not to blame as she was no longer part of the company. I recommended that she call Dwan Bent-Twyford, to which she stated that she does not have communication with the company anymore.

While I was inclined to believe her, my research since that 6/9/08 conversation indicates that Dwan Bent-Twyford and Sharon Restrepo co-authored a book that is being released later this month by Wiley Publishing entitled Short-Sale Pre-Foreclosure Investing: How to Buy “No-Equity” Properties Directly from the Bank — at Huge Discounts.

My research has also shown that Sharon Restrepo filed a 2007 For Profit Corporation Annual Report for a business entity called Piranha Properties, Inc. in May 2007 with her own and Dwan Bent-Twyford’s name on it.

Sharon, as co-founder of the Florida Real Estate Investors Association (FLREIA), also lists Dwan Bent-Twyford via 1234closures.com as an FLREIA Corporate Sponsor, and the May 2008 edition of the FLREIA newsletter lists The Investors Edge University (one of Millionaire Mindset, LLC’s known aliases) as a vendor.

Millionaire Mindset, LLC uses a street address of 711 Desparado Road, Bailey, Colorado, 80421, however, it is not registered with the Colorado Secretary of State’s office, but rather in Del Ray Beach, Florida, in the names of Dwan Bent and Sharon Restrepo at the address of Sharon’s other businesses — 32 SW 5th Avenue, Del Ray Beach, Florida.

I have since contacted the Florida Attorney General’s office. They will not launch an investigation until there are other complaints.

I have also contacted the Secretary of State in Colorado, Florida and New York, in addition to Dun & Bradstreet, Park County Court, and the City of Del Ray Beach (FL). Below is a summary of my research to date (sadly, it’s a never-ending maze):

Florida Secretary of State

• Millionaire Mindset, LLC is active (Sharon/Dwan). Filed 07 report.
• Piranha Properties (Sharon/Dwan). Filed 07 report.
• Financial Freedom Through Foreclosures (Sharon/Dwan). Active. Filed 07 report.
• 32 West Realty Inc (Sharon/Juan). Active. Filed 08 report.
• 32 West Financial Group (Sharon/Dwan). Dissolved in 2006.
• 32 West Realty, LLC (Sharon/Manthal Guhn). Dissolved in 2005.
• No matches for Bentford, The Investors Edge, Certified Investors Gear.

Colorado Secretary of State

• Dwan Bent has one current company – Bentford Investment Group. Formed 7/7/03 and incorporated by Corporate Creations International, Inc. — 941 Fourth Street, Miami Beach, FL, 33135. In good standing. 08 report filed.
• Bill Twyford has had the following companies:
  - Bill Twyford and Associates, LLC – dissolved in 2/05
  - JBLS Ventures – dissolved in 5/02
  - BK Ventures, LLC – dissolved in 11/04
  - Metrobrokers/Team Twyford, LLC – dissolved in 1/04
• No matches for Investors Edge, The Investors Edge, Financial Freedom Through Foreclosures, Certified Investors Gear, 32 West, Piranha, Bent-Twyford.

New York Department of State

• Sunshine Direct LLC – Active (this is the company that produces Dwan’s television infomercials).
• No matches for Millionaire Mindset, LLC or Financial Freedom Discoveries

Dun and Bradstreet

• Financial Freedom Through Foreclosures at 711 Desparado Road, CO. Active.
• Piranha Properties at 8782 NW 21st Ct, Coral Springs, FL. Active.
• 561-819-1900 (Sharon Restrepo) is shared by 3155 West Coast Realty Development (someone by the name of Charles Kelpsch), 21st Century Investors Inc. (Sharon and Juan Restrepo – active company, filed a report in 08), and Palm Beach Realty Consultants (Sharon was an officer, but it was dissolved in 07).
• No matches for Millionaire Mindset, LLC in Colorado or Florida, Financial Freedom through Foreclosures in Florida, 32 West Realty in Florida, Bentford Investment in Colorado or Florida, The Investors Edge in Colorado.

Park County, Colorado, Public Records

• Phone inquiry revealed that there is no property listed in Park County for Millionaire Mindset, The Investors Edge University, Financial Freedom Through Foreclosures or Bentford Investment, Bent, Bent-Twyford, or Twyford.
• Bill Twyford has a ’93 trailer at 702 Desparado Road (near 711 Desparado Road)
• Dwan Bent has a residential property at 702 Desparado Road (3,566 sq ft, 1982, land and house valued at $567,139). Bill Twyford purchased it from a trustee deed in the year 2000, it was transferred to James Bent in 2002 and Dwan’s name was then added.
• There are no vehicles, including leases under any of the above names.

City of Del Ray Beach, Florida

• No business licenses for Millionaire Mindset, 32 West Financial Group, Piranha Properties, Financial Freedom Through Foreclosures, 32 West Realty LLC. in Del Ray Beach. Active business license for 32 West Realty, Inc.

Sharon Restrepo

• Sharon is the co-founder of the Florida Real Estate Investors Association (FLREIA) and is currently doing several speaking appearances.
• She publishes REIP (Rewards Real Estate Investors Publication). There is a link for this publication on Bill and Dwan’s site – www.theieu.com.
• www.realestatesuccessmagazine.com – Run by Sharon and her husband Juan Restrepo.

Websites

• www.theieu.com – Bill and Dwan Bent-Twyford’s website. They reference Sharon and her husband Juan Restrepo as “Special Advisors” and there’s a large link back to the REIP publication on the homepage.
• www.1234closures.com – same site as above.
• www.millionairemindsetcollection.com. Dwan Bent-Twyford short sale system. Copyright 2007 Sunshine Direct (this just appears to be the promotional company for the website and videos).
• www.financialfreedomdiscoveries.com – Same site as above.

Dwan Bent published touring schedule for 2008:

• Denver, CO — June 18-20
• Chicago, IL — July 7-9
• Atlantic City, NJ — July 15-17
• Nashville, TN — July 30-Aug 1
• Dallas, TX — Sept 17-19
• Phoenix, AZ — Dec 10-12

According to an e-mail dated 6/14/08 Dwan promoted the Bruce Norton bus tour event at the 2008 Maryland Foreclosure Summit in Baltimore on June 20th (scroll down the page on www.marylandforeclosuresummit.com for more info).

I sincerely hope that by getting the word out, that others avoid the troubles and unfortunate financial issues that I have had to deal with as a result of signing up for the Twyford’s program.

Gayle Bu, Georgia USA

Thank you Gayle for your letter and for granting FlippingFrenzy.com permission to share it with our readers.

As one might suspect, there are many troubling things associated with Gayle’s experience with Millionaire Mindset, Bill Twyford, Dwan Bent-Twyford, and the Twyford’s advisor/friend, Sharon Restrepo. Among them:

• First and foremost, it’s a common marketing technique for get-rich-quick enterprises like Millionaire Mindset to make absurd claims about the availability of their key and titled personnel. Therefore, it’s not all that surprising that the company positioned Bill Twyford and Dwan Bent-Twyford as being available for unlimited coaching. Clearly, expectations where generated that the Twyford’s would be available—and I’m guessing that’s why so many people fall victim to “coaching” offers from the Bill Twyford’s, Dwan Bent-Twyford’s, and Millionaire Mindset’s of this world. When they’re on stage delivering their pitch to an audience full of people looking for answers, they sound quite convincing. And when they portray themselves as being available for personal and one-on-one coaching, and then fail to deliver, it’s no wonder the Gayle Bu’s of this world stand up and say, “Wait a Minute… what the heck’s going here?”
• Sharon Restrepo’s apparent role in all of this is very troubling as well. If indeed she claimed no ties to Dwan Bent-Twyford and Millionaire Mindset, she clearly misspoke, because as Gayle was able to learn through simple inquiries into public records and reviews of public websites, the facts seem to indicate otherwise. Why, for example, would Sharon Restrepo tell Gayle she had broken ties with Dwan Twyford and Millionaire Mindset back in October of 2006, when she was clearly in the process of writing a book with Dwan at the time she spoke with Gail?
• Looking a little further into Sharon Restrepo’s real estate-related interests, we are able to determine that despite being pitched as a “membership association,” the organization she co-founded with her husband (Juan Restrepo) and Dwan Bent-Twyford–the Florida Real Estate Investors Association–is nothing more than a for-profit business entity that plays off of the values associated with true nonprofit associations. Why should this matter? Well it matters because as a society, we treat (i.e., trust) “associations” different than we do for-profit business entities. Conventional wisdom dictates that when we think of “associations,” we generally tend to think that they are nonprofits and that they are run at the Board of Directors level by the members themselves (members who are voted onto the Board by their association peers). In Sharon Restrepo’s case, the Florida Real Estate Investors Association is run by herself and her husband, Juan Restrepo, and apparently, they call the shots. This is troubling because in a for-profit membership-based association, the interests of the association’s owners (in this case, the Restrepos’), will always come first; whereas nonprofit membership associations do not have to worry about any one individual’s personal financial claims or interests — they, the not-for-profit membership-based associations, are free to operate without personal interests getting in the way. For Sharon Restrepo to be so heavily involved in an organization like FLREIA may speak volumes about her business character.
• Another troubling aspect of Sharon Restrepo’s connection to real estate is that she may in fact be using religion to build trust. Take a look at this, from the Florida Real Estate Investors Association website:
  

  Florida Real Estate Investors’ Association Vision Statement

  “We are committed to providing aspiring and experienced real estate investors a venue where continuing education, networking, & products and services worthy of our Maker’s approval are provided. We aspire to share our knowledge and God-given talents to promote the well-being of all we come in contact with on a daily basis with a Christ-like attitude.“

  It’s that last part, “with a Christ-like attitude” that gives me serious cause for concern about these people and the way they conduct business. Religion should never have anything to do with real estate investing, and anyone who brings religion into the equation should be ashamed of themselves. Look a little further on the FLREIA website and you’ll even find a link for the association’s “Prayer Request” service. Are you kidding me? I don’t know about anyone else but I hate to see people using religion to build trust. It just gives trust a bad name!

At the end of the day, the Gwinnett County Magistrate Court in Lawrenceville, GA, sided with Gayle Bu, and as of today, Millionaire Mindset, LLC, has failed to meet its court-ordered obligation to pay Gayle what she is owed.

If you are researching any of the businesses or individuals referenced in this post, you may want to think twice about doing business with them. Similarly, if you feel you have been taken advantage of by any of the people or business entities mentioned in this post, consult an attorney (like Gayle did), and keep us posted on your efforts to recoup your losses.

New federal laws and regulations in Canada dealing with money laundering and anti-terrorist financing that go into effect today require real estate agents and brokers to collect and verify more personal information from buyers and sellers. Canada’s real estate agents must also now track the source of funds received during the course of a real estate transaction, such as the deposit.

These new regulations are part of federal legislation (Bill C-25) passed in 2007 that requires a number of industries, including real estate, to do more to help stop money laundering and terrorist financing. The regulations are enforced by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

“Real estate agents have had legal obligations under the federal government’s push to prevent criminal activity and terrorism since 2001, when Canada’s first comprehensive laws to combat money laundering and terrorist financing were introduced,” says the President of The Canadian Real Estate Association, Calvin Lindberg. He is a REALTOR® in Vancouver.

“In the first phase of compliance, real estate agents were required to report only suspicious transactions, or transactions involving more than $10,000 in cash,” the CREA President explains. “Now, verified personal information must be kept of the buyer and seller for each and every real estate transaction in Canada. That personal information includes details such as occupation.”

Real estate agents are now required to ask for proof of the identity of all buyers or sellers involved in a Canadian real estate transaction. If the client is a corporation, that information must include corporate documentation, and the names of the corporation directors. They must also ascertain if a third party is involved in the transaction.

This also applies if a buyer or seller involved in a transaction is not represented by a real estate agent, but the other individual involved is represented. Those buying or selling privately will be asked by the agent representing the other party involved in the transaction to provide proof of identity as well, andmust be kept by the real estate agent involved in the transaction.

Also under the new FINTRAC regulations, Canada’s real estate agents dealing with clients they never meet must also verify personal information. The broker office involved can do this with a service agreement with an agent in the area where the client is located. That agent must then meet the client, verify their identification, and provide the information to the broker office handling the real estate transaction.

In addition to verification of personal information, real estate agents must also now complete a report on the receipt of all funds received during the real estate transaction.

In order to comply with these new regulations, Canada’s real estate agents are required to keep the identification and receipt of funds information on file for five years and provide it to FINTRAC whenever requested.

My apologies for the length of this post but there was an interesting joint announcement today from the U.S. Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) that bears (no pun intended) commenting on. According to a press release titled “More Than 400 Defendants Charged for Roles in Mortgage Fraud Schemes as Part of Operation “Malicious Mortgage”,” from March 1st of this year until yesterday (June 18), a coordinated effort between the two agencies resulted in 144 mortgage fraud cases being cracked and 406 defendants being charged with related crimes.

On the surface, this looks like very big news, and as one would suspect, almost every media outlet in the country is covering the story. But when you really stop to think about it, sadly, the numbers touted in today’s announcement amount to very little. Certainly, every real estate and mortgage fraud-related arrest helps, but when you consider that there were 110 days between March 1st and yesterday, Operation Malicious Mortgage netted less than two real estate and mortgage fraud scams per day (or to be more precise, 1.30909091 scams per day for each day of the 110-day effort). I don’t know about anyone else, but less than two real estate and mortgage fraud-related scams being shut down per day–when by one estimate, more than 75% of all home loans closed leading up to the current mortgage meltdown contained some level of fraud–isn’t really that big of a deal.

But Ralph, you’ll say, 406 people who were committing these horrible crimes are no longer in the business of intentionally destroying the American dream of homeownership (which is like 3.69 arrests per day); doesn’t count for something?

Of course it does… it does count for something… it counts for what’s already happening across the country in terms of arrest volume for real estate and mortgage fraud-related crimes, and it’s still not enough to make much of a difference. By my own estimate, if I were to only report real estate and mortgage fraud-related arrests or indictments here on FlippingFrenzy.com (which I don’t because this site is about more than just indictments and arrests), and we were to go back and count the number of scams that were shut down (or the number of people arrested or indicted), I could come up with a pretty sexy number to rival that which the DOJ and FBI came out with today. In the grand scheme of things, today’s announcement is actually a little bit disappointing.

Of more interest to me than the 144 mortgage fraud cases being cracked and the 406 defendants being charged with related crimes, was this (from the same press release and summarized by Kate Kelly of The Wall Street Journal):

A federal grand jury in Brooklyn, N.Y., indicted two former Bear Stearns Cos. hedge-fund managers, alleging they misled investors when their fund was in peril, lied about their financial interest in the portfolios and destroyed evidence in the investigation. The high-profile criminal case, along with a parallel civil securities-fraud action by the Securities and Exchange Commission, marks the first criminal securities-fraud charges stemming from the mortgage-market crisis. The 27-page indictment paints a picture of the scramble by the managers, Ralph Cioffi and Matthew Tannin, to keep their hedge funds alive…

Everyone, including the FBI, likes to talk about how there are two types of real estate and mortgage fraud… Fraud for Housing and Fraud for Profit. Well, what about Fraud for Wall Street?

Read the following (from the Associated Press’ Tom Hays), and tell me if you too can spot the Fraud for Wall Street:

2 charged on Wall Street in mortgage meltdown
By TOM HAYS

NEW YORK (AP) — Two former Bear Stearns hedge fund managers were hauled into jail Thursday and charged with lying to investors about the collapse of the subprime mortgage market, perhaps signaling the start of a wave of prosecutions arising from the housing meltdown.

Ralph Cioffi and Matthew Tannin were accused of encouraging investors to stay in their hedge funds, heavily exposed to subprime mortgages, even as they knew the credit market was in serious trouble.

They were indicted on conspiracy and fraud counts, the first criminal charges to hit Wall Street in the housing market meltdown.

The eventual implosion of their two hedge funds cost investors $1.8 billion and started the domino effect that led the demise of Bear Stearns itself, which barely avoided bankruptcy in a rescue buyout by JP Morgan Chase & Co.

“This is not about mismanagement of a hedge fund,” Mark Mershon, head of the New York FBI office, told reporters. “It is about premeditated lies to investors and lenders.”

The arrests came as the Justice Department in Washington announced the indictments of more than 400 players in the real-estate industry since March in a crackdown on mortgage fraud. Sixty were arrested on Wednesday alone.

That alleged fraud includes misstatement of income or assets, forged documents, inflated appraisals and misrepresentation of a buyer’s intent to occupy a property as a primary residence.
The Bear Stearns case against Cioffi and Tannin appears to be based heavily on a series of e-mails that reveal panic and disorder behind the scenes at the hedge fund as its investments began to slide.

“The subprime market looks pretty damn ugly,” Tannin wrote to Cioffi in April 2007. If Bear’s internal reports were accurate, Tannin suggested, “I think we should close the funds now,” and “the entire subprime market is toast.”

The situation became so dire that Cioffi pulled $2 million of his own cash from the fund, but the pair still told investors that they should stay in and that the outlook was good, prosecutors said.

Cioffi, 52, was arrested by FBI agents at his home on the Upper West Side of Manhattan on Thursday morning, and Tannin, 46, was taken into custody outside his New Jersey home.

Both men pleaded not guilty at an afternoon arraignment and were released on bond. Each faces up to 20 years in prison. They left court with their wives and without speaking to reporters.

The mortgage market crisis “took the whole financial world by surprise,” said Cioffi’s attorney, Edward Little. “So our question is, why is Ralph Cioffi being charged in this case?” Tannin’s lawyer, Susan Brune, said he was “being made a scapegoat for a widespread market crisis. He looks forward to his acquittal.”

Legal experts said more Wall Street figures would probably be charged in the credit crisis, the latest front for white-collar prosecutors who brought — and in most cases won — high-profile cases earlier this decade after the fall of Enron.

“There is no doubt the government is always looking to go as high as they can,” said Bill Leone, a former U.S. Attorney in Colorado. “Any time you get losses into the billions, the likelihood that higher-level executives participated in decisions increases.”

Subprime mortgages were sold to people with less-than-ideal credit. Many of them began defaulting on their loans when the housing market fell and their introductory “teaser” interest rates shot up, making their payments unaffordable.

Because many of those mortgages were sliced and repackaged as securities that could be bought and sold, the mass defaults caused widespread pain among large U.S. banks.

The collapse of the two Bear Stearns funds is just a small part of the subprime crisis, which is still rippling through the economy.

Amid the fallout for banks, prominent CEOs have lost their jobs, including Citigroup Inc.’s Charles Prince, Merrill Lynch & Co.’s Stanley O’Neal and Bear Stearns Cos.’ own James Cayne, who was stripped of his CEO title.

Hedge funds cater to large investors and the very wealthy and use complex, speculative investing methods in hopes of winning enormous gains. They operate with little government supervision and have lately come under fire from regulators.

In the Bear case, the internal e-mails provide a window into the trouble that began to engulf the hedge funds in 2007.

The indictment describes a meeting of Cioffi, Tannin and two unnamed colleagues in which Cioffi confided the hedge funds had narrowly “averted disaster” in February 2007 — news that “led to a vodka toast to celebrate surviving the month.”

The complaint says Tannin expressed doubt about Cioffi’s management in an one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, “Is Ralph doing what he should be doing right now?”

Around the same time, Cioffi wrote to a Bear Stearns economist: “I’m fearful of these markets. … As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits.”

Tannin and Cioffi were repeatedly telling investors and Bear Stearns brokers responsible for selling funds that the outlook was good.

In once instance, prosecutors said, Tannin encouraged an investor to add money to the fund and said he would do the same, but never did.

At the same time, prosecutors say, Cioffi pulled $2 million of his own money out of the fund, about a third of his stake, and put it into a separate fund without telling investors. He was charged with insider trading in addition to fraud.

The Bear Stearns hedge funds had more than $20 billion in assets before collapsing in June 2007. Just before the collapse, Cioffi fretted in an e-mail that “I’ve effectively washed a 30-year career down the drain” if he couldn’t turn things around, the indictment said.

The case demonstrates yet again how e-mail can trip up Wall Street executives.

Prosecutors used e-mail exchanges against former Credit Suisse Group banker Frank Quattrone and famed stock analysts Jack Grubman and Henry Blodget. But prosecutors struggled to win and maintain convictions in all of those cases.

Cioffi and Tannin have already been named in lawsuits brought last year by hedge fund investors who allege they were purposely misled.

The fortunes of Bear Stearns began to crumble around the same time that the fund collapsed, getting so bad that the Federal Reserve and JPMorgan had to intervene to save the once-mighty institution from bankruptcy earlier this year.

AP Business Writer Joe Bel Bruno contributed to this report.

As I told many of the reporters who called about today’s developments (including The Detroit News), what the popular media is finally getting around to reporting isn’t even the tip of the iceberg that sank the Titanic. While it’s true that today’s announcements are a step in the right direction, its also true that this nation’s real estate and mortgage fraud-related woes go much deeper than what Operation Malicious Mortgage has uncovered. Sadly, as I recently reported, our own Attorney General, Michael Mukasey, said just last week that the Justice Department, the FBI’s parent agency, won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. “This isn’t that kind of phenomenon,’’ Attorney General Mukasey says.

Hey, Mr. Attorney General… to paraphrase James Whitcomb Riley: If it walks like a duck, quacks like a duck, and looks just like a duck, I would call it a duck.

The U.S. Attorney for the Eastern District of California announced last week that a federal grand jury returned an indictment today charging Joel Blanford, 40, of San Ramon, Calif., with six counts of mail fraud and one count of conspiring to engage in money laundering in connection with a multi-million dollar mortgage fraud scheme.

From April 2003 through October 2005, Blanford participated in a scheme to defraud Long Beach Mortgage, a wholesale subprime lender and former subsidiary of Washington Mutual, Inc. While working as a sales representative for Long Beach Mortgage, Blanford paid a Long Beach Mortgage loan coordinator in cash and checks to falsify documents, provide false verification of borrowers’ employment or professional licensing status, and to turn a blind eye to fraudulent representations contained in loan applications and other documents submitted to Long Beach Mortgage.

In 2003, 2004, and 2005, the indictment against Blanford alleges he received, before taxes and payroll deductions, more than $1,000,000 in commissions and other compensation from Long Beach Mortgage. The indictment also charges that between April 2003 and October 2005, Blanford conspired with others to engage in money laundering in order to conduct financial transactions to promote the carrying on of the fraud scheme and to conceal and disguise the nature and source of the payments to the loan coordinator. Between April 2003 and October 2005, Blanford is said to have paid the loan coordinator more than $54,000 in checks alone.

In connection with this ongoing investigation, Manpreet Singh, Jose Serrano, John Ngo, and Iftikhar Ahmad have all pleaded guilty to perjury, mail fraud, and/or money laundering charges.

From U.S. Attorney McGregor Scott:

“This indictment reflects the commitment of this office, the FBI and the IRS-CI to follow the facts to wherever they lead us,” said Scott.

“We have now convicted several individuals who participated at different levels of the loan origination process in mortgage fraud transactions centered in the Stockton, California area. The indictment returned today charges an individual who allegedly worked inside a major subprime lender and who received significant commissions and other compensation in his capacity as a sales representative.“

The maximum penalties for mail fraud affecting a financial institution is 30 years in prison and a fine of up to $250,000, or twice the value of the gain or loss, whichever is greater. The maximum penalty for conspiring to engage in money laundering is 20 years in prison and a fine of up to $500,000 or twice the value of the money that was laundered, whichever is greater. However, the actual sentence will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables, and any applicable statutory sentencing factors.

As a United States Senator, I would never ask or expect to be treated differently than anyone else refinancing their home. This suggestion is outrageous and contrary to my entire career in public service.

When my wife and I refinanced our loans in 2003, we did not seek or expect any favorable treatment. Just like millions of other Americans, we shopped around and received competitive rates.

~ U.S. Senator Christopher Dodd

What you just read is a statement issued last Friday by U.S. Senator Christopher Dodd (D-CT), who according to Portfolio.com’s Daniel Golden, is one of two members of Congress that we now know received loans from Countrywide Financial through a “little-known program that waived points, lender fees, and company borrowing rules for prominent people.”

From Portfolio.com’s Daniel Golden:

Countrywide VIPs: In the Senate and Beyond

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke. Jackson was deputy H.U.D. secretary in the Bush administration when he received the loans in 2003. Shalala, who received two loans in 2002, had by then left the Clinton administration for her current position as president of the University of Miami. She is scheduled to receive a Presidential Medal of Freedom on June 19.

Holbrooke, whose stint as U.N. ambassador ended in 2001, was also working in the private sector when he and his family received V.I.P. loans. He was an adviser to Hillary Clinton’s presidential campaign.

James Johnson, who had been advising presidential candidate Barack Obama on the selection of a running mate, resigned from the Obama campaign Wednesday after the Wall Street Journal reported that he received Countrywide loans at below-market rates.

Most of the officials belonged to a group of V.I.P. loan recipients known in company documents and emails as “F.O.A.’s”—Friends of Angelo, a reference to Countrywide chief executive Angelo Mozilo. While the V.I.P. program also serviced friends and contacts of other Countrywide executives, the F.O.A.’s made up the biggest subset.

According to company documents and emails, the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value. For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.

Unless they asked, V.I.P. borrowers weren’t told exactly how many points were waived on their loans, the former employee says. However, they were typically assured that they were receiving the “Friends of Angelo” discount, and that Mozilo had personally priced their loans.

The V.I.P. loans to public officials in a position to advance Countrywide’s interests raise legal and ethical questions. Countrywide’s ethics code bars directors, officers and employees from “improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value.” Federal employees are prohibited from receiving gifts offered because of their official position, including loans on terms not generally available to the public. Senate rules prohibit members from knowingly receiving gifts worth $100 or more in a calendar year from private entities that, like Countrywide, employ a registered lobbyist.

Why is it that the people who seem to need extra help the least often receive it the most? Here’s more from today’s issue of The Wall Street Journal:

The Countrywide Financial sweetheart loan scandal continues to grow, spreading to Senators and other Beltway potentates. We are about to find out if Congress’s passion for investigating business ethics extends to conflicts of interest and cash that involve fellow Members.

Take Senator Kent Conrad, the North Dakota Democrat whose office issued a Friday statement saying that “I never met Angelo Mozilo.” What he did not say then but admitted under later questioning by a Journal reporter is that, although he may not have had a face-to-face meeting with the Countrywide CEO, Mr. Conrad had called Mr. Mozilo and asked for a loan. The result was a discounted loan on his million-dollar beach house and a separate commercial loan of a type that residential lender Countrywide did not even offer to other customers, regardless of the rate.

So after calling the CEO of a company with various matters before the Senate, asking for a loan and then receiving at least two sweetheart deals, Mr. Conrad now says: “I did not think for one moment – and no one ever suggested to me – that I was getting preferential treatment.” Lawyers will immediately wonder if this isn’t a version of the “ostrich defense,” which judges describe during jury instruction as willful blindness or deliberate ignorance. For what other reason, besides preferential treatment, would one call the CEO of the mortgage company? Does Mr. Conrad call August Busch IV when he wants to buy a six-pack?

Almost as breathtaking is Senator Conrad’s attempt to use a charitable contribution for the estimated amount of any mortgage savings – $10,500 – to make the issue go away. So while the Senator says he did nothing wrong, now that his nonmistake has been discovered he’ll nonetheless give away the nonspecial treatment cash. There is ample evidence here to warrant an investigation, including subpoenas for relevant documents.

The same goes for Senator Christopher Dodd (D., Conn.), who chairs the very Banking Committee responsible for drafting the laws that govern Countrywide’s market.

You can rest assured that Flipping Frenzy will cover this story in further detail in the weeks and months to come. For now, feel free to leave a comment or two of you own. Do you think politicians deserve breaks like the ones Senators Christopher Dodd and Kent Conrad received?

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

If you are interested in the federal government’s handling of real estate and mortgage fraud prevention and prosecution, read “FBI Halts Some Cases to Investigate Mortgage Frauds,” by Bloomberg’s Robert Schmidt. If you don’t have time to read the entire article, here’s just what you need to know:

• The FBI, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing certain financial crimes so agents can focus on real estate and mortgage fraud.
• Kenneth Kaiser, chief of the bureau’s criminal investigative division, issued this directive late last week on a video conference call with the heads of 26 FBI offices in areas where real estate fraud is out of control.
• An FBI spokesperson said the shift was made after an analysis of how agents are spending their time. Approximately 150 FBI agents were working on more than 1,300 real estate fraud cases before the directive was issued.
• The 26 FBI field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes. Current cases aren’t being dropped, the FBI spokesperson said.
• FBI field offices in Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota–all rated as real estate and mortgage fraud hot spots–are participating.
• “Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,” Melissa Schwartz, a spokeswoman for U.S. Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, told Bloomberg late yesterday.
• The Attorney General of the United States, Michael Mukasey said last week that the Justice Department, the FBI’s parent agency, “won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. “This isn’t that kind of phenomenon,” he said.

For more on this developing story, read FBI Halts Some Cases to Investigate Mortgage Frauds.

I am in northwest Mississippi today–Nesbit to be exact–speaking to a group of real estate industry professionals about real estate and mortgage fraud prevention, helping distressed homeowners, and how to help investors make responsible foreclosure-related decisions. Today’s presentations are sponsored by the Northwest Mississippi Association of REALTORS® (NWMAR), and have attracted around 100 or so of NWMAR’s members from around the region.

In my first presentation of the day I spoke about how at the very beginning of this current mortgage meltdown of ours (and its resulting foreclosure epidemic), that I pointed out right here on FlippingFrenzy.com and elsewhere that the main cause of this mess was fraud. Most people who read or heard those early opinions of mine disagreed, including professionals in the real estate and mortgage loan industries, the media, and of course the politicians. Everyone thought the impending meltdown would have more to do with irresponsible borrowing on the part of consumer, the popularity of poorly conceived mortgage loan products, and a natural market correction in property values.

The truth was and still is today that fraud is and continues to be the primary root cause of this real estate and mortgage-driven economic mess.

Unfortunately, getting the real estate industry as a whole to admit to this fact is nearly impossible, but the folks here at the Northwest Mississippi Association of REALTORS® really seem to get it, while elsewhere, taken as a whole, the real estate industry has too much to lose by admitting the truth. After all, if fraud is a proven contributing factor to a borrower’s defaulting on the loan, the mortgage lender is required to buy the bad loan back from Fannie Mae, Freddie Mac, or the Wall Street Firms who sold the loan to investors (sound familiar Rock Financial and Quick Loans?). Fraud has been and continues to be so rampant that admitting the fact would lead to the mortgage banks having to buy back billions of dollars in bad loans, which they simply cannot afford to do.

Other topics being covered on today’s agenda include:

• The current state of foreclosure in the U.S.
• Recent legislative attempts to curtain real estate and mortgage-related fraud
• How to help homeowners before and during foreclosure
• How to assist investors and distressed homeowners through foreclosure-related investments

Over the course of my nearly 30 years as a real estate industry professional, I have turned over countless real estate files to multiple lenders only to have them tell me that they don’t view these fiels as having any fraud in them. When I send the exact same files to law enforcement authorities, they readily see the fraud, and they immediately open investigations. It’s obvious to me that some real estate industry insiders have no defense against fraud. If they admit to the fraud, they may have to buy back a loan. If they deny it, they have no reason to take steps to address the problem.

Nationally, the current state of denial about fraud is only making the problem worse. Until the real estate industry wakes up and admits to its problem, the fraudsters will be free to continue in their ways — approving bad loans to earn profits today with no thought of the future mess they’re causing.

Simply stated, the folks here in northwest Mississippi–guided by the Northwest Mississippi Association of REALTORS®–understand that the industry needs to clamp down and purge its hallways of the con artists and fraudsters and those who facilitate the fraud, tighten the standards for approving mortgage loans, and work with distressed homeowners to control the damage and the fallout from this mortgage mess.

In May of this year, the Mississippi Department of Banking and Consumer Finance notified all of the state’s mortgage license holders that, as of July 1, 2008, the state will be participating in the National Mortgage Licensing System (NMLS) and that participation for all of the state’s mortgage license holders is mandatory.

NMLS officially launched on January 2, 2008, and was the culmination of a four-year effort by state regulators and is just one part of a multi-faceted plan being implemented to enhance consumer protection, improve regulation, increase uniformity of mortgage supervision, and streamline the licensing process. These efforts include coordinated supervision, improved regulatory practices, and consistent standards for testing and training for mortgage originators; and uniform license application, renewals and annual reports. To accomplish this, Mississippi’s Department of Banking and Consumer Finance amended the Mississippi Mortgage Consumer Protection Law during the past regular session of the Legislature to mandate participation in NMLS.

At its core, NMLS is a state-based approach that has the benefits of localized accountability and an on-the-ground regulatory system combined with the efficiencies of a nationwide framework. This type of framework has the potential to create high and consistent regulatory standards without preempting states important role in the development of consumer protections and the enforcement of lending standards.

NMLS’ basic feature is a central database, containing a single record for every state-licensed mortgage lender,
broker, and branch and loan originator, based on the uniform mortgage application forms developed by state
regulatory agencies. It will also drive standardization and coordination among state regulators in areas such as
licensing requirements, background checks, testing and education, enforcement action, examinations and annual
reporting, which is bound to have a positive impact in the fight against real estate and mortgage fraud.

To date, 42 state agencies representing mortgage regulators in 40 states have indicated their intent to be a part of
NMLS. By the end of 2008 there should be 19 state agencies on the system with another 14 participating in 2009.
The remainder of the 42 agencies are expected to come online in 2010 and 2011. Total projected enrollment in NMLS will be more than 500,000 professional licensees. In Mississippi, the Department of Banking and Consumer Finance estimates its enrollment will be approximately 4,000 mortgage professionals.

The Connecticut Department of Banking and the Louisiana Office of Financial Institutions have issued announcements indicating their participation on NMLS starting July 1, 2008, also. Connecticut licensees have until September 30, 2008 and Louisiana licensees have until October 1, 2008 to transition their license(s) onto NMLS. Both agencies will begin accepting submissions through NMLS on July 1.

Today’s edition of The New York Times includes a story by Joanne Kaufman entitled, “A Shift in Real Estate Books.” The piece is about how publishers–including some of the ones that publish my titles–are hard at work publishing books that help homeowners and others with the downturn in the housing market and increasing foreclosures.

The article begins by focusing on the fact that even high profile celebrities are experiencing housing-related trouble (a topic I wrote about just last week). As most people already know, recently, Ed McMahon–famous for sitting next to Johnny Carson on The Tonight Show set and for making a relatively small number of people ridiculously happy as spokesperson for American Family Publishing sweepstakes–has run into financial trouble and is facing foreclosure on his home in California. As Kaufman’s article mentions, I personally attempted to contact McMahon to offer my help in reviewing his real estate files–to see if he had been mislead or worse by his financial advisors or the real estate industry insiders who worked on his behalf.

The New York Times article serves as a nod toward those of us work so hard to write great books that truly help homeowners navigate their way through troubled waters. The payoff, while certainly not large in terms of royalties or fat advances (far from it in fact) can be found in the hundreds of comments I receive from homeowners who found some level of relief based on the advice and warnings found in my books.

From The New York Times:

A few years ago, when the housing market was white-hot, companies that publish how-to books were tripping over themselves to pump out titles about buying property and making money in the real estate business.

Now that the bottom has fallen out of the housing market, the opposite is true: publishers are updating their backlist titles as well as rushing out newly acquired manuscripts to advise consumers who may have stumbled in the housing game.

For more on the article, read “A Shift in Real Estate Books.”

As of today, the list of celebrities facing foreclosure isn’t long but you wouldn’t think that by reading newspaper and blog headlines or tuning in to national news reports from the likes of CNN, CNBC, ABC World News Tonight, and others (oh, and don’t forget Larry King Live… he featured one celebs’ story during last night’s show). In fact, the only celebrities we are able to identify as facing foreclosure in 2008 are:

• Marion Jones (athlete – track and field)
• Jose Canseco (athlete – baseball)
• Michael Jackson (entertainer – music)
• Latrell Sprewell (athlete – basketball)
• Aretha Franklin (entertainer – music)
• Ed McMahon (entertainer – talk show)
• Evander Holyfield (athlete – boxing)

Still, while the numbers are low and are sure to grow, the mere fact that some of the wealthiest and well-known people on the planet are now facing foreclosure is very telling, and, may in fact signal a new discovery in real estate and mortgage fraud forensics.

For example, is it possible that Ed McMahon, Aretha Franklin, Evander Holyfield and other celebrities never really qualified to own their palatial homes in the first place? Of course it’s possible… in fact, it’s more likely the case than not! How can I state such a thing, especially in light of the money these people reportedly earn? that’s easy…

What do most people do when they encounter a celebrity? Stare, point, stumble all over themselves, try to act cool like it’s no big deal, ask for an autograph, take pictures, offer to buy them a drink, yada, yada, yada. The simple fact is this… we tend to place celebrities on pedastools, and I’d bet you dollars to donuts that Realtors, financial advisors, bankers, mortgage brokers and loan officers do the same. They see a celebrity walking down their hall and they think one of two things… how wonderful would it be to say “I’m Ed McMahon’s Realtor” or loan officer, and, “I wonder if I can get an autograph or get Mr. McMahon to endorse my services to his wealthy friends and business associates.”

In those moments–when the Mr. Holyfield’s of this world are asking for a real estate industry insider’s help in acquiring a home (in this case, a 235-acre estate–click on image to left to see for yourself–that surrounds a 109-room, 54,000 square-foot house complete with 17 bathrooms, three kitchens, and a bowling alley)–don’t you think the Realtor, mortgage broker, loan officer or banker is going to do anything possible to make Mr. Holyfield happy, even if it means fudging numbers to make sure a loan is approved? If for one second you don’t think this is entirely possible, then I say it’s time to wake up and smell the order coming from the floorboards.

Our society places way too much stock into the welfare of celebrities and those like them. I bet you that if we were to audit Ed McMahon’s, Aretha Franklin’s, or Evander Holyfield’s real estate-related files, we would find that their finances were manipulated at some point in time by financial advisors and others to make it appear as if they qualified for their home loans. Just because they’re rich and famous doesn’t mean that they automatically qualify for large loans; and as I said, I wouldn’t put it past an aggressive autograph seeking/commission generating financial advisor, Realtor or loan officer to do anything they could to earn that business, including, knowingly engage in real estate and mortgage fraud.

Corrected 8/6/08 — 2:50 p.m. ET

To follow up on my post from last Thursday (“Real Estate Fraud and the Real Estate Investor“), on February 7 of this year, Omni Financial Services, Inc. (NASDAQ: OFSI)–the publicly held bank holding company for Omni National Bank–issued a press release stating there would be a delay in the release of its December 31st, 2007 financial results because the company detected “lending policy violations and internal control deficiencies.” However, nearly four months later, at least one bank employee accused of fostering an environment where such policy violations thrived, is still working at the company’s full-service branch in Atlanta, according to the company’s own website.

In the same press release, accessible here, Omni Financial Services, Inc. stated it had made “certain personnel changes and provided additional staff training and support predominantly in the community lending division.” If by “community lending division” Omni means its “Redevelopment Lending Division” (there is no “community lending division” listed on the Omni corporate site… only a “Redevelopment Lending Division” that the company’s website states has “…provided thousands of redevelopment loans to a wide range of investors.”), my sense is the training didn’t take!

If in fact Omni Financial Services provided such staff training, why did it not stress to bank employee and redevelopment specialist Greg Patten–or his supervisors–that demanding that a loan applicant engage the services of DNK Investment Group and Delroy Davy only or their loan application would be denied is a flagrant abuse of his position and the bank’s standing in the greater Atlanta community. As I stated in my post from last Thursday, as a Federally Chartered Bank, Omni and its employees should be familiar with the RESPA rules, and might be expected to follow them as good compliance procedures or “Best Practices.” At the very least, Greg Patten’s actions are questionable and may lead us to believe that there could have been some sort of transactional/kickback arrangement between himself, Delroy Davy, and perhaps even Omni Financial Services itself.

I mean, come on… think about it for a second. Internal auditors should have called into question how and why out-of-town investors from California gained access to tiny Atlanta-based DNK Real Estate Investment Group and Delroy Davy. And then, one would think, internal auditors would investigate the relationship to the point where they’d come to learn that Delroy Davy had never held a Georgia Real Estate Commission Certification of Licensure, and that DNK Real Estate Investment Group similarly held no such validating credentials from the State of Georgia; two omissions which in and of itself should have been blazing red flags right in front of any internal auditing team’s own noses.

Perhaps all of this is for not. Just two weeks ago, Omni Financial Services, Inc. received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market notifying the company that it currently fails to comply with Nasdaq’s filing requirement for continued listing set forth in Nasdaq Marketplace Rule, which by the way requires timely filing of periodic SEC reports, and that its common stock is therefore subject to delisting from The Nasdaq Global Market. As of this evening, Omni Financial Services, Inc’s stock was trading at 80 cents, which is nearly $10 below its most recent 52-week high of $10.52.

Omni Financial Services, Inc. has for a Thursday (tomorrow) hearing before a Nasdaq Listing Qualifications Panel, at which it says will present a plan for regaining compliance. As you might expect, I’ll be watching for relevant information from the Thursday meeting, and if anything new surfaces, you can count on learning about here on FlippingFrenzy.com.

According to the Joint Economic Committee of the U.S. Congress, the most important cause of our current housing bubble was a massive credit expansion. An overly accommodative U.S. monetary policy from the second quarter of 2002 through the third quarter of 2006–when compared with the Taylor Rule–encouraged financial institutions to expand credit aggressively by reducing their short-term funding costs.

At the same time, according to the Joint Committee’s latest report– The U.S. Housing Bubble and the Global Financial Crisis: Housing and Housing-Related Finance [warning: pdf file]–stable inflationary expectations and the exchange rate policies in the People’s Republic of China and other Asian economies restrained long-term U.S. interest rates. Our housing prices soared as low long-term interest rates further encouraged the already strong demand among consumers for housing, while financial institutions enthusiastically supplied the necessary residential mortgage credit.

In plain English, a combination of government policy blunders and private sector miscalculations and mistakes underlie the inflation and deflation of the housing bubble. Fair enough, but I still say real estate fraud played a significant role in our current housing crisis, and for evidence of this one needs to look no further than to the financially lethal cocktail of risky high-rate mortgages and naive borrowers in many neighborhoods across central Ohio.

A wave of residential housing foreclosures during recent years has pushed property values down for the first time in decades, a new Columbus Dispatch analysis has found. The newspaper, which does an outstanding job of reporting on real estate and mortgage fraud, analyzed three years’ worth of HMDA (Home Mortgage Disclosure Act) data for more than 1.3 million mortgages executed across Ohio between 2004 and 2006. The Dispatch’s new series examines the toll of high-cost refinancings as well as the disproportionate impact on minorities, including African Americans.

From Bill Bush, Rob Messinger, Doug Haddix, Mike Wagner, Jill Riepenhoff, and Geoff Dutton of the Columbus Dispatch:

Mortgage meltdown: Think you’re unaffected? Think again

Sunday, June 1, 2008 3:26 AM

Virtually everyone is suffering from a mortgage hangover.

Even homeowners who never have missed a payment.

Even people who already have paid off their mortgages.

Even renters.

The financially lethal cocktail of risky high-rate mortgages and naive borrowers has taken a toll in many neighborhoods across central Ohio. A wave of foreclosures during recent years has pushed property values downward for the first time in decades, a Dispatch analysis found.

Thousands of families have lost their dream homes. Their neighbors, surrounded by orange foreclosure stickers and for-sale signs, have seen their homes lose value as abandoned houses blight their communities. And many renters have been pushed out of their homes because of their landlords’ problems.

The worst might still lie ahead.

Interest rates are scheduled to jump this year and next on another round of high-rate mortgages, known as subprime loans — typically adding hundreds of dollars to monthly mortgage payments.

“Subprime is going to destroy neighborhoods,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. “It’s hurt more people than it ever helped. It encouraged a culture of recklessness by everyone.”

To measure the damage and the looming challenges, The Dispatch has investigated the effects of the mortgage meltdown.

The three-day series kicks off today.

Read the Columbus Dispatch series by clicking on any of the links below (or simply start by clicking here):

• June 1, 2008: Tax appraisals factor out foreclosures
• June 1, 2008: Tax relief not coming as house values slide
• June 1, 2008: Bursting bubbles: Risky Mortgages deflate home values as entire neighborhoods pay the price
• June 2, 2008: Risky refinancings deepen financial hole
• June 3, 2008: Color of money: Lenders more likely to give minorities costly loans
• Interactive graphic: Get a closer look at surging refinancing, risky mortgages and falling property values

To follow up on a story we reported here on FlippingFrenzy.com earlier this year, Mile High Capital Group’s Richard Darrow–who pleaded guilty in March of this year to one count of violating Colorado’s Organized Crime Control Act–has been ordered by a Denver, Colo. District Court to pay over $1.15 million in restitution to his victims, and spend two years in a local work-release program. The 42-year-old Darrow, along with Fredric R. (”Rick”) Dryer and Jeffrey Dietz, was originally charged with 58 counts, including racketeering, securities fraud, and theft, all in connection with a real estate Ponzi scheme that is said to have netted nearly a quarter billion dollars for Dryer and others.

From today’s online edition of the Denver Business Journal:

Darrow sentenced in Mile High Capital case
Denver Business Journal – by Bob Mook

A judge ordered one of the key players in an alleged multimillion dollar real estate investment scam to pay victims more than $1.15 million in restitution at a June 2 sentencing hearing in Denver District Court.

Richard Darrow, 42, pleaded guilty to one count of violating Colorado’s Organized Crime Control Act in March.

Denver District Court Judge Catherine Lemon dismissed 27 other charges — including securities fraud and theft — after Darrow agreed to cooperate with prosecutors in the June 23 trial of Fredric “Rick” Dryer, the 60-year-old founder of the bankrupt Mile High Capital Group Ltd., a real estate investment company.

In addition to the restitution order, Darrow will enter a two-year work-release program that will enable him to continue working at a local building materials company and return to jail after work. He earlier agreed to a 20-year sentence that would be suspended in 10 years after successful completion of probation.

Darrow once managed Replacement Property Solutions, a company which purported to process legal transactions under so-called 1031 real estate exchange regulations that allow investors to transfer equity from one property to another without incurring capital gains.

In 2005, RPS customers complained to state officials that their funds were transferred to Mile High without their consent or knowledge.

RPS shared office space with Mile High in Greenwood Village but wasn’t officially affiliated with the company.

According to a 2006 indictment, at least 15 RPS customers never got their money back. Prosecutors allege that Mile High didn’t have the financial ability to complete land purchases or develop property as promised and used investors money to pay for Dryer’s lavish investment seminars which were held a major metropolitan markets throughout the country.

Mile High is currently being operated by a trustee appointed by the U.S. Bankruptcy Court. The company began liquidation proceedings late last year.

Lynn Kimbrough, a spokeswoman for the Denver District Attorney’s office, said the $1.15 million in restitution covers an interest rate of 8 percent per year plus out-of-pocket legal expenses incurred by victims.

© 2008 American City Business Journals, Inc.

For more information about this case, see all six of our blog entries about the problems with Mile High Capital Group.