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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Four Sentenced in Mortgage Fraud Scheme

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mountain View Woman Convicted of Wire Fraud and Witness Tampering
Self-Proclaimed “Honorable Lady of San Francisco” Defrauded Mortgage Lenders, Financial Institutions of $6.5 Million

SAN FRANCISCO—Judy “Miu Wan” Yeung was convicted of one count of conspiracy to commit wire fraud, eight counts of wire fraud, and three counts of witness tampering by a federal jury yesterday afternoon, United States Attorney Joseph P. Russoniello announced.

The jury, after deliberating for one day, found that Yeung engaged in a mortgage fraud conspiracy between approximately December 2004 and January 2007. Yeung, together with two mortgage brokers, recruited five individuals to submit loan applications in their names in order to obtain loans totaling more than $6.5 million. Evidence at trial established that Yeung had bad credit and could not have obtained these loans in her own name. Yeung engaged in these transactions in order to purchase investment properties in Gilroy, Calif., when real estate prices were still rising. Yeung also fraudulently refinanced her San Francisco residence in Balboa Terrace, in order to obtain cash from mortgage lenders and to pay off existing loans. Testimony at trial established that Yeung obtained more than $624,000 in cash from these fraudulent transactions.

“The conviction of Ms. Yeung should be taken as affirmation that our efforts to uncover and prosecute those engaged in mortgage fraud, at whatever level of their involvement are serious and ongoing,” U.S. Attorney Russoniello said. “Mortgage fraud has weakened our economy nationally and done irreparable damage to households, neighborhoods, and communities throughout this district. Unscrupulous mortgage brokers often encouraged many borrowers who knew or should have known better to exaggerate their qualifications for a loan they couldn’t afford on a home whose value was overstated, often due to the complicity of unprincipled real estate appraisers. With unwarranted confidence that any risk of default could be passed on to unwary investors, many lenders, including some major banks, which had been pressured to relax their lending standards so as to expand the prospect of home ownership to persons otherwise financially unqualified, made loans that will never be repaid.

“To all those homeowners who stay in their homes and struggle each month to meet their contractual obligations, we owe a responsibility to ferret out, wherever possible, the perpetrators and abettors of this massive fraud,” U.S. Attorney Russoniello added. “The Obama Administration through the United States Department of Justice has made the prosecution of mortgage fraud a priority of its white collar crime enforcement program and this office is committed to using its resources to the fullest to meet this mandate. We continue to work with the FBI, other federal investigative agencies and our state and local partners to effectively bring those responsible for misconduct in this district to justice.”

Yeung’s scheme involved the submission of false information and forged documents to mortgage lenders, including Washington Mutual and J.P. Morgan Chase. For example, the loan applications in each case grossly exaggerated the income, assets, and creditworthiness of the individuals posing as borrowers for Yeung. In addition, evidence at trial established that Yeung induced others to forge letters from Hang Seng Bank that falsely verified assets held by the borrowers. The forged letters were then used in support of the loan applications. Some of the individuals posing as borrowers testified at trial. They stated that Yeung had promised to pay the mortgages obtained in their names and that, in two cases, Yeung promised to pay them a reward of $20,000 to $40,000.

Several of the witnesses stated that Yeung touted herself as the “Honorable Lady of San Francisco,” and she even provided business cards reflecting that title. Some witnesses testified that they believed Yeung when she told them that she could further their careers and, in some cases, would use her political connections in San Francisco to do so.

In addition, the jury found Yeung guilty of three counts of witness tampering. Two of the “straw buyers” whom Yeung had recruited testified at trial that Yeung told them to lie to the FBI agents who were investigating the case.

The guilty verdict followed a three week jury trial before U.S. District Court Judge Susan Illston.

Two mortgage brokers were charged in connection with the case, which was referred to the FBI by the San Francisco District Attorney’s Office. They have pleaded guilty to wire fraud conspiracy charges and are awaiting sentencing.

Yeung, 58, of Mountain View, Calif., was indicted by a federal grand jury on April 9, 2009. The grand jury then returned a superseding indictment against her on July 30, 2009.

Yeung is released on a secured bond. The sentencing of Yeung is scheduled for May 14, 2010, before Judge Susan Illston in San Francisco. The maximum statutory penalty for each count in violation of Title 18, United States Code, Section 1349, is 30 years and a fine of $1,000,000, plus restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Susan E. Badger and Jeffrey Rabkin are the Assistant U.S. Attorneys who are prosecuting the case with the assistance of Helen Yee and Elizabeth Garcia. The prosecution is the result of a three-year investigation by the Federal Bureau of Investigation.

Former Real Estate Investor Comes Up with the Short Straw in Mortgage Fraud Scheme

Kevin M. Lafavers of LaGrange, Ky. faces sentencing Feb. 2 in the case. He pleaded guilty to wire fraud.

A former real estate investor, Lafavers pleaded guilty to federal charges that he set up straw deals to obtain inflated mortgages on more than 100 Indianapolis houses has been sentenced to prison.

Forty-four-year-old Robert A. Penn of Naples, Fla. also was ordered Monday to pay more than $11 million in restitution. He earlier pleaded guilty to charges of wire fraud and admitted to money laundering conspiracy.

The former Indianapolis residents were indicted in July on charges that from 2003 to 2005 they bought many of the homes for $120,000. Those were later seized by lenders and resold at sheriff’s sales for $3,500 to $26,000.