Stamford Accountant Admits Involvement in Conspiracy to Defraud Mortgage Lenders

Nora R. Dannehy, United States Attorney for the District of Connecticut, today announced that JOSE I. FLORES, 50, of Fairfield Avenue, Stamford, waived his right to indictment and pleaded guilty yesterday, January 20, before United States District Judge Christopher F. Droney in Hartford to one count of conspiracy to commit wire fraud stemming from his participation in a mortgage fraud scheme.

In pleading guilty, FLORES, an accountant, admitted that from approximately 2004 to 2008, he conspired with others to defraud mortgage lenders by causing so-called “accountant letters,” which contained materially false information about the loan applicant, to be submitted to lending institutions on behalf of applicants for residential real estate mortgages.

According to court documents and statements made in court, FLORES, who did business as a tax preparer and accountant under the name Harvard Financial Services in Stamford, was approached by the owner of a real estate and mortgage broker in Stamford to create fraudulent accountant letters. Under a mortgage program offered at the time by certain mortgage lenders, mortgage applicants could apply for a so-called “stated income loan,” which did not require income verification. Through this program, lenders required a letter from the applicant’s accountant or tax preparer verifying, among other things, the applicant’s employment status, particularly for applicants claiming to be self-employed. FLORES agreed to write accountant letters containing false information for the owner of the mortgage brokerage and its loan officers knowing that the letters would be used in connection with loan applications to mortgage lenders. Over the period of several years, FLORES was paid up to $100 per letter by the mortgage brokerage to provide numerous false accountant letters.

Judge Droney has scheduled sentencing for April 9, 2010, at which time FLORES faces a maximum term of imprisonment of five years and a maximum fine of $250,000, or twice the gross gain or loss from the offense.

This matter is being investigated by the Connecticut Mortgage Fraud Task Force and is being prosecuted by Assistant United States Attorney Eric J. Glover. The Connecticut Attorney General’s Office provided valuable assistance to the investigation.

U.S. Attorney Dannehy stated that the investigation is ongoing.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. In addition to investigating past mortgage fraud schemes, the Task Force will focus on emerging crime trends that are associated with the growing tide of foreclosures, including foreclosure rescue schemes, and short sale schemes. Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an e-mail to ctmortgagefraud@ic.fbi.gov.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service – Criminal Investigation Division; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General; and State of Connecticut Department of Banking.

Mortgage Fraud Task Force Mortgage Fraud Task Force

Mortgage Fraud Task Force Mortgage Fraud Task Force

MICHAEL HERSHKOWITZ, Manhattan Real Estate Developer Sentenced to Four Years in Prison for $27 Million Mortgage Fraud and Ponzi Scheme

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that Manhattan real estate developer MICHAEL HERSHKOWITZ was sentenced today to four years in prison for his participation in a $27 million Ponzi scheme involving fraudulent loans secured by nonexistent mortgages.

According to the documents filed in the case in Manhattan federal court:

HERSHKOWITZ, working through a Manhattan real estate development company, The Kingsland Group, Inc., and related entities (collectively, “The Kingsland Group”), fraudulently induced approximately 100 individuals to lend the Kingsland Group over $27 million to fund the renovation of approximately sixteen multi-family apartment buildings located in upper Manhattan. HERSHKOWITZ and a co-conspirator, IVY WOOLF-TURK, falsely represented that the lenders would hold, as collateral for the loans, interests in bona fide first mortgages in the various properties in which they thought they were investing. In truth and in fact, HERSHKOWITZ did not record mortgages on behalf of the lenders. Some interest was paid to some of the defrauded lenders with loans made by other victims, and HERSHKOWITZ or WOOLF TURK made false statements to investors about the status of their loans. Ultimately the principal on the loans was not repaid when due, and the lenders learned that they did not have valid first mortgages on the properties in question, as had been falsely promised to them.

Numerous victims wrote letters to the Court, describing the impact of HERSHKOWITZ and WOOLF-TURK’s Ponzi scheme. One stated that she had “lost my life savings of a little over $200,000 because I trusted MICHAEL HERSHKOWITZ’s integrity,” and that her “life had changed completely, and I fight depression every day.” Another victim stated that because of the fraud, she “can no longer afford health insurance,” and “ha[s] no way to get decent health care despite having spinal cord and health problems.” Another complained that HERSHKOWITZ “preyed upon unsuspecting retirees, such as myself, with promises of safe, secure investments supported by New York City real estate.” Victims also complained that the fraud had decimated their retirement savings and their childrens’ college funds, and made them unable to make mortgage payments.

HERSHKOWITZ, 53, of New York, New York, previously pleaded guilty to one count of conspiracy to commit mail and wire fraud. He was sentenced today by United States District Judge P. KEVIN CASTEL. In addition to the four-year prison term, Judge CASTEL ordered forfeiture of $27,184,750, representing the funds obtained through the fraud.

In sentencing HERSHKOWITZ, Judge CASTEL said, “this was a systematic course of criminal conduct.”

WOOLF TURK, of Port Washington, New York, previously pleaded guilty to a related charge and was sentenced on November 23, 2009, to five years in prison and restitution of $27,184,750.

Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation.

“Michael Hershkowitz and Ivy Woolf Turk defrauded nearly 100 victims out of more than $27 million dollars. Their victims entrusted sometimes a lifetime’s worth of hard-earned savings, only to lose everything. We will continue to work with our partners at the FBI to combat fraud and to bring those responsible to justice,” said U.S. Attorney PREET BHARARA.

Orlando Man Sentenced to 22 Years for Arranging Fraudulent Mortgages

ORLANDO, FL—United States Attorney A. Brian Albritton announces that U.S. District Judge Anne C. Conway today sentenced Garry S. Martin (age 36, of Orlando) for conspiring to commit money laundering in connection with various mortgage fraud schemes and violating the terms of his supervised release. As part of his sentence, the court also ordered that Martin pay more than $1 million in restitution to his victims. Martin pleaded guilty to the charges on July 16, 2009.

According to the plea agreement, Martin was convicted in the United States District Court for the Eastern District of New York in 2006 for engaging in mortgage fraud. Martin had made several applications to secure mortgages from Citimortgage, Inc., a subsidiary of CitiBank. Those applications contained several false statements, including inflated values for the borrower’s income and assets.

The terms of Martin’s supervised release for his 2006 conviction prohibited him from offering various real estate services. After Martin had been placed on supervised release in the Middle District of Florida, however, he maintained his real estate sales agent license and obtained his real estate brokers license. He also formed various companies, including Antigua Housing and Management, Inc. (“Antigua H&M”), Antigua Real Estate, Antigua Abstract LLC (“Antigua Abstract”), GSM Financial LLC, and Savvy Professional Title Company (“Savvy”), each with its principal office listed as 5449 South Semoran Boulevard, Suite 200, Orlando, Florida. Through those companies, and up until August 2008, Martin conducted various schemes, including foreclosure fraud, reverse mortgage fraud, and completely sham transactions, to defraud financial institutions out of more than $5 million.

Through Antigua H&M, Martin obtained money from people facing foreclosure by promising that Antigua would bring their past due mortgages current through refinancing and forward their payments to their lenders. He then used the foreclosure payments himself and did not pay the banks.

Through Savvy and Antigua Abstract, Martin marketed reverse mortgages to seniors, sent fraudulent financing packages to support the mortgage applications, arranged the mortgage closings himself, and then diverted mortgage proceeds to his personal use.

Martin also created wholly fictitious agreements between fake buyers and fake sellers to receive mortgage proceeds.

This case was investigated by the Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), and Orange County Sheriff’s Office. It was prosecuted by Assistant United States Attorney Vincent A. Citro.

This case was brought as part of the Middle District of Florida’s Mortgage Fraud Surge, a joint effort by the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, Tampa and Jacksonville Divisions, and numerous other federal, state, and local law enforcement agencies. The Surge, which ended October 31, focused intensive investigative and prosecutorial resources on the mortgage fraud crisis that plagues middle Florida and has contributed to the current economic situation nationwide. The Surge accelerated mortgage fraud cases to bring perpetrators to justice quickly and provide maximum deterrence, and it was the first step in an ongoing effort to prosecute mortgage fraud of all types throughout the Middle District. For more information on the Middle District of Florida’s Mortgage Fraud Surge, please contact Steve Cole, Public Affairs Officer for the United States Attorney’s Office

 Garry S. Martin   Garry S. Martin  Garry S. Martin  Garry S. Martin   Garry S. Martin  Garry S. Martin

Fort Lauderdale Attorney Pleads Guilty in Billion-Dollar Ponzi Scheme

MIAMI—Jeffrey H. Sloman, U.S. Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, FBI, Miami Office; and Daniel W. Auer, Special Agent in Charge, Internal Revenue Service (IRS), Criminal Investigation Division, announced today that attorney Scott Rothstein, 47, of Fort Lauderdale, Fla., entered a plea of guilty to a five-count information. Defendant Rothstein is scheduled for sentencing before the Honorable James I. Cohn on May 6, 2010. He faces a total maximum statutory term of 100 years in prison.

Rothstein pleaded guilty to one count of conspiracy to violate the racketeering influenced corrupt organization (RICO) statute (Count 1); one count of conspiracy to commit money laundering (Count 2); one count of conspiracy to commit mail fraud and wire fraud (Count 3); and two counts of wire fraud (Counts 4 and 5). In addition, Rothstein agreed to forfeit $1.2 billion, including 24 pieces of real property, numerous luxury cars, boats, and other vessels, jewelry, sports memorabilia, business interests, bank accounts, and more.

According to court records and statements made in court, Rothstein admitted that from around 2005 through November 2009, he engaged in a pattern of racketeering activity through his law firm, Rothstein, Rosenfeldt, and Adler, P.A. (RRA), located in Ft. Lauderdale. Specifically, Rothstein admitted that RRA was the criminal enterprise through which he and others fraudulently obtained approximately $1.2 billion from investors through bogus investment and other schemes. According to the information, defendant Rothstein and co-conspirators used RRA to fraudulently induce investors to: (1) loan money to non-existent borrowers based upon promissory notes and requests for short-term bridge loans for business financing; and (2) invest funds based upon anticipated pay-outs from purported confidential civil settlement agreements.

In court, defendant Rothstein admitted that he and other co-conspirators solicited investors to loan money to purported RRA clients through promissory notes and short-term bridge loans. Defendant Rothstein falsely represented to the investors that the purported clients were willing to pay high rates of return on these loans. In the settlement agreement scheme, Rothstein and other co-conspirators solicited clients to invest in purported civil case settlement funds. Rothstein and his co-conspirators falsely told investors that these settlements ranged in amounts from hundreds of thousands to millions of dollars. Rothstein falsely represented to investors that these settlements could be purchased at a discount and would be repaid over time to the investors at full face value. In addition, investors were told that these funds would be held in the trust account of RRA. In both instances, the purported investment vehicles never existed, but were part of an elaborate Ponzi scheme in which new investors’ money was used to repay money owed to earlier investors.

To execute this four-year fraud scheme, Rothstein and his co-conspirators used multiple bank accounts at TD Bank, N.A., Gibraltar Private Bank and Trust and other financial institutions to deposit and launder investors’ money. As well, to perpetuate and conceal the fraud, Rothstein and his co-conspirators created and caused the creation of false bank documents, false online bank account information, and false settlement agreements and promissory notes, which were shown to investors as proof that the settlement and loan monies existed. In fact, however, there were no settlement funds or loan clients and the bank accounts only contained “Ponzi” scheme funds.

To further fund the Ponzi scheme, defendant Rothstein and other co-conspirators defrauded clients of RRA in a civil suit initiated by RRA on their behalf as plaintiffs. Without the clients’ knowledge, RRA settled the lawsuit in favor of the defendant, thereby obligating the clients to pay $500,000 to the defendant in the civil lawsuit. To perpetuate and conceal the fraud, defendant Rothstein and other co-conspirators created a false federal court order, purportedly signed by a U.S. District Judge, stating that the clients had won the lawsuit and were owed a judgment of approximately $23 million. The false court order also stated that the defendant in the civil suit had transferred the funds to the Cayman Islands to avoid paying the judgment. Defendant Rothstein and other co-conspirators falsely advised the clients that to recover those funds, the clients were required to post bonds. In this way, defendant Rothstein caused the clients to wire transfer approximately $57 million to a trust account he controlled, purportedly to satisfy the bonds.

According to the information, defendant Rothstein and other co-conspirators used the funds obtained through the Ponzi scheme for their own benefit. This included, for example, using the money to fund and operate RRA, to make contributions to federal, state, and local political candidates, and generous donations to public and private charitable institutions. The money was also used to pay for lavish gifts, including exotic cars, jewelry, boats, cash and bonuses to individuals and members of RRA, to hire local police officers to provide security, and to provide gratuities to high ranking members of police agencies. In addition, the money was used to purchase controlling interests in restaurants and other businesses, and to socialize with politicians and sports figures. According to the information, these expenditures were calculated to enhance defendant Rothstein’s reputation and ability to solicit potential investors in the Ponzi scheme, provide an air of legitimacy and credibility to RRA, engender loyalty, and deflect law enforcement scrutiny.

U.S. Attorney Jeffrey H. Sloman said, “Today’s guilty plea is an important step in bringing to justice those who perpetrated a $1.2 billion Ponzi scheme under the guise of operating a legitimate law firm. The U.S. Attorney’s office will continue to pursue all leads and evidence as they are uncovered.Rest assured, those who are criminally culpable will be held accountable. Victims can also take comfort in knowing that the United States will do everything it can to identify, seize and equitably refund fraud proceeds.”

“Scott Rothstein used a classic approach to mislead investors—an ostentatious lifestyle, a charismatic personality and guarantees of sky-high returns—all red flags in the world of Ponzi schemes,” said FBI Special Agent in Charge John V. Gillies. “It is a lesson for all investors to learn that they need to look beyond the hype. We will continue to work with our partners to investigate investment fraud schemes. The quick resolution of this case was the direct result of the outstanding teamwork between the U.S. Attorney’s Office, the Internal Revenue Service, and the FBI.”

IRS Special Agent in Charge Daniel W. Auer stated, “This case shows that the appearance of success can be a mask for a tangled financial web of lies. This investigation is not over as we are committed to ‘following the money trail.’ We will continue to pursue the evidence wherever it leads, leaving no financial stone unturned.”

Mr. Sloman commended the investigative efforts of the FBI and the IRS in connection with this investigation. Mr. Sloman also noted the cooperative efforts of the Securities and Exchange Commission, Miami Regional Office. The case is being prosecuted by Assistant U.S. Attorneys Lawrence LaVecchio, Paul F. Schwartz and Jeffrey N. Kaplan. The forfeiture proceedings are being handled by Alison Lehr and Evelyn Baltodano-Sheehan.

Investigation by Federal, State, and Local Task Force Leads to Mortgage Fraud Charges Against Six People Involving Million-Dollar-Plus Houses
Two Home Builders and Former Banker Charged

CINCINNATI—A two-year investigation by the Greater Cincinnati Mortgage Fraud Task Force has resulted in a seven-count indictment charging two Cincinnati area home builders, a former Huntington National Bank vice president, and a self-employed tax preparer and interior designer with participating in a mortgage fraud scheme to sell four high-end luxury properties to “straw buyers.” A straw buyer is someone who is listed as the owner of a house, but is not really the one buying the house.

Carter M. Stewart, United States Attorney for the Southern District of Ohio, Ohio Attorney General Richard Cordray, Warren County Prosecuting Attorney Rachel Hutzel, and Keith L. Bennett, Special Agent in Charge, Federal Bureau of Investigation (FBI) and other task force participants announced the indictment today.

The grand jury returned charges against:

Eric D. Duke, 35, Newport, Kentucky. Duke is a self-employed tax preparer and interior designer. He also owned a property management company called Rivendale Property Management Group, L.P., in Maineville, Ohio.

Terrence J. Monahan Jr., 36, Cincinnati, formerly with Huntington National Bank.

Bernard J. Kurlemann, 56, of Mason, owner of Kurlemann Homes of Long Cove and Long Cove Management, LLC.

Bryan Sanneman, 38, of Mason, owner of Sanneman Homes, Inc.

The charges stem from the sale of four residential properties in 2006 to 2007, three of which were sold for approximately $2 million each. The indictment alleges that Monahan, Sanneman, and Kurlemann, each conspired with Duke to defraud lenders involved with the sales. 

The scheme, as alleged in the indictment, involved Duke locating two people willing to buy the properties in name only and let their names be used on loan applications. The indictment alleges that Duke worked with a mortgage broker who submitted fraudulent loan applications that contained false income and assets. According to the indictment, Monahan gave Duke a customer bank account statement to be used as a “go-by” to create fictitious account statements to support fraudulent assets on the loan applications. 

The indictment also alleges that Sanneman and Kurlemann provided documentation to the lenders falsely stating that they had received down payments from the borrowers when they had not. The indictment alleges that the defendants conspired with Duke to have the fraudulent loans approved in order to sell their properties. 

The indictment alleges that the defendants benefitted from the scheme because they were able to sell their expensive properties, get out from under substantial mortgages, and receive additional loan proceeds. 

The indictment charges all four defendants with conspiracy. Duke and Monahan are charged with conspiracy to commit wire fraud and wire fraud, both crimes punishable by up to 20 years’ imprisonment.

Duke and Kurlemann are charged with conspiracy to commit loan fraud, punishable by up to five years’ imprisonment, and two counts of loan fraud. Each count of loan fraud is punishable by up to 30 years’ imprisonment.

Duke and Sanneman are charged with conspiracy to commit loan fraud and loan fraud.

The indictment also seeks forfeiture of any property or assets derived as a result of the crimes.

Loan proceeds from the alleged fraud totaled approximately $6.7 million.

Charges have been filed separately against the straw buyers. Francisca Webster, 46, of Cincinnati, has been charged in a separate information, with conspiracy to commit wire fraud punishable by up to 30 years’ imprisonment. Christopher Gagnon, 37, of Florence, Kentucky has been charged with loan fraud, punishable by up to 30 years’ imprisonment.

Stewart commended the investigation by the Greater Cincinnati Mortgage Fraud Task Force. The Greater Cincinnati Mortgage Fraud Task Force is a multi-agency, multi-jurisdictional initiative dedicated to combating the mortgage fraud problem in the Southern District of Ohio.

The defendants will be summoned for their initial appearances before a U.S. Magistrate Judge.

The case is being prosecuted by Assistant United States Attorney Jennifer C. Barry, and Special Assistant United States Attorneys Bruce McGary of the Warren County Prosecutor’s Office and Christopher Wagner with Ohio Attorney General Richard Cordray’s Office.

Milton Retana  Con Man Found Guilty of Operating $62 Million Ponzi Scheme That Targeted Spanish-Speaking Investors

LOS ANGELES—A Huntington Park man who preyed on Spanish-speaking investors with promises of hefty returns in the real estate bubble has been found guilty of federal charges for bilking more than 2,000 victims out of more than $62 million. , 46, was convicted yesterday by a federal jury of six counts of mail fraud and one count of making false statements to government agents who were investigating the case.

Following a week-long trial in United States District Court, jurors deliberated for less than an hour on Tuesday before convicting Retana of charges that carry a potential penalty of 125 years in federal prison. Dozens of victims were in court to hear the announcement of the guilty verdicts.

Retana began soliciting investors in 2006 through his company, Best Diamond Funding, by telling them that their money would be used to buy and sell real estate. Best Diamond Funding solicited money through advertisements in Spanish-language magazines, on the Internet, and during weekly investment seminars at locations across Los Angeles. The investment seminars often had as many as 300 potential investors and incorporated religious messages. Retana guaranteed returns as high as 84 percent each year, claiming that he would purchase properties in bulk at below-market prices and immediately sell them for a profit. However, records obtained by federal investigators showed that Retana used only a tiny fraction of the victims’ money to purchase real estate and that his company was actually losing money.

During the trial, several victims testified that they mortgaged their homes and drained their retirement accounts because they believed Retana’s promises that their investments would be safe. The victims who testified at trial were largely from working-class families in East Los Angeles, and they included a stone mason, a long-haul truck driver, and a roofer who was also a pastor at his local church.

Retana’s scheme was almost uncovered in the summer of 2008, when the California Department of Real Estate audited his company. But Retana stymied that investigation by ordering his employees to hide all of the investor files at the back of his wife’s religious bookstore, La Libreria Del Exito Mundial. His scheme was disrupted in October 2008, when federal agents from the United States Postal Inspection Service and the Federal Bureau of Investigation executed search warrants on the offices of Best Diamond Funding and the bookstore. During those searches, agents found $800,000 in cash stashed in Retana’s desk, as well as another $3.2 million in cash hidden in the back of the bookstore. The FBI also seized another $8 million from Retana’s bank accounts.

Soon after the execution of the federal search warrants, agents interviewed Retana, who lied about how much money he had received from the investors and claimed that he could pay all of them back. Retana was later secretly recorded telling a Best Diamond employee not to tell the government how much money Best Diamond had received from the investors.

Retana is scheduled to be sentenced by United States District Judge R. Gary Klausner on April 26

Milton Retana  Milton Retana

Wheatland Bank in Naperville, IL, which opened less than three years ago, sued its former chief executive, Michael Sykes for allegedly breach of fiduciary duty, fraud, negligence and conspiracy.

The lawsuit was filed in Cook County Circuit Court Dec. 21, 2010.

Sykes, a bank organizer and shareholder resigned as Wheatland CEO last June; Arthur Sundry, a bank shareholder who served on the board until July 1; and Edward Elsbury, a shareholder; allegedly approved commercial real estate loans they knew were shaky and then guiding those customers to another lending group that he owned.

According to a Crain’s Chicago Business report, the documents alleged that the three men co-owned a Naperville business called Mezzanine Finance LLC that made loans to commercial real estate developers at high rates. They then allegedly arranged loans from Wheatland that helped borrowers pay back the money they owned Mezzanine Finance.

The lawsuit said the three defendants “personally profited from these loans as proceeds were used to pay off mezzanine loans placed by them against the properties through their separate finance company, Mezzanine Finance LLC.” Principle officers at Wheatland didn’t know about Mezzanine’s role, the lawsuit said.

Sykes used his Wheatland desktop computer to email Mezzanine clients and others about that company’s business and did so during bank business hours, the lawsuit said.

Wheatland has about $480 million in assets, and about 30 percent of its loans are seriously delinquent. In the lawsuit, the bank is seeking compensatory and punitive damages, among other things.