At 5 p.m. Friday, federal regulators filed into the 10 branches of La Jolla Bank FSB and closed it down.

A victim of the exploded commercial real estate bubble and possibly the perpetrator of loan fraud, the bank had 5,000 percent more capital in its outstanding commercial building and development loans than it had on hand to cover the debt, officials from the Federal Deposit Insurance Corp. said.

“To put it mildly, that’s overextended,” said Greg Hernandez, a spokesman for the FDIC in Washington, D.C.

On Friday, OneWest Bank FSB entered into a deal with the FDIC to manage the loans and share the losses. It also took over La Jolla Bank’s $2.8 billion in deposits and its 10 branches in Southern California and Texas. On Monday, La Jolla Bank’s branches will open as OneWest, and depositors should see no difference in service, said Edith Gray, a spokeswoman for the FDIC, who was in Rancho Santa Fe Friday.

Founded in 1985 as La Jolla Village Bank, La Jolla Bank grew aggressively during the construction boom of the 2000s. From 2004 to 2007, the company doubled its assets by investing heavily in land, development and apartment construction.

But as the housing market fell precipitously starting in 2006, the bank began to have problems, the Office of Thrift Supervision said in a prepared statement. Of the $3.6 billion it lent, 21.6 percent was considered “non-performing” by the agency.

Gray said the bank may also have also been making fraudulent loans, but she said she couldn’t elaborate further. A spokesman for the Office of Thrift Supervision, which would oversee a fraud investigation, declined to comment.

The closure itself went smoothly, Gray said. Many of the bank’s employees have stayed on to work with regulators through the weekend. Officials have to wrap up any outstanding transactions in all branches to ensure an easy transition to OneWest. Even at the start, employees took the entrance of regulators calmly.

“There was no drama,” Gray said. “It’s been a very smooth transition.”

Nevada Attorney General Catherine Cortez Masto has announced the indictment of Jeffery Tye Brown, 50, of Henderson, on charges of four felony counts of theft and one felony count of forgery in connection with the operation of DB Financial Services, a foreclosure rescue business located in Henderson.

The State alleges Brown misled customers into believing that, for a fee, he would guarantee resolution of a victim’s pending mortgage foreclosure.

“My mortgage fraud task force is aggressively prosecuting loan modification scams,” said Masto. “Scammers should know we will use all our resources to extradite, indict and convict you if you attempt to perpetrate these schemes upon Nevada’s consumers.”

The indictment alleges that between December 2007 and February 2008, Brown contacted victims whose homes were going into foreclosure and obtained advance payments of $999 for foreclosure rescue services that he never performed.

He failed to give refunds despite promising refunds in his contracts and advertising. He also allegedly forged documents to the Mortgage Lending Division to cover up the criminal activity.

Shortly after execution of a search warrant on the DB Financial offices in 2008 by the Attorney General’s mortgage fraud task force, Brown fled the country.

He has been extradited back to the U.S. from the Philippines, where he was in hiding to evade authorities.

A District Court arraignment has been scheduled for Feb. 25 in the Lower Level Arraignment Court of the Las Vegas District Court.

The indictment is not a determination of guilt or innocence but is just a finding of probable cause that a crime was committed. The Defendant is presumed innocent until proven guilty.

Anyone who has information regarding this case should contact the Attorney General’s Office at 702-486-3777 in Las Vegas or 775-684-1180 in Carson City.

A Brookline man has been sentenced to five years probation, with four months of home detention, for participating in a mortgage fraud scheme, federal prosecutors said.

Jason Jester, 40, of Fordham Drive was convicted of wire fraud conspiracy for running Precision Mortgage, a mortgage broker business that helped borrowers obtain real estate loans by lying about the borrowers’ finances, prosecutors said.

Jester conspired to submit false documents to lenders, including appraisals that overstated the value of property, and federal tax forms and pay stubs that overstated the borrower’s income, prosecutors said.<-->

Nora R. Dannehy, United States Attorney for the District of Connecticut, announced that ANNA McELANEY, 38, a licensed real estate agent residing in Norwalk, pleaded guilty today before United States Magistrate Judge Holly B. Fitzsimmons in Bridgeport to one count of bank fraud stemming from her involvement in a “short sale” mortgage fraud scheme.

A short sale transaction involves a mortgage holder or lender entering into an agreement to release its mortgage or lien on real property in exchange for payment of less than the total amount owed on the underlying debt. Many short sale transactions are legitimate.

According to court documents and statements made in court, McELANEY worked with Sergio Natera, also a real estate agent, to defraud Regions Bank, which held two mortgages on a residential property in Bridgeport. On December 5, 2007, McELANEY, who was a listing agent for the property, received an offer to purchase the property for a price of $132,500. However, McELANEY and Natera subsequently directed communications to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management, LLC, an entity that Natera controlled. The bank agreed to a short sale of the property for the lower price, and released its mortgages on the property.

On June 9, 2008, Natera, through BOS Asset Management, sold the property for $132,500 to the original bidder on the property, and Natera and McELANEY retained the difference in the two sale prices.

McELANEY is scheduled to be sentenced by United States District Judge Janet C. Hall on May 10, 2010, at which time she faces a maximum term of imprisonment of 30 years, a fine of up to $1 million, and an order of restitution.

Natera pleaded guilty to one count of bank fraud on February 11, 2010. He awaits sentencing.

This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Ann M. Nevins.

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 email 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.

These are mortgage scammers. And now, some national organizations, including the Federal Bureau of Investigation, are targeting them.

On Thursday in New York, one of the organizations that tries to steer homeowners to legitimate counselors teamed up with Mayor Michael Bloomberg to roll out a “Loan Modification Scam Alert.” The goal: to prevent yet more people from giving money to financial predators. The nonprofit organization, NeighborWorks, has already tried to warn distressed homeowners in California, Florida, Texas, Ohio, and Maryland. California leads the nation in complaints about mortgage fraud.

“It is a rising problem, with more and more people every day calling to say they have been scammed,” says Eileen Fitzgerald, chief operating officer of NeighborWorks. “Folks are desperate, and they are willing to try anything.”

Although there are no national numbers on how many people are being scammed – many people are too embarrassed to report they got taken – there are probably hundreds of thousands of victims, Ms. Fitzgerald says.

The problem will get worse this year, she anticipates, because so many adjustable-rate mortgages (ARMs) are coming up for renewal – especially in California, Florida, Arizona, and Nevada. Particularly problematic could be option ARMs, in which the homeowner decides how much money he or she can afford to pay each month.

“Your ability to pick the amount you can afford to pay is definitely becoming much harder, and the monthly payments on the vast majority of these mortgages are going up,” Fitzgerald says.

At the same time, the number of loan modifications made by the companies servicing mortgage payments remains relatively small but growing.

As of the end of January, 116,000 permanent loan modifications had made since last February, when the Obama administration unveiled its Making Home Affordable Program, according to the US Treasury on Wednesday. The Obama program provides incentives to lenders to modify mortgages.

The 116,000 figure is double the number in December. In addition, 76,000 homeowners have been offered permanent loan modifications but have not signed the paperwork yet.

However, many more mortgage problems persist. As of September 2009, the Mortgage Bankers Association reported, 5.8 million mortgages were at least 60 days delinquent. This includes homes that have entered the foreclosure process.

TransUnion, a credit reporting company, released its own numbers on Tuesday. At the end of the fourth quarter last year, it said, 6.89 percent of all US mortgage payments were at least 60 days past due. That was an all-time high.

Enter unscrupulous loan-modification companies. They advertise on late night-television or radio shows and sound as if they are linked to the Obama program.

“Many of them have the word ‘hope’ in their phone number,” says Jonathan Mintz, commissioner of the Consumer Affairs Department in New York. “But it’s a false hope.”

New York City recently passed a mortgage antifraud law that requires loan-modification companies to reveal that they cannot charge upfront fees. People in need are encouraged to call a 311 phone number to get referred to legitimate counselors. But many of the scammers are located in other parts of the United States.

For example, a man in Queens, a borough of New York City, recently contacted a California company that was advertising heavily on radio and television that it could modify mortgages.

“They asked for $4,800 upfront, and the desperate homeowner sent them $2,200 dollars,” says Petra Tuomi, policy director at the Center for New York City Neighborhoods, a network of nonprofits that provides services for housing counseling. “They told him to stop paying the mortgage to the lender, and then he was stuck with them.”

The company has since gone out of business, and the man lost his $2,200.

Suspicious activity reports filed in the third quarter of 2009 showed a 7.5 percent increase in possible mortgage loan fraud over a year earlier, the Financial Crimes Enforcement Network (FinCEN) reported on Thursday.

Forty-two percent of the reported activity took place in California and Florida, while the greater Miami, Los Angeles and New York areas topped the list of metropolitan locations.

The Bank Secrecy Act requires financial institutions to file suspicious activity reports, or SARs, with FinCEN when they identify or suspect fraudulent activity.

A unit of the U.S. Treasury Department that provides and analyzes financial intelligence, administers the Bank Secrecy.

The report covered the period from July 1 to Sept. 30, 2009. FinCEN said that 15,697 mortgage loan fraud SARs had been submitted during the quarter, up 7.5 percent over the third quarter of 2008.

But the agency cautioned that the increase did not necessarily reflect an uptick in fraud. It said three-quarters of the suspicious activity reports, which were filed by depository institutions, included activities that were more than a year old, and half included activities that were more than two years old.

But FinCEN said it had received hundreds of reports describing possible loan modification fraud or foreclosure rescue scams since it asked financial institutions in April to look for “red flags” indicating such activities.

The agency said two schemes were most commonly reported in the SARs:

One involved homeowners who were duped into signing quit-claim deeds to their properties. The homes were then sold to straw borrowers and the homeowners received eviction notices.

The other involved scammers who falsely claimed affiliations with lenders to convince distressed homeowners to pay large advance fees for modification services. The scammers then took no action on the homeowners’ behalf.

U.S. Attorney General Eric Holder said last month the FBI was investigating more than 2,800 mortgage fraud cases — up nearly 400 percent from five years ago.

In November, President Barack Obama set up an interagency task force to focus on fraud in mortgages, securities, economic stimulus programs and government bailouts.

Midland Police say the second man wanted in this case has turned himself in.

Marcus Rosenberger turned himself in around noon on Wednesday.

Orange County Man Gets 15 Years for Fraud, Refusal to Account for Off-Shore Money

A Downey woman who orchestrated a real estate fraud scheme that caused nearly $13 million in losses after falsely promising to help homeowners in default on their mortgages has been sentenced to 10 years in federal prison. A second person involved in the scheme was sentenced yesterday to 15 years in prison after a federal judge determined that he had refused to account for proceeds of the scheme in an off-shore bank account that he had agreed in his plea agreement to repatriate.

Martha Rodriguez, 38, who pleaded guilty to mail fraud and money laundering charges in relation to the scheme that ran from May 2003 until November 2005, was sentenced yesterday morning to 120 months in prison by United States District Judge George H. King. In issuing the decade-long sentence, Judge King noted that Rodriguez perpetrated the mortgage fraud scheme while she was free on bond after being charged in another real estate fraud scheme. Edward Seung Ok, 44, of Huntington Beach, who pleaded guilty to mail fraud, was sentenced yesterday afternoon to 15 years in prison. Before issuing the sentence, Judge King ruled that Ok violated his plea agreement by failing to provide investigators with access to an account in the Bank of Nevis on the Caribbean island of St. Kitts into which Ok had transferred more than $1.6 million during the course of the fraudulent scheme. In his plea agreement, Ok had agreed to repatriate and transfer to the government all of the funds in that account. In addition to continuing to conceal the money, Ok transferred more than $1 million of the off-shore money into a secret account in the United States, where he could access the funds for his personal expenses, which included golf club memberships, illegal drugs and a $235,000 Lamborghini Gallardo, prosecutors told Judge King during yesterday’s hearing. Addressing the court during yesterday’s hearing, Ok admitted that he spent more than $1 million of the money he had hidden in the off-shore account during a two-year period when he was free on bond in this case.

The prison sentences stem from a fraud case in which Rodriguez, Ok and three others used computerized databases that list homes going into foreclosure to locate victims, who were promised refinancing services. The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach. Instead of obtaining refinancing, Rodriguez and her co-schemers submitted loan applications in the names of “straw buyers” who were purportedly buying the properties. In some cases, the defendants paid the straw buyers for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge. The loan applications for the straw buyers – which always contained false information – caused a series of lenders to fund more than 100 mortgages worth more than $40 million. The loan proceeds were used to pay off the loans in default, sometimes to make a few mortgage payments on the new loans, and to provide some instant cash to homeowners. However, the remaining proceeds, typically representing the bulk of the homeowner’s equity, were skimmed off by Rodriguez and her co-schemers.

Even though they were promised that they would be able to keep their homes, the victim homeowners usually lost title to their homes. The lenders suffered losses when the straw buyers then failed to make loan payments and the new loans went into default. Lenders were often unable to foreclose because the straw buyers did not know the properties were in their names. The scheme targeted commercial lenders and more than 100 homeowners across the Southland.

Three other defendants in this case were sentenced late yesterday by Judge King. They are:

Cynthia Valenzuela, a 27-year-old Orange resident who pleaded guilty to mail fraud, was sentenced to one year and one day in prison;

Vladimir Stefanovic, 38, of Huntington Beach, was sentenced to 18 months in prison; and Maria G. Juarez, 39, of Canoga Park, was sentenced to three years in prison, in part because, after she was arrested on the case, she continued to perpetrate loan fraud while she was free on bond.

This case is the result of an investigation by the Federal Bureau of Investigation and IRS – Criminal Investigation. The Los Angeles County Department of Consumer Affairs, Real Estate Fraud Section, provided substantial assistance during the investigation.

A 32-year-old Birmingham man pleaded guilty today in federal court to mail fraud charges connected to a mortgage fraud scheme that totaled more than $1 million, announced U.S. Attorney Joyce White Vance in conjunction with FBI and Housing and Urban Development officials.

Al Carson Rockett, Jr.,  was charged in a five-count information filed in U.S. District Court in Birmingham and pleaded guilty today before U.S. District Judge R. David Proctor to all charges. He agreed to forfeit $1,090,046 to the government as proceeds of illegal activity.

The four mail fraud counts involve parcels containing mortgage-application documents sent by a private postal carrier from Birmingham to mortgage companies in June, July and August 2005. The mortgage fraud ring operated between 2004 and 2006, according to court documents. Count Five of the information sought the forfeiture from Rockett.

According to Rockett’s plea agreement, he conducted the mortgage fraud as follows:

Rockett convinced people they could buy houses from him without any down payment or closing costs and without the need for documents to support a loan application. Buyers were told the houses were ready to be used as government-subsidized rental properties, that tenants were available to move in immediately and rent payments would exceed the mortgage payments. In many instances, however, there were no tenants, the buyers couldn’t make the mortgage payments, and the properties quickly fell into foreclosure.

On other loans, Rockett stated on loan documents that buyers were making down payments when, in fact, Rockett was making the payment.

Finally, none of the loan documents disclosed Rockett was paying each buyer between $3,000 and $10,000 as an inducement to buy his properties. The mortgage loan documents involved required that all cash payments between a buyer and seller associated with a real estate transaction be disclosed.

“This case is a clear example of the dangerous fraud that has permeated our real estate markets,” Vance said. “This prosecution should send a clear signal to anyone who has, or might consider falsifying any type of loan documents that it is our goal to investigate every case and bring the perpetrators to justice. This is not just a question of addressing losses to our financial community,” she said. “We have seen the value of our homes plummet and our communities put at risk by individuals who steal, lie and abuse the system. When a person lies on loan documents and then goes into foreclosure, we all suffer.”

HUD Inspector General Kenneth Donohue said Rockett’s case is an example of how his office, working with law enforcement agencies and U.S. Attorneys’ Offices across the country, will pursue individuals who are participating in mortgage fraud schemes, which are eating away at the economic heart of this country. “We will use whatever means necessary – both civil and criminal – to isolate and punish mortgage companies’ leadership and personnel who are corroding the soundness of HUD programs,” Donohue said.

“Mortgage fraud tears at our economy and threatens the American dream,” said FBI Special Agent in Charge Patrick Maley. “As the mortgage fraud problem continues to grow, the people of North Alabama can be assured that the FBI, along with our law enforcement partners, will be there to aggressively investigate and bring to justice those who would work to defraud financial institutions through lies and deceit,” he said.

The maximum sentence for each mail fraud count is 20 years in prison and a $1 million fine.

Stephen Thomas Bybel had a business idea that would make him a landlord and line his pockets while sprucing up neighborhoods where homes in foreclosure were left to deteriorate and become targets of vandals.

Pasco County sheriff’s officials see it another way: He broke into vacant homes, changed the locks and rented out other people’s houses. Bybel was arrested at his house Wednesday and was charged with one count of scheming to defraud.

Reached by telephone after his release from jail, the 48-year-old Bybel maintained he didn’t defraud anyone.

“I think I’m doing a service to the community.”

In all, Sheriff Bob White said, Bybel took possession of 72 homes – in the Land O’ Lakes and Wesley Chapel areas — beginning in December and rented out 31 of them. White said Bybel collected nearly $17,000 for rent in January on the homes; Bybel said that’s not correct because some people didn’t pay their rent. He didn’t say how much he collected.

Ken Londo said he gave Bybel $650 for a three-bedroom house in Land O’ Lakes two weeks ago.

“I had no idea, actually,” he said when told of the allegations against Bybel.

“I’m freaking out. What are you going to do?” said his wife, Lisa Londo. “I don’t know.”

The Londos said they moved to the home on Aldus Drive with their four children because their previous apartment was filled with black mold.

“We really thought that we had found the right place,” Lisa Londo said.

The investigation into Bybel began when a real estate agent, also a part-time Pasco deputy, was recently trying to show a house that was for sale but discovered the locks had been changed. He saw a notice from Bybel’s company on the door and called him. Bybel told him he had “gotten the wrong house” and then provided a key to the Realtor, a sheriff’s office report states.

In September, Bybel started a company – Real T Solutions Investments, LLC — and hit the streets of central Pasco searching for vacant homes. He would select some and then by filing a one-paragraph “memorandum of adverse possession” legal notice with the Pasco Clerk of Courts office, he would take possession of such properties. Bybel would then change the homes’ locks, sometimes give them a fresh coat of interior paint and then rent them out.

Bybel, who lives at 22430 Stillwood Drive, said Wednesday that he went through hoops trying to locate owners of the homes. He sent them letters via the mail, tried to find them on Facebook and left notices on their properties’ front doors. Detectives say they don’t believe any of the homeowners were properly contacted.

One of the homes which Bybel has taken over, White said, is owned by another deputy who just started work this week.

Apparently, it’s a scheme that’s being done in Miami and Las Vegas, the sheriff said. In fact, White said, they are investigating another unrelated similar scheme in Pasco.

This comes at a time when tens of thousands of Florida homes are sitting empty, their owners too financially strapped to stay. Keeping track of so many homes is taxing on lenders, and many of the homes have been abandoned by owners waiting for foreclosure to be finalized.

It’s easy to see how foreclosed homes could slip through the cracks, said Anthony DiMarco, spokesman for the Florida Bankers Association. He said he hasn’t heard of such a scheme but isn’t surprised.

“There has been so much mortgage fraud, and there are lots of foreclosed homes,” he said. “It’s a matter of numbers.”

Bybel has maintained to authorities he was within his legal rights of adverse possession, said Detective Jeff Peake of the economic crimes unit.

The adverse possession statute’s intent, said White, is indeed to claim property but not in the way in which Bybel interpreted it. For example, he said, if someone mistakenly builds a structure that stretches over the property line of his neighbor’s and it goes uncontested for a certain amount of time, the land can be claimed as the person who built the building.

“That’s nowhere near this,” White said of what Bybel was doing. “This is closer to burglary and grand theft than adverse possession.”

Bybel said when he was setting up his business he ran the idea by a few lawyers.

“They all said this was a gray area,” he said. “They didn’t say not to do it.”

The way Bybel sees it, he cleaning up his community while helping others, kind of a modern day Robin Hood in times of an economy mired in recession. In fact, his company mission statement says as much.

“Help stabilize communities blighted by vacant homes. Clean up the properties and provide affordable housing to citizens in transition,” it states in part.

“I read the papers,” Bybel said. “I watch the news and the world is falling apart and nobody is doing nothing about it.”

Illegal or not, he said, he’s helping “save” Pasco.

“It’s a victimless crime,” he said.

Bybel said he wanted to make renting homes in this economy easier for people who have lost their homes, such as himself. His New Jersey home, he said, was foreclosed on about a year ago.

He advertised on Craigslist, didn’t collect deposits and didn’t charge outrageous monthly rents, Bybel said. All the while, he was making sure the homes were maintained and even did some repairs inside like patching walls, steam cleaning carpets and painting to make the homes nice for his renters – and the neighborhood.

Now those renters he says he helped – such as Londo — have to find new homes.

“They need to find a place to live and like they say, quick like a bunny,” White said.

A 33-year-old Long Beach man who operated a number of ventures that he used to solicit money with false claims of profitable investments in real estate has pleaded guilty to a federal wire fraud charge.

Jon Weldon James pleaded guilty yesterday afternoon to the federal offense related to his Ponzi scheme that collected more than $33 million from his El Segundo-based venture that operated under a series of names, including J.W. James and Associates, Inc., and The Cloaking Device, Inc.

Appearing before United States District Judge R. Gary Klausner, James pleaded guilty and admitted that he defrauded more than 50 individuals who invested in his real estate-related investments from late 2003 through August 2006. James offered his investments through face-to-face meetings that included hosting presentations at restaurants, where he encouraged victims to invest their savings or money from their Individual Retirement Accounts.

While James told victims that he was using their money to invest in real estate and sent account statements that purported to show profits to some investors, James invested in only a few properties and made absolutely no profit from any real estate-related investments. However, in the hallmark of a Ponzi scheme, James used investors’ money to repay other investors who requested withdrawals of their funds. James also used investor money to pay for personal expenses, which included his wedding and an investment in a recording studio and production company called “On the Ball Entertainment.”

After taking in approximately $33 million from investors, repaying some investors and spending millions on personal and business expenses, James’s illegal conduct caused losses of approximately $11 million.

James is scheduled to be sentenced by Judge Klausner on May 24, at which time he faces a statutory maximum sentence of 20 years in federal prison.

ST. LOUIS, MO—The United States Attorney’s Office announced today that Randall Penberthy, Jr., has pleaded guilty to bank fraud in connection with brokering real estate transactions between 2006 and 2007.

From 2003 through 2008, Randall Penberthy, Jr. was engaged in the business of brokering real estate transactions in the St. Louis metropolitan area and elsewhere. Penberthy marketed real estate deals to associates and investors as potential rental properties. Penberthy operated and controlled several business entities, including Covenant Financial LLC, First Choice Investment and Loan LLC, and Midwest Management LLC. Penberthy operated his business initially out of an office in Chesterfield and later moved to 93 Centre Pointe, St. Charles.

According to court documents, between late 2006 and October 2007, Penberthy devised and executed a scheme to defraud financial institutions by means of material false representations. As part of the scheme, Penberthy recruited investors to buy residential real estate directly from distressed property sellers whose homes were in danger of foreclosure.

With Penberthy’s assistance, investors would finance the purchases through bank loans. Penberthy would fraudulently place and record a second or third deed of trust on the property, typically in the name of First Choice or some other entity he controlled, in order to make it appear that a legitimate second or third mortgage had been placed against the property, when in fact he knew that no such legitimate second or third mortgage existed.

Bank loan funds were used to pay the sales price of the property as well as to pay off the fraudulent second or third mortgage. Funds used to pay off the fraudulent second or third mortgage were paid to entities controlled by Penberthy, including First Choice and Midwest. He then used a portion of those funds to make the down payment on the property being purchased. Penberthy fraudulently misrepresented the source of down payment funds on loan documents. Penberthy’s scheme has caused financial institutions to incur financial losses in excess of $500,000.

Penberthy, 40, St. Charles, pleaded guilty to one felony count of bank fraud before United States District Judge E. Richard Webber.

He now faces a maximum penalty of 30 years in prison and/or fines up to $250,000, when he is sentenced on May 13, 2010.

PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment yesterday charging LOUIS CHERICO, a lawyer who practiced in New York City and Westchester County, with participating in a wide-ranging scheme to commit mortgage fraud, obstruction of justice, and money laundering.

According to the Indictment filed in Manhattan federal court:

From July through December of 2002, CHERICO participated in a fraudulent real estate investment scheme which had, as its primary objective, the purchase of multi-million-dollar residential properties in various communities in Westchester County, New York, including Purchase, Eastchester, and Rye, with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were equal to or in excess of one hundred percent of a property’s actual sale price, so that the defendant and his co-conspirators did not have to put any of their own money at risk in the transaction.

CHERICO served as the attorney for various co-conspirators in negotiating and closing the fraudulent purchases that were part of the scheme. CHERICO and his co-conspirators submitted to numerous federally-insured banks various documents, including loan applications, contracts of sale, deeds, real estate transfer documents, and title reports. Those documents contained materially false or misleading information about the income, assets, existing debt and credit-worthiness of the borrower, the chain of title to the property, and the sale price of the home, as well as the borrower’s intent to reside in the property as a primary residence, when, in fact, the properties were typically purchased for investment purposes. As a result of the scheme to defraud, CHERICO and his co-conspirators obtained millions of dollars in loan proceeds, enabling them to control certain properties that they otherwise would not have been able to purchase and finance.

The Indictment also charges CHERICO with laundering the illegal proceeds obtained from the sale of one of the properties used in the mortgage fraud scheme by transferring the proceeds from a bank account controlled by CHERICO to an account that was controlled by one of his co-conspirators, DOMINICK DeVITO. The transaction was designed to conceal and disguise the nature, location, source, ownership, and control of the illegal proceeds.

The Indictment further charges CHERICO with obstruction of justice, and conspiracy to obstruct justice, in connection with the 2003 sentencing of DOMINICK DeVITO, following DeVITO’s conviction in United States v. Pasquale Parello, et al.,(01 Cr. 1120) in United States District Court for the Southern District of New York on charges of racketeering and mortgage fraud. Specifically, CHERICO assisted DeVITO in concealing profits that DeVITO earned from the sale of a property located in Purchase, New York, and in submitting an affidavit containing false and misleading information about the sale to the United States Probation Office.

CHERICO, 69, of Eastchester, New York, was arrested this morning and was presented and arraigned this afernoon in Manhattan federal court. The case has been assigned to United States District Judge COLLEEN McMAHON.

If convicted, CHERICO faces a maximum sentence of 30 years in prison on each of the six counts of mortgage fraud, 20 years in prison on the money laundering count, 10 years in prison on the obstruction count, five years in prison on the conspiracy to obstruct justice, and a fine of the greater of $1,000,000, or twice the gross gain or loss resulting from the crime.

The State Bar of California, alarmed by the number of lawyers preying on vulnerable homeowners, today identified 16 attorneys who are under investigation for misconduct related to loan modification.

“In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public.

“The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.”

Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.”

About one-quarter  – almost 800 cases –  of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.

In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said.
In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement.

In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges

Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.”

The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.

• David Arase, Bar No. 233705, Costa Mesa, Arase Law Firm and National Housing Assistance
• Stephen Burns, Bar No. 113371, Los Angeles, Legal Group Network
• Robert Buscho, Bar No. 122556, Fullerton, United Law Group
• Nicholas Chavarela, Bar No. 251632, Santa Ana, Rodis Law Group and America’s Law Group
• Steven Feldman, Bar No. 103676, Mission Viejo, Feldman Law Center
• Eric Johnson, Bar No. 224065, Culver City, Avantgarde Group
• Paul Lucas, Bar No. 163076, Aliso Viejo, Lucas Law Center
• Brandon Moreno, Bar No. 233750, Santa Ana, U.S. Foreclosure Relief Corp.
• Jeffrey Nemerofsky, Bar No. 213014, Laguna Niguel, U.S. Advocacy Law Group and U.S. Financial Products
• Gregory Paiva, Bar No. 207218,Ontario, Law Offices of Gregory Paiva
• Adrian Pomery, Bar No. 249664, Orange, U.S. Foreclosure Relief Corp.
• Ronald Rodis, Bar No. 181873, Newport Beach, Rodis Law Group and America’s Law Group
• Mark Shoemaker, Bar No. 134828, Long Beach, Advocates for Fair Lending
• Marc Tow, Bar No. 78429, Newport Beach, Marc Tow and Associates
• Michael Yellin, Bar No. 255050, Los Angeles, A Fresh Start Loan Modification
• Sean Rutledge, Bar No. 255938, Irvine, United Law Group

The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:

• Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
• Office staff will not readily identify by name the attorney responsible for oversight of the business.
• The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
• The firm advises a consumer to stop paying the existing mortgage.
• The business, through its advertisements or claims of its representatives, makes  claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
• The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
• The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.

There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.

Consumers can also find qualified attorneys through a State Bar-certified lawyer referral service that can be found on the State Bar’s Web site (www.calbar.ca.gov), or by calling the State Bar’s Lawyer Referral Services Directory at 1-866-442-2529 (toll free in California) or 415-538-2250 (from outside California).

Consumers having a problem with the attorney handling their loan modification may contact the State Bar at 1-800-843-9053 or visit the State Bar’s Web site at www.calbar.ca.gov to find a complaint form.

The foreclosure crisis has resulted in a lot of work for lawyers hired to try to help struggling owners hang onto their homes.

But it has also resulted in a record number of complaints concerning claimed unscrupulous practices, some of which have already led to disciplinary action, according to a Daily Business Review article reprinted in New York Lawyer (reg. req.).

“There has definitely been a trend in the last six months or year where attorneys are having some involvement in loan modification scams,” says Arne Vanstrum of the Florida Bar.

He says the Florida Bar received 100 complaints in the last six months concerning lawyers involved in loan modifications, many of them in South Florida. Meanwhile, the state attorney general’s office got 756 complaints through August, a record. In all of 2008, the AG’s office got only 61 such complaints, the business publication recounts in a lengthy article.

Meanwhile, the California State Bar has taken the unusual step of making public the names of 16 attorneys accused of misconduct concerning loan modification matters.

Attorneys often get into trouble because of fee issues. Clients should be charged based on the amount of time it takes to handle their matter, not the size of the mortgage, says George Castrataro. He formerly worked for the Legal Aid Service of Broward County and is now in private practice. Clients also need to be clearly informed if representation will not begin until they have made a number of monthly payments to cover a required minimum retainer, he tells the Daily Business Review.

Another potential ethical pitfall is presented if a lawyer is too closely involved with a non-law-firm loan modification company, says Ryan Wiggins, who serves as deputy director of the state AG’s office.

Under a 2008 federal law that doesn’t apply to attorneys, loan modification companies can’t charge upfront fees, he explains to the business publication. This has led a number of firms to affiliate with attorneys, but unless the attorney is acting as a lawyer and actually representing company clients he or she is then in violation of the federal law, too, according to Wiggins.

Many complainants also contend that lawyers take their money and then do little or no work.

Amidst the mortgage meltdown, a stunning number of lawyers reportedly may be taking advantage of desperate homeowners by accepting thousands of dollars in fees from individuals while doing little or no work to save their homes.

The California Bar is probing more than 400 lawyers in such cases, and is fielding 30 new complaints daily, reports the Associated Press. The state has more than 250,000 lawyers on its attorney roster.

A total of 15 attorneys have either been suspended or resigned in the face of pending disciplinary charges, and many more are expected to lose their licenses, according to state bar authorities. The complaints are still going through the roof,” says Suzan Anderson, who serves as lead mortgage fraud prosecutor for the bar and says she is deluged with more than 30 new complaints a day.

Among those suspended–although he denies wrongdoing and is fighting the case–is Sean Rutledge. He is accused in of charging up-front fees of as much as $3,500 but doing little or nothing to help homeowners in California and Ohio. His pending bar discipline case in California also alleges that he called clients “losers” on the rare occasions when he returned their phone calls, the news agency reports.

The United Law Group firm Rutledge founded but no longer works for calls the California Bar’s probe a “witch hunt,” and a spokeswoman for the firm contends that mortgage lenders–eager to prevent homeowners from being properly represented–are behind the attorney disciplinary crackdown. The law firm has sued major banks alleging unfair business practices, which the banks deny.

Meanwhile, many homeowners need skilled representation but aren’t sure where to find it. Warren Jacobs says he paid Rutledge’s firm $2,000 last year to help him save his Dallas, Texas, home, but had to turn to another lawyer elsewhere to file an emergency bankruptcy for him when United Law Group failed to contest the foreclosure of his home, according to the AP.

The Ohio attorney general sued Rutledge and United Law Group earlier this year, contending that they defrauded homeowners.

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Filed in Oklahoma City by two banks and a title insurance company, the suits claim that Kevin and Deborah Flessner bought three apartment complexes in Oklahoma and one in South Carolina at the height of the real estate boom for $9.1 million and sold the complexes — within five days or less — to companies they controlled for $13.5 million.

The couple then used the higher valuations to get $10.3 million in loans, or $1.2 million more than they first paid for the properties.

The Flessners’ intent was to “deceive federally insured mortgage lenders into overvaluing apartment properties to the tune of $900,000 or more per transaction,” says the suit filed by Imperial Capital Bank, a Glendale, Calif.-based lender that was shuttered in January by regulators. “The excess loan proceeds would then be pocketed by the defendants or invested as equity in further transactions under the scheme.”

The Flessners have denied the charges, saying in court documents that they did not conspire to defraud any bank.

The kind of flipping described in the lawsuits — in which buyers sell properties to themselves at inflated values to get more loan money than they would have otherwise have entitled to receive — is the same kind the Herald-Tribune wrote about in a series of stories published in July.

Filed in Oklahoma City by two banks and a title insurance company, the suits claim that Kevin and Deborah Flessner bought three apartment complexes in Oklahoma and one in South Carolina at the height of the real estate boom for $9.1 million and sold the complexes — within five days or less — to companies they controlled for $13.5 million.

The couple then used the higher valuations to get $10.3 million in loans, or $1.2 million more than they first paid for the properties.

The Flessners’ intent was to “deceive federally insured mortgage lenders into overvaluing apartment properties to the tune of $900,000 or more per transaction,” says the suit filed by Imperial Capital Bank, a Glendale, Calif.-based lender that was shuttered in January by regulators. “The excess loan proceeds would then be pocketed by the defendants or invested as equity in further transactions under the scheme.”

The Flessners have denied the charges, saying in court documents that they did not conspire to defraud any bank.

The kind of flipping described in the lawsuits — in which buyers sell properties to themselves at inflated values to get more loan money than they would have otherwise have entitled to receive — is the same kind the Herald-Tribune wrote about in a series of stories published in July.

In that series, the Herald-Tribune showed that groups of flippers in Southwest Florida and across the state contributed to defaults on more than $500 million in loans in Sarasota and Manatee counties and $10 billion or more statewide.

What makes the lawsuits involving the Flessners significant is that they go into detail about the couple’s alleged orchestration of the flips and the real estate professionals who are said to have helped them. Outside of criminal cases, detailed information is hard to find.

Only one of the lawsuits — the Imperial Capital Bank lawsuit — was filed directly against the Flessners.

The other two — one filed by Wells Fargo and another by First American Title — take the alleged fraud on the part of the Flessners as a given and blame bankers and real estate professionals for allowing the fraud to occur.

Though the Flessners have denied the charges, the documents they filed do not explain why they needed to sell the properties to themselves at higher values.

The Flessners did not return three calls from the Herald-Tribune for comment, and Kenneth Jones, a lawyer representing the couple in Oklahoma City, did not return four phone calls.

But Harry Haskins, an attorney who represents the Flessners in Sarasota, said his clients have been hit with allegations that are not true.

Haskins said he was told that Imperial Bank knew that there were two purchase contracts at two different prices when it made its loan on the Archway Apartments in Oklahoma City.

“Banks do their own appraisals and there was nothing wrong with that appraisal,” Haskins said. “They okayed that loan. This is not a situation in which the property was over-mortgaged or over-collateralized.”

Acting United States Attorney Robert S. Cessar announced today, February 12, 2010, that on February 11, 2010, Randy Berger and Elleni Berger, residents of Pittsburgh, Pennsylvania, pleaded guilty in federal court to a charges of wire fraud conspiracy in connection with a mortgage fraud scheme. Elleni Berger also pleaded guilty to a charge of filing a false tax return.

Randy Berger, age 39, and Elleni Berger, age 43, pleaded guilty before United States District Judge Joy Flowers Conti.

In connection with the guilty plea, Assistant United States Attorney Brendan T. Conway advised the court that the Bergers operated All Credit Finance, which was a mortgage broker company that assisted borrowers obtain financing collateralized by real estate. The couple participated in a conspiracy in which they and other members of the conspiracy submitted fraudulent loan applications on behalf of borrowers that overstated their financial condition, and a series of fraudulent documents that supported those misrepresentations. In addition, Randy and Elleni Berger submitted appraisals that were fraudulent in that the appraisals overstated the values of the properties that were serving as collateral for the loans, and represented that they had been prepared by licensed appraisers when, in fact, they were not prepared by licensed appraisers.

Elleni Berger also filed false tax returns that were false in that they reported significantly less income than she actually earned.

Judge Conti scheduled sentencing for June 16, 2010. The law provides for a total sentence of 23 years in prison, a fine of $500,000, or both, for Elleni Berger, and a total sentence of 20 years in prison, a fine of $250,000, or both, for Randy Berger. Under the Federal Sentencing Guidelines, the actual sentences imposed are based upon the seriousness of the offense and the criminal history, if any, of the defendants.

The Mortgage Fraud Task Force conducted the investigation that led to the prosecution of Randy and Elleni Berger. The Mortgage Fraud Task Force is comprised of investigators from federal, state, and local law enforcement agencies and others involved in the mortgage industry. Federal law enforcement agencies participating in the Mortgage Task Force include the Federal Bureau of Investigation; the Internal Revenue Service, Criminal Investigations; the United States Department of Housing and Urban Development, Office of Inspector General; the United States Postal Inspection Service; and the United States Secret Service. Other Mortgage Fraud Task Force members include the Allegheny County Sheriff’s Office; the Pennsylvania Attorney General’s Office, Bureau of Consumer Protection; the Pennsylvania Department of Banking; the Pennsylvania Department of State, Bureau of Enforcement and Investigation; and the United States Trustee’s Office.

Mortgage industry members with knowledge of fraudulent activity are encouraged to call the Mortgage Fraud Task Force at (412) 894-7550. Consumers are encouraged to report suspected mortgage fraud by calling the Pennsylvania Attorney General’s Consumer Protection Hotline at (800) 441-2555.

Ricky Dean Unruh, 43, of Wichita, was sentenced to 15 months in federal prison on counts of conspiracy, wire fraud and money laundering in connection with a case involving a mortgage fraud scheme involving 20 houses with home mortgage loans ranging from $200,000 to $500,000, according to the Internal Revenue Service’s Investigation Division in St. Louis.

Unruh also was ordered to pay $238,500 in restitution.

Unruh was involved in the purchase of three homes in Ozark, for a total mortgage amount of $1,149,158. Unruh admitted that he participated in a conspiracy to obtain mortgage loans based on false information provided on loan applications, and that he returned approximately $238,500 of the total loan proceeds to the purchasers of the homes without the lender’s knowledge.

Randell Lee Hall, 59, of Springfield, was sentenced to 21 months in federal prison on each count of a guilty plea to conspiracy and wire fraud charges.

Two men who pleaded guilty Thursday in a $1.2 million mortgage fraud scheme were sentenced to prison and ordered to pay restitution, according to a federal agency.

Hall was ordered to pay $217,556 in restitution.

Unruh and Hall were sentenced for their parts in a conspiracy that involved five other area people.

Steven Ray Spencer, 48, of Carl Junction, pleaded guilty in September to wire fraud and money laundering.

Other members of the conspiracy included Rogersville resident Charles M. Davis, 34, a mortgage broker and owner of Master Marketing Consultants; Ozark residents Scott Allen Kassebaum, 42, and Cheryl Joan Kassebaum, 43, who were mortgage brokers and co-owners of Metro Consulting Group, and Springfield resident Shanda Lynn Moore, 45.

Several of the people are awaiting sentencing, according to the IRS.

Mortgage Broker Pleads Guilty to Bank Fraud Related to Residential Loan Applications
West Linn Broker Admits Fraudulent Loan Applications Cost Banks in Excess of $240,000

PORTLAND, OR—Joel D. Surprenant, 43, of West Linn, Oregon, pled guilty today to the crime of bank fraud. Surprenant is scheduled to appear again before U.S. District Judge Robert E. Jones on May 12, 2010, for sentencing on these charges.

In pleading guilty, Surprenant admitted that while employed as a mortgage broker for Morgan Financial, in August, 2006, he provided false information to First Franklin Financial Corporation in order to obtain a loan for himself for property located in Hood River, Oregon. To support the mortgage loan, Surprenant prepared a uniform residential loan application and falsified his financial qualifications. Surprenant created and submitted false supporting documentation, including pay stubs, to corroborate his false financial qualifications. The defendant also inflated the sale price of the residence in order to receive a kickback from the seller outside of the closing of the transaction. In addition, he identified an unsuspecting co-worker as the mortgage broker, forging the co-worker’s signature on the residential loan application. Surprenant subsequently defaulted on the loan, resulting in a loss to First Franklin Financial Corporation in excess of $96,000.

As part of the plea agreement with the United States, Surprenant also admitted and accepted financial responsibility for two other fraudulent loan schemes related to two residential properties he purchased in 2006 in Bend, Oregon. Those schemes involved Surprenant fraudulently obtaining three mortgage loans through Bank of America in which Surprenant identified his brother as the borrower without the brother’s knowledge or consent. The defendant later defaulted on the loans resulting in losses to Bank of America of approximately $145,000.

The maximum penalty for bank fraud is 30 years in prison and a maximum fine of $1,000,000. In addition to pleading guilty, Surprenant agreed to pay restitution for the full amount of the actual losses to the financial institutions. The investigation was initiated by the Portland office of the Federal Bureau of Investigation. The case is being prosecuted by Assistant U.S. Attorney Scott Erik Asphaug.