ORLANDO, FL—United States Attorney A. Brian Albritton announces that U.S. District Judge Anne C. Conway today sentenced Ramon Cendana (age 48, of Orlando) to more than six years in federal prison for his role in a mortgage fraud scheme. The court also ordered Cendana to pay in excess of $240,000 in restitution to his victims. Cendana had pleaded guilty on January 27, 2010.

According to court documents, Cendana owned and operated a title company, a mortgage company, and two investment companies. Through those companies, Cendana operated a Ponzi-type scheme soliciting investors (who were often refinancing their own homes to obtain investment proceeds), promising high rates of return on their investments, and then paying early investors with the investments of later investors. The proposed investments, however, never generated any revenue. When investor funds ran low, Cendana used the identification information of his investors to apply fraudulently for loans and lines of credit in the names of those investors. Further, near the end of his scheme, as both investor funds and the proceeds from the fraudulently-obtained loans and lines of credit ran low, Cendana used his mortgage and title companies to create fictitious mortgage closings, directing the customers who trusted him to refinance their homes to wire him funds to facilitate closings that never occurred.

The court sentenced the defendant based upon over $1.7 million in fraud loss.

This case was investigated by the United States Secret Service, the United States Postal Inspection Service, and the Federal Bureau of Investigation. It was prosecuted by Assistant United States Attorney Daniel C. Irick.

This case is 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 investigative agencies named above, and numerous other federal, state, and local law enforcement agencies. The surge 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. It was the first step in the Middle District of Florida’s Mortgage Fraud Initiative, an ongoing effort to prosecute mortgage fraud of all types throughout the district. For more information on the Middle District of Florida’s mortgage fraud prosecutions, please contact Steve Cole, Public Affairs Officer for the United States Attorney’s Office.

MIAMI – Incidents of residential mortgage fraud increased last year, a sign that scammers are still targeting the industry despite more diligent efforts to find and report such activity.

The number of mortgage fraud reports among loans made in 2009 grew 7 percent, a smaller increase than the 26 percent jump seen the previous year, according to a study released Monday by the LexisNexis Mortgage Asset Research Institute.

Since the housing boom, lenders have tightened their underwriting standards, requiring larger down payments, stronger credit histories and reliable proof of income. Law enforcement agencies also have created investigative teams to fight mortgage fraud. These efforts should make it harder for consumers and industry professionals to commit mortgage fraud.

The slower growth rate is being attributed to better reporting and policing for fraud activity, but there’s more to it. The report also said more scammers are using technology to access information and allow them to remain anonymous by using the Internet.

“It remains critical for those in the mortgage industry to reassess their processes, work together by sharing information and reporting incidents of fraudulent activity, and ready themselves for more complex schemes in order to continue the fight against mortgage fraud,” said Denise James, a co-author of the report.

Among states, Florida moved into the top spot for mortgage fraud, displacing Rhode Island, which led the nation in 2008 but dropped out of the top 10 rankings in 2009. Florida had nearly three times the expected amount of reported mortgage fraud for the volume of loans created there.

New York, California, Arizona and Michigan completed the top five states for mortgage fraud. Eight of the top 10 states are in the eastern half of the U.S.

Rhode Island wasn’t ranked in 2009 because the state’s sample size did not meet the minimum requirements set for the survey, the institute said.

As for the types of fraud, misrepresentation of information on mortgage applications accounted for 59 percent of reported incidents. Fraud related to appraisals was second, increasing to 33 percent last year from 22 percent in 2008.

Other types of fraud included verifications of deposits or employment, escrow or closing costs, and credit reports.

Despite increased reporting efforts, mortgage fraud “is significantly understated, even during times of massive origination volumes,” said Jennifer Butts, manager of data processing for the institute.

The information collected in the 12th annual report comes from about 600 mortgage companies.

Adrian Sainz, AP

San Fransisco –  Neil Barofsky was unpacking boxes in December 2008 when the stench of sewage wafted through the hallways at the 168-year-old Main Treasury Building. The space assigned to him as head of the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, was shoehorned into the basement, three floors below U.S. Treasury Secretary Henry Paulson’s offices.

“They eventually discovered a broken sewer main beneath the floor,” says Barofsky, 40, adding that he doesn’t think any slight was intended by relegating him to the malodorous quarters. Still, he says with a smile, “I wasn’t given the prime real estate in Treasury.”

The incident was noted by Beltway insiders, Bloomberg Markets magazine reports in its June issue.

“It became an apt metaphor for the foul relations between Treasury and SIGTARP,” says Michael Smallberg, an investigator at the Project on Government Oversight, a Washington watchdog group.

That tense relationship has grown out of Barofsky’s mandate to monitor and root out fraud and waste in the management of TARP, the $700 billion program passed in October 2008 to remove toxic debt from the banks. The special inspector general, in a series of reports, interviews and congressional hearings, has heaped criticism on the Treasury Department’s operation of the program.

Barofsky’s most recent broadside came on April 20, when a SIGTARP report labeled a housing-loan modification program funded with $50 billion of TARP money as ineffectual.

230,000 Homeowneres

Treasury spokesman Andrew Williams counters that the program has resulted in modifications for more than 230,000 homeowners.

The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16.

Leading the Charge

“I’ve been in contact with the SEC,” he told the committee. “We’re going to coordinate with them, but we’re going to lead the charge. We’re going to review these transactions.”

Barofsky and Geithner’s offices have gone toe-to-toe over AIG, alleged lax oversight of TARP funds and even over the question of whom Barofsky reports to.

Barofsky, a former federal prosecutor who was once the target of a kidnapping plot by Colombian drug traffickers, says he’s also looking into possible insider trading connected to TARP. He says his agency would want to know if bankers bought stock in their companies before it was made public that their institutions would get TARP money, for example.

“There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” Barofsky says.

‘Tea Partiers’

A Democrat named by a Republican president, Barofsky says missteps by both the George W. Bush and Barack Obama administrations are to blame for TARP’s failures.

“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”

Barofsky criticized Geithner’s predecessor, Paulson, in an October 2009 report, saying Paulson publicly described the initial nine TARP bank recipients as healthy when he knew that at least one of them risked failure.

In a letter responding to Barofsky, Assistant Treasury Secretary Herbert Allison wrote: “Any review of such announcements must be considered in light of the unprecedented circumstances in which they were made.”

Geithner and Paulson both declined to comment for this story.

Praise from Grassley

Barofsky, who has thinning jet-black hair and favors dark- gray suits, has won praise from both sides of the aisle in Congress.

“The special inspector general for TARP hit the ground running,” says Senator Charles Grassley, an Iowa Republican who helped draft the legislation creating SIGTARP. “He’s the kind of watchdog taxpayers need and deserve.”

From the day Congress created it, TARP has been troubled. Paulson crafted it as an initiative to buy the toxic assets that were then threatening to capsize the world’s banking system. Since then, the Treasury and Congress have transformed it into a hydra-headed beast encompassing 13 financial aid plans.

TARP had invested $204.9 billion in 707 banks, thrifts and credit unions through its Capital Purchase Program as of March 31; $69.1 billion remained to be paid back. It has committed to paying out $39.9 billion to modify mortgages, though it has disbursed only $91 million.

Hydra-Headed TARP

The Treasury Department has pledged to dole out tens of billions more to programs as varied as the Unlocking Credit for Small Business initiative and the Automotive Industry Financing Program, through which it owns 60.8 percent of General Motors Co. and 9.9 percent of Chrysler Group LLC.

Says Representative Jeb Hensarling, a Republican from Texas and former member of the Congressional Oversight Panel that guides TARP policy, “It’s almost a program that defies oversight.”

Of the $700 billion in TARP funding authorized by Congress in October 2008, the Treasury has planned for $545.1 billion in investments, committed $489.8 billion and disbursed $380.3 billion as of March 31. Institutions had repaid $180.8 billion.

SIGTARP has more than 40 agents, including former Secret Service, Federal Bureau of Investigation and Internal Revenue Service investigators, who sport blue windbreakers emblazoned with the SIGTARP seal.

They are authorized by Congress to carry guns — Barofsky does not — make arrests, and subpoena and seize records.

Still Too Big

In its late-January report, SIGTARP said that the banks rescued by TARP remained “too big to fail.” They still have an incentive to make risky wagers in order to generate the profits that will reward their executives, the report says.

“The definition of insanity is repeating the same actions over and over again and expecting a different result,” Barofsky says. “If the goal of TARP was to make sure we don’t have another financial collapse, well, obviously it’s made the likelihood of that much, much greater.”

Neil Michael Barofsky’s background prepared him well for a job that involves law enforcement, economics and political diplomacy. Born in Abington, Pennsylvania, a suburb of Philadelphia, he simultaneously earned degrees in economics and international relations from the University of Pennsylvania. He graduated magna cum laude from New York University Law School in 1995.

“Neil is not deterred by the prospect of powerful people or his supervisors coming down on him,” says Anthony Barkow, executive director of the Center on the Administration of Criminal Law at New York University, who worked with Barofsky in the U.S. Attorney’s Office. “He is an independent thinker and not afraid to ruffle feathers.”

Against the Grain

David Kotz, inspector general of the SEC, says, “Neil Barofsky has done a laudable job of taking aggressive positions where necessary. Inspector generals at one time or another must be prepared to go against the institutional grain.”

Geithner’s Treasury Department disputes the assertion that it has not been open about TARP.

“This is frankly one of the most transparent programs in the government,” says Tim Massad, chief counsel of Treasury’s Office of Financial Stability. “We’ve probably had 200 meetings with Neil and his staff.”

In April 2009, Treasury asked the Justice Department for a ruling on whether Barofsky and SIGTARP reported to Secretary Geithner. In a letter to Justice, Barofsky argued that he reported only to the president.

“We are absolutely an independent agency,” he says.

Treasury withdrew its request.

TARP’s Small Business

In February of this year, the department moved to exclude the Small Business Lending Fund from Barofsky’s oversight. The program is funded with $30 billion of TARP money.

“On its face, it looks like Treasury is trying to supersede SIGTARP’s position by having the program operate outside TARP,” says Smallberg of the Project on Government Oversight. “Barofsky is certainly a thorn in the side of Geithner.”

Meanwhile, Barofsky’s investigators continue to lay into TARP. In a January report, SIGTARP cited an unnamed money manager in TARP’s Public-Private Investment Program, which buys toxic assets, saying the person sold a recently downgraded mortgage-backed bond from a company fund, then promptly purchased the same security in the same amount at a higher price for a fund backed by TARP money.

Allison responded in a letter to Barofsky that the suspicious trade was referred to SIGTARP by Treasury compliance officers in the first place.

Insurance Banks

In a December report, Barofsky showed how insurance giants Hartford Financial Services Group Inc. and Lincoln National Corp. bought tiny thrifts — one with just $7 million in assets — to qualify for the TARP Capital Protection Program, which is designed to encourage bank lending. Hartford and Lincoln used the more than $4.3 billion in TARP funds they received almost entirely to finance insurance operations, according to the report.

“Treasury didn’t have to approve that,” Barofsky says.

Allison wrote SIGTARP that buying troubled assets from insurance companies was part of TARP.

Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance Inc., says Barofsky hasn’t been aggressive enough. She says SIGTARP should be running criminal probes of the bankers who underwrote and managed the collateralized debt obligations that were at the center of the financial meltdown.

CDOs are bundles of mortgage-backed bonds and other debt sold to investors.

Tavakoli says the CDO managers sometimes replaced relatively high-quality securities with new ones that were more likely to default.

‘Phony Labels’

“It is securities fraud if you take securities and package them and knowingly pass them off with phony labels,” she says.

Barofsky says investigations related to the underwriting and sale of CDOs are ongoing.

Barofsky is no longer confined to a fetid basement office. SIGTARP is now in a brown-granite building on L Street, nine blocks away from the Treasury. Sitting in his office, the investigator says he was at first surprised by the resistance he got from the Treasury to his inquiries.

“When I took the job, it wasn’t like I had really contemplated for a millisecond the political aspects,” says the lawman, sipping from a can of Diet Coke.

Barofsky says he’s battling an entrenched culture of secrecy in the Treasury and elsewhere.

“One of the important lessons that I hope will be learned from this entire financial crisis is that the reflexive reaction against transparency, that disclosure will bring terrible things, has not been proven true,” he says.

Culture of Secrecy

He offers the AIG bailout as an example. For more than a year, the New York Fed kept key aspects of the AIG bailout secret, including details of its own involvement and its decision to have AIG pay the insurer’s bank counterparties 100 cents on the dollar on the credit protection they’d bought against about $62 billion in CDOs.

In a November report, SIGTARP criticized Geithner’s failed efforts to obtain discounts from the banks.

After the banks had been paid in late 2008, a lawyer from the New York Fed sought to have AIG keep the banks’ identities under wraps, as well as data about the CDOs that would have revealed which firms had underwritten the toxic bonds and which ones had managed them.

“There’s a lot of things about AIG that were not disclosed, based on the assumption that the sky would fall,” Barofsky says. “Transparency does a lot more good than bad.”

TARP Police

Barofsky says the question of whether the New York Fed engaged in a coverup will result in some sort of action.

“We’re either going to have criminal or civil charges against individuals or we’re going to have a report,” Barofsky says. “This is too important for us not to share our findings.”

He won’t say whether the investigation is targeting Geithner personally.

In a statement, the New York Fed said: “Allegations that the New York Fed engaged in a coverup of its intervention in AIG are not true. The New York Fed has fully cooperated with the Special Inspector General.”

Barofsky’s to-do list grows. SIGTARP now has 120 employees, has initiated 20 audits and was involved with 84 investigations as of March 31. In January, it opened a New York office, with San Francisco and Los Angeles branches scheduled for later this year.

As long as the Treasury Department continues throwing money at the financial crisis, Barofsky’s TARP police will be watching.

–Editors: Michael Serrill, Beth Williams

©2010 Bloomberg News

Representatives of the Financial Fraud Enforcement Task Force met in Detroit Friday, April 23, 2010, for the third of a series of Mortgage Fraud Summits. The task force, established by President Barack Obama in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes, is composed of representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement.

The greater Detroit metropolitan area is ranked 10th in the nation for the number of local subjects named in Suspicious Activity Reports (SARs) filed by depository institutions concerning suspected mortgage fraud, according to a recent study by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). And according to FinCEN data, Michigan ranked eighth in the nation for mortgage fraud SARs. According to True Standings Loan Performance, Detroit also ranked 9th in metropolitan areas for serious delinquencies in conventional mortgages.

The task force members met with Detroit community members, banking, mortgage and real estate industry representatives and law enforcement officials to discuss the problem of mortgage fraud from a national, state and local perspective. In the morning panels, attendees discussed the community impact of mortgage fraud and the evolution of the crisis. In the afternoon, task force representatives will meet privately with law enforcement officials involved in the investigation of mortgage fraud.

“Integrity in the mortgage lending business is crucial to protecting home owners, neighborhoods, and lending institutions,” said U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade. “Mortgage fraud leads to foreclosures and vacant homes, which harm property values and create havens for criminal activity. Today’s summit shows the commitment of the Department of Justice, along with our local law enforcement agencies and regulatory agencies, to combat the problem of mortgage fraud.”

NEW YORK –In a 22-page complaint filed Friday, the Securities and Exchange Commission charged Goldman Sachs with defrauding investors on real estate securities likely to go bust.

The legal document reads less like a court filing, and more like a twisted story of how actions by Wall Street’s most notorious investment bank allegedly caused losses of $1 billion for investors.

Here’s what it said:

In late 2006 and early 2007, when the United States housing market is beginning to show signs of distress, hedge fund Paulson & Co. takes a “bearish view on subprime mortgage loans,” according to the SEC complaint.

The fund — run by John Paulson — identifies more than 100 bonds with the lowest credit ratings, which are likely to experience defaults. Paulson cherry-picks these bonds by favoring adjustable rate mortgages, borrowers with low credit scores, and mortgages in states like Arizona, California, Florida and Nevada, where the real estate bubble hit the hardest.

The strategy: create a product to bet against

In January 2007, Paulson meets with Goldman Sachs vice president Fabrice Tourre, and asks for help betting against these bonds through the use of credit default swaps — essentially, Paulson is asking to buy insurance on the weakest subprime-mortgage bonds.

Paulson and Goldman Sachs discuss creating — and then betting against — a package of the low-rated bonds.

Paulson would hand-pick the securities, but Goldman Sachs and Tourre also need other investors. And they know it would be a hard sell if they disclosed that Paulson had selected the securities, given that he wanted the value to go down.

So they seek out a reputable third party to, as internal Goldman memos state, put its “name at risk…on a weak quality portfolio.”

In January 2007, Goldman Sachs approaches ACA Management to act as that “portfolio selection agent.”

Goldman e-mail, March 12, 2007: “We expect to leverage ACA’s credibility and franchise to help distribute this Transaction.”

Selecting the portfolio

In February 2007, Tourre, Paulson and ACA meet to discuss the portfolio.

While both Goldman Sachs and Tourre are completely aware of Paulson’s intent to short the portfolio, ACA is unaware, according to the SEC.

On that same day, ACA e-mails Paulson, Tourre and others at Goldman Sachs a list of 82 real estate bonds on which they already agree, but adds 21 “replacement” bonds to the list and asks for Paulson’s approval. Paulson deletes eight of the bonds recommended by ACA, leaves the rest, and states that it agrees that the remaining 92 bonds make a sufficient portfolio.

An internal e-mail at ACA asks, “Did [Paulson] give a reason why they kicked out all the Wells [Fargo] deals?” Wells Fargo was generally perceived as one of the higher-quality subprime loan originators, the SEC said.

On or around February 26, 2007: Paulson and ACA agree on the portfolio to be called ABACUS 2007-AC1.

Selling the portfolio

In trying to sell the new ABACUS portfolio to investors, Goldman Sachs uses false and misleading marketing materials, according to the SEC.

The materials, created by Tourre, boldly claim ACA as the “portfolio selection agent,” but make no mention of Paulson’s role in selecting the bonds.

The “flip book,” in particular, contains 28 pages about ACA’s expertise, track record and credit selection process, and assures investors that the party selecting the portfolio had an “alignment of economic interest” with investors.

While none of the marketing materials mentioned Paulson’s role in the transaction, internal Goldman Sachs communications clearly identified Paulson, its economic interests, and its role in the transaction, according to the SEC.

Investors buy in

Beginning in 2002, IKB Deutsche Industriebank AG, a commercial bank in Germany, had been involved in the purchase of assets backed by U.S. mid-and-subprime mortgages.

But in late 2006, IKB informed Goldman Sachs and Tourre that it was no longer comfortable investing in mortgage bonds that were not selected by an independent third-party with knowledge of the U.S. housing market.

In February, March and April 2007, Goldman Sachs sends IKB copies of the ABACUS marketing materials, all of which represented that the portfolio had been selected by ACA, and failed to mention Paulson.

On or about April 26, 2007: IKB buys a total of $150 million worth of ABACUS notes at face value.

Within months, as the U.S. housing market begins to crumble, the investment is nearly worthless. Most of this money was ultimately paid to Paulson in a series of transactions between Goldman Sachs and Paulson, said the SEC. In total, investors lose $1 billion, the SEC said.

The next steps

The SEC charges Goldman Sachs with fraud for failing to disclose Paulson’s conflicting interest and role in selecting the ABACUS portfolio. The civil suit asks for a jury trial, and for Goldman Sachs to be fined and forced to repay illegally-obtained profits.

In response to the SEC’s complaint, Goldman said Friday that “the SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

Paulson & Co. also issued a statement claiming no responsibility for Goldman’s misleading or fraudulent marketing.

“Paulson did not sponsor or initiate Goldman’s ABACUS program, which involved at least 20 transactions other than that described in the SEC’s complaint,” Paulson’s statement said.

-Annalyn Censky

Task force warns industry reps, community of scams targeting strapped homeowners

Metro Detroit is a hotbed of mortgage scams with a rising number of crooks preying on homeowners desperate to avoid foreclosures, representatives of a federal Financial Fraud Enforcement Task Force, an ad-hoc group of law agencies, said Friday.

The task force met with community groups, real estate agents, banking officials and law enforcement agencies in Detroit and launched a website called www.preventloanscams.org to help consumers identify and report scams.

“This was a freight train coming right at us,” said Andrew Arena, FBI special agent in charge.

The region has 60 cases of fraudulent mortgage behavior. The average scam nabs about $3,000 from a homebuyer.

In November, the Obama administration put together a new federal task force after deciding the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies. It targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government’s bailout of the financial industry.

The task force’s creation comes as federal and state authorities investigate a wide array of potential wrongdoing linked to the financial crisis.

Some cases of scams have already been pursued and prosecuted, said Barbara McQuade, U.S. attorney for the Eastern District of Michigan.

And the danger of more people losing their homes in Metro Detroit is rising significantly, said Kenneth Donohue, inspector general for the U.S. Department of Housing and Urban Development.

One out of 10 Metro Detroiters with a Federal Housing Administration-backed loan are 90 days or more behind in their mortgage. The default rate in Metro Detroit increased 700 percent in 2009 compared with 2008, Donohue said.

This year, about 160,000 homeowners are behind on their mortgages, he said.

Louis Aguilar

Involved Hundreds of Properties

KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced that a Lee’s Summit, Missouri man and a Grain Valley, Missouri man pleaded guilty in federal court today to charges related to a $23 million mortgage fraud scheme that involved 350 residential properties, including inner-city properties.

“This is among the largest mortgage fraud schemes ever prosecuted in the Western District of Missouri,” Phillips said. “As in so many fraud cases, the culprits thought they were getting away with their crime for awhile; but inevitably, their scheme collapsed and left a paper trail that federal agents diligently followed.

“This should be a warning to anyone who might consider exploiting a financial crisis for personal gain,” Phillips added. “Short-term profit isn’t worth the certainty of prosecution, punishment and prison.”

Nathan N. Anderson, 32, of Grain Valley, and Kyle J. Wine, 29, of Lee’s Summit, each waived his right to a grand jury and pleaded guilty before U.S. District Judge Gary A. Fenner this morning to a two-count federal information that charges both men with participating in a conspiracy to transport money obtained by fraud across state lines and with money laundering. Kyle Wine is the brother of Jeffrey Tyler Wine of Kansas City, who pleaded guilty to a related mortgage fraud scheme and was sentenced in May 2007 to five years in federal prison without parole.

Anderson and Kyle Wine admitted that, from February 2002 to November 2005, they defrauded mortgage lenders by inducing them to loan investors a total of $23,324,114 to purchase 350 residential properties. Anderson was involved with 264 properties totaling $18,918,542; Kyle Wine was involved with 86 properties totaling $4,405,572.

Anderson and Wine were in the business of purchasing, rehabilitating, managing and selling residential properties in the metropolitan area. Both Anderson and Kyle Wine worked at Sunrise Equities, Inc., which was operated by Jeffrey Wine. Anderson left to work as co-owner of AMIC and Real Estate Holdings, Inc., at which point Kyle Wine began working at Sunrise Equities and took over Anderson’s duties. Kyle Wine likewise worked with AMIC, and he also did business as Rockhill Realty LLC, selling residential real estate.

Anderson and Kyle Wine acquired residential properties at reduced rates. After rehabbing the properties (at times, they admitted, doing poor quality work), they were advertised for sale as investment properties with no money down. Anderson and Kyle Wine told investors that they would provide the down payment and closing costs for the sale, secure renters for the property and ensure that mortgage payments were paid even if the properties were not rented. Anderson and Wine guaranteed a positive cash flow from the properties.

Anderson and Wine, along with their co-conspirators, prepared false and fraudulent loan applications and supporting documents to submit to mortgage lenders in the names of investors.

Anderson and Kyle Wine, along with their co-conspirators, managed the rental properties for the investors for one year after purchase. During that time, they submitted false monthly reports to investors of rent received, expenses incurred, and income earned, and paid to the investors the amount of income reflected. This induced victim-investors to purchase additional properties.

Under federal statutes, Anderson and Kyle Wine are each subject to a sentence of up to 15 years in federal prison without parole, plus a fine up to $500,000. Sentencing hearings will be scheduled after the completion of pre-sentence investigations by the United States Probation Office. This case is being prosecuted by Assistant U.S. Attorney Linda Marshall. It was investigated by IRS-Criminal Investigation, the U.S. Department of Housing and Urban Development – Office of Inspector General, and the Federal Bureau of Investigation.

SALT LAKE CITY — A Davis County man involved in a multimillion dollar mortgage fraud scheme was sentenced to less than five years Wednesday — a reduced sentence he was granted for working with the government.

Lyle Clay Smith, 44, was sentenced to 56 months in federal prison, five years of supervised release and ordered to pay almost $2.5 million in restitution by U.S. District Judge Dee Benson.

Smith, who was indicted alongside Ronald William Haycock Sr. and Jamis Melwood Johnson in March 2009 on charges ranging from mail fraud to conspiracy, pleaded guilty to one count of conspiracy in October.

According to the indictment, the men recruited straw buyers with good credit scores to allow them to use their names to purchase homes in Highland, Draper, Salt Lake City, Sandy, Pleasant Grove, Provo, Alpine and Farmington, then falsified loan applications and inflated not only the appraisal values but also the straw buyers’ incomes.

It is believed the men had 11 victims. Straw buyers were told they would have no financial risk and would not have to make payments or even occupy the home, but were left with mortgages that they could not repay and mortgage lenders who were left with outstanding loan balances far greater than the properties were worth, the indictment states.

Prosecutor Scott Thorley said the government was recommending a reduced sentence for Smith because he accepted responsibility for his actions, had turned himself in and was “candid” when it came to the scheme.

But he told the judge the sentence needed to send a message to others contemplating similar conduct.

“This type of conduct, repeated over and over again, is exactly the type of conduct that has shaken our economy,” Thorley said.

While there was some debate in court about whether Smith knew that what he was doing was illegal, as he said he initially believed it wasn’t, Smith apologized in court for the “stress and anxiety” his actions caused the straw buyers and his family.

Haycock and Johnson are currently scheduled to stand trial in August and Smith is expected to testify. If convicted, those men will also have to pay part of the $2,384,974 restitution as well.

By Emiley Morgan

NEWARK, NJ—The former owner and chief executive officer of Capitol Investments USA, Inc., a purported wholesale grocery distribution business, was charged today in a criminal complaint with operating a $880 million Ponzi scheme, U.S. Attorney Paul J. Fishman announced.

Nevin Shapiro, 41, of Miami Beach, Fla., surrendered this morning to special agents of the FBI and the Internal Revenue Service (IRS) in Newark, N.J. Shapiro is scheduled for an initial appearance and bail hearing this afternoon before U.S. Magistrate Judge Madeline Cox Arleo in Newark.

According to the complaint filed in Newark federal court:

From January 2005 through November 2009, Shapiro, through Capitol, solicited investors from New Jersey and throughout the United States, telling them that he would use their money to fund his wholesale grocery distribution business. To induce those investors, Shapiro directed others to create and show to the investors documents fraudulently touting Capitol’s profitability. Those documents included: financial statements, profit and loss figures that fraudulently represented that Capitol’s wholesale grocery business was generating tens of millions of dollars in annual sales; personal and business tax returns for Shapiro and Capitol which also fraudulently reflected those sales; and numerous invoices fraudulently reflecting transactions between Capitol and other companies in the wholesale grocery business.

As a result of these solicitations, more than 60 investors sent over $880 million to Shapiro and Capitol during this time period. To date, the investigation has revealed that Shapiro caused investor losses of at least $80 million.

In most instances, Shapiro and others under his direction provided investors with promissory notes reflecting the amount of their investment in Capitol and a schedule, varying from a matter of days to one year, for the payment of interest and the return of principal. The interest Shapiro and Capitol promised investors ranged from 10 percent to 26 percent annually.

In reality, Capitol had no active wholesale grocery business during the time period relevant to this complaint. In fact, Capitol had virtually no business sales. Shapiro used new investor funds to make principal and interest payments to existing investors, as well as to fund his own lavish lifestyle.

Shapiro misappropriated approximately $35 million in investor funds for his personal use, including paying millions of dollars in debts resulting from illegal gambling on sporting events. Using investor money, he also spent, at various times, more than $400,000 for floor seats to watch the Miami Heat professional basketball team; approximately $26,000 per month for mortgage payments on his residence in Miami Beach, recently appraised at approximately $5.3 million; approximately $7,250 per month for payments on a $1.5 million dollar Riviera yacht; and approximately $4,700 per month for the lease of a Mercedes-Benz automobile.

Shapiro also used stolen funds to purchase a pair of diamond-studded handcuffs, which he gave as a gift to a prominent professional athlete, as well as to make $150,000 in donations to the athletic program of a local university in the Miami area. As a result of a 10-year gift to the university, the Nevin Shapiro Student-Athlete Lounge at the university was named for the defendant.

U.S. Attorney Fishman stated: “Nevin Shapiro is charged with tricking investors with false documents and false promises. He spent tens of millions of their money on gambling debts, lavish gifts, and a luxury lifestyle built on a house of cards.”

FBI Special Agent in Charge Michael B. Ward stated: “This case is a perfect example of greed run amok. In pursuit of wealth and a lifestyle he was otherwise unable to attain, Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments. Instead, their futures have been irrevocably damaged.”

“Scammers, con artists, and swindlers will do and say anything to get you to buy into their scheme,” stated William P. Offord, Special Agent in Charge, IRS-Criminal Investigation. “Remember the old cliché, ‘If it’s too good to be true, it probably is.’”

The criminal complaint charges Shapiro with one count of securities fraud and one count of money laundering. He faces a maximum term of 20 years in prison on the securities fraud charge, and a fine of up to $5 million. He also faces a maximum term of 10 years in prison on the money laundering charge, and a fine of up to $250,000, or twice the gross gain or loss from the offense.

In determining an actual sentence, the judge to whom the case is assigned would, upon a conviction, consult the advisory U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the defendant’s criminal history, if any, and other factors. The judge, however, is not bound by those guidelines in determining a sentence. Parole has been abolished in the federal system. Defendants who are given custodial terms must serve nearly all that time.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, and special agents of the IRS Criminal Investigation Division, under the direction of Special Agent in Charge William P. Offord, for the investigation leading to today’s complaint. Fishman also thanked the Securities and Exchange Commission’s Miami Regional Office, under the direction of Eric Bustillo.

The government is represented by Assistant U.S. Attorneys Justin W. Arnold and Jacob T. Elberg of the Criminal Division, in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

The charges and allegations contained in the complaint against Shapiro are merely accusations, and the defendant is considered innocent unless and until proven guilty.

San Diego – United States Attorney Karen P. Hewitt announced that Michael Alexander, the owner of several San Diego telemarketing companies involved in a real estate investment fraud scheme, was sentenced today in federal court in San Diego to serve 30 months in prison and three years of supervised release based on his previous convictions for mail and tax fraud. U.S. District Court Judge Roger T. Benitez also ordered Alexander to pay restitution in the amount of $1,799,580.78 to the victims of the fraud scheme and to the Internal Revenue Service (IRS) for unpaid taxes.

According to court records, Alexander pled guilty on April 24, 2008, to charges of mail fraud and filing a false tax return. In his plea, he admitted that he formed the Rose Fund, LLC, to solicit investor money to fund loans secured by real property and that he formed TRF Holdings, Inc., a related entity, to provide “seed money” to capitalize the Rose Fund. Alexander hired a convicted felon, William Wright, to be his lead salesman.

Alexander further admitted that, in order to make sales, they misrepresented to investors, among other things, that investor funds were safe and would be used to make loans secured by real estate; they would receive a 5 percent sales commission; and that the businesses were well-established, successful, and operated by experienced real estate professionals. They also intentionally misled TRF Holdings, Inc. investors into believing that their investments would be used to fund real estate loans rather than provide seed money for the Rose Fund. In addition, they concealed from investors that Wright had been previously convicted of mail and wire fraud and that the Securities and Exchange Commission (SEC) had begun an investigation of the Rose Fund in April 2003. After learning of the April 2003 SEC investigation, Alexander solicited more than $2 million from new and existing investors by concealing the existence of the SEC investigation.

In pleading guilty, Alexander admitted that he fraudulently obtained more than four million dollars from more than 100 investors during the one year that the fraud scheme operated between October 2002 and October 2003. Although investors were promised that their investments would be used to make secured real estate loans, Alexander funded only 16 loans totaling $1.8 million. By contrast, Alexander fraudulently diverted more than $1.4 million of investor funds to himself and $665,000 to Wright.

In May 2008, Wright was indicted in San Diego on federal fraud charges stemming from his involvement in the Rose Fund/TRF fraud scheme. In February 2010, Wright pled guilty in a federal court in New York to conspiracy to commit mail and wire fraud and is scheduled to be sentenced on May 25, 2010.

This case was investigated by Special Agents of the Internal Revenue Service – Criminal Investigation, the United States Postal Inspection Service, and the Federal Bureau of Investigation.

DEFENDANT
Case Number: 07Cr1237BEN
Michael Alexander

SUMMARY OF THE CHARGES
Count 1 – Title 18, United States Code, Section 1341 – Mail Fraud
Count 2 – Title 26, United States Code, Sections 7206(1) – Filing a False Tax Return

PARTICIPATING AGENCIES
Internal Revenue Service – Criminal Investigation
United States Postal Inspection Service
Federal Bureau of Investigation

SACRAMENTO, CA—United States Attorney Benjamin B. Wagner and Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division announced today that Anthony B. Ghio, 43, of Stockton, pleaded guilty today before United States District Judge Edward J. Garcia to conspiring to rig bids at public real estate foreclosure auctions held in San Joaquin County.

These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. The investigation is being conducted by the U.S. Attorney’s Office for the Eastern District of California, the Antitrust Division’s San Francisco Office, the Federal Bureau of Investigation, and the San Joaquin County District Attorney’s Office.

According to Assistant United States Attorneys Robin R. Taylor and Russell L. Carlberg, who are prosecuting the case with assistance from Barbara Nelson and Richard Cohen of the Antitrust Division, Ghio admitted in his guilty plea that he conspired with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County. The primary purpose of the conspiracy was to suppress and restrain competition and obtain selected real estate offered at San Joaquin County public foreclosure auctions at noncompetitive prices.

Court documents show that after the conspirators’ designated bidder bought a property at a public auction, they would hold a second private auction. Each participating conspirator would submit bids in the private auction above the public auction price. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the noncompetitive price at the public auction and the winning bid at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. Ghio participated in the bid-rigging scheme from April 2009 until October 2009.

Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime, if either of those amounts is greater than the statutory maximum fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The investigation is continuing. Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660 or visit http://www.justice.gov/atr/contact/newcase.htm, or the FBI’s Sacramento Division at 916-481-9110, or the U.S. Attorneys Office for the Eastern District of California at 916-554-2900.

Media inquiries to the U.S. Attorney’s Office should be directed to Lauren Horwood at 916-554-2706. Media inquiries regarding the department’s Antitrust Division should be directed to Gina Talamona at 202-514-2007.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

One component of the FFETF is the national Mortgage Fraud Working Group, co-chaired by U.S. Attorney Wagner.

New York – The news of Goldman Sachs’ fraud accusation by SEC pored cold showers over the stock markets world wide showing the first signs of economic recovery.
Goldman Sachs (NYSE: GS) has spoiled the party. While most stock exchanges had achieved new records this week, the trend has reversed Friday, April 16, when the U.S. stock market watchdog, the Securities Exchange Commission (SEC) announced it was suing the bank for “fraud”. This fraud involves the sale of investment securities linked to subprime mortgages.
The SEC fraud announcement caused Goldman Sachs (NYSE: GS) to lose nearly 13 percent of its value in one day yesterday. GS closed at 160.70, which is down 23.57 (-12.79%) from its previous day’s close. The distrust was spread on all markets around the world.
Goldman Sachs Fraud Effect on Global Stocks
In Paris, SAC 40 lost 79.02 points down 1.94 percent. In Frankfurt DAX was down 110.55 points. It lost 1.76 percent. London’s FSE 100 lost 1.39 percent of its value ending the day down 81.05 points.
In New York City Dow Jones Industrial Average lost 125.91 point, ending the day down 1.13%. Dow closed at 11,018.66 points. At least Dow ended the week above the threshold 11,000 level. NASDAQ ended the day at 2481 points. it lost 34 points and 1.37 percent of its value.
Prior to Goldman Sachs subprime mortgage fraud announcement the markets had experienced a period of stable growth. The indexes have been lifted by the recent statistics confirming the economic recovery globally. Another factor lifting the stocks was the very encouraging quarterly reports that the U.S. companies announced last week. Intel’s earnings particularly stood up.
In Europe the worries about the airline delays also added to the concerns about the future recovery. The ash clouds have grounded thousands of flights across Europe. Airline industry is partially paralysed and the prices of airline stocks were down yesterday. Yesterday the airline industry stocks were listed among the largest declines in European Stock Markets.
Goldman Sachs lost $12bn off the market value in one day yesterday.
Written by Armen Hareyan

Minneapolis – The alleged fraud involved 134 properties, 118 of which are now in foreclosure, across several counties, according to the Hennepin County charges.
Seven Twin Cities men face two racketeering charges each in an alleged $40 million mortgage fraud scheme that stretched across several counties with a focus on new developments in exurbs.
Facing identical charges are Brandon S. Flavin, 33, of Brooklyn Park, Nathan J. Nordvik, 27, of Wayzata, Jonathan Matheson, Brian Matheson, Richardt Fleischmann of Woodbury, John David Searle of St. Paul and Burton Edward Joseph of St. Paul.
Lawyer Steve Meshbesher said Nordvik will plead not guilty. “The allegations are not true as to him. He plans on putting up a vigorous defense,” Meshbesher said.
Attempts to reach the other men and/or their lawyers were not successful.
Beginning in December 2005, the seven worked through the National Investment Group Inc., American Wholesale Lending LLC, Innovative Personal Solutions LLC, Investment Property Advisors Inc. and United Management Group. The 15-page complaint against the men details a sprawling scheme initially uncovered by the Minnetonka Police Department.
“The scheme provided a stream of illicit profit, commissions, fees and kickbacks to the defendants,” the complaint said. Prosecutors estimated the men received at least $6 million from their alleged swindles.
Hennepin County Attorney Mike Freeman called it the largest mortgage fraud case so far, involving 134 properties, 118 of which are now in foreclosure. The allegedly fraudulent paperwork originated in Hennepin County, although the homes were in Chisago, Isanti, Wright, Sherburne, Anoka, Hennepin, Dakota and Carver counties. Otsego took the hardest hit, with 89 homes involved. Anoka and Dakota counties each had 11 properties, he said.
“It’s the classic mortgage fraud,” Freeman said. “Straw buyers, falsified mortgage applications and falsified income.”
The defendants would approach developers, offer a low-ball price for unsold homes or land, then take over the marketing and sale of the home, Freeman said.
The defendants lured in straw buyers with ads saying, “If you’ve got good credit, we can help you make money,” Freeman said.
The purported buyers and the defendants would receive cash, usually thousands of dollars, when the home sale closed. The buyers would be told the mortgage on the home would be covered by people who would live in the homes under rent-to-own arrangements, but eventually they would find that to be false, the complaint said. The homes would then typically end up in foreclosure.
The new twist involved the targeted areas — new homes in developments that sprung up during the boom, Freeman said. One straw buyer had four homes in his name on one Otsego street, claiming to be using all of them as a primary residence.

The men are to appear in court at 1:30 p.m. on May 5.

ROCHELLE OLSON, Star Tribune

Jeffrey H. Sloman, United States Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation, Miami Field Office; Henry Gutierrez, Postal Inspector in Charge, U.S. Postal Inspection Service; and J. Thomas Cardwell, Commissioner, State of Florida’s Office of Financial Regulation, announced the unsealing of an indictment against defendants Michael Samuda, 37, of Pembroke Pines and Weston, Monique Mitchell, 29, of Pembroke Pines, Florida, and Sheldon Martin, 34, of Plantation. Both Mitchell and Martin appeared at the Federal Courthouse in West Palm Beach this morning before U.S. Magistrate Judge Linnea Johnson. Samuda is scheduled to appear on April 21, 2010.

Michael Samuda, an attorney, was charged in one count of conspiracy to commit mail fraud and wire fraud, in violation of Title 18, United States Code, Section 371, one count of substantive mail fraud, in violation of Title 18, United States Code, Section 1341, four counts of substantive wire fraud, in violation of Title 18, United States Code, Section 1343. and one count of making false statements on a HUD-1 Form, in violation of Title 18, United States Code, Section 1001. If convicted, Samuda faces a maximum statutory sentence of five years in prison on each of the conspiracy and the false statement counts, up to 30 years on each count of mail fraud and wire fraud count, and up to five years in prison on the false statement count. Defendants Monique Mitchell and Sheldon Martin, a mortgage broker, are charged with one count of making false statements on a HUD-1 Form, in violation of Title 18, United States Code, Section 1001, and face up to five years in prison on that count.

According to the indictment, Samuda operated a title escrow company called Attorney Title Center, in Pembroke Pines. In January 2008, Samuda’s company closed on the purchase of real estate at 4010 Bayview Drive in Fort Lauderdale. The indictment alleges that Samuda, along with his employee Mitchell and the seller Sheldon Martin engaged in a scheme to defraud Regions Bank, the mortgage lender, by preparing and submitting false closing documents, including a HUD-1 Settlement Statement Form on the $1,250,000 property sale.

Special Agent in Charge John V. Gillies stated, “The FBI views mortgage fraud as a significant crime problem. The mortgage lending and housing market have a considerable overall effect on the nation’s economy and combating mortgage fraud will remain a top priority for the FBI.”

Mr. Sloman commended the investigative efforts of the Federal Bureau of Investigation, the State of Florida’s Office of Financial Regulation, and the U.S. Postal Inspection Service. This case is being prosecuted by Assistant U.S. Attorney Jeffrey Kay.

An indictment is merely an accusation and a defendant is presumed innocent unless and until proven.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the United States District Court for the Southern District of Florida at www.flsd.uscourts.gov or http://pacer.flsd.uscourts.gov.

Federal Agents Apprehend 18 Defendants from Throughout Bay Area

SAN FRANCISCO—Today 18 individuals were apprehended on mortgage fraud-related charges, United States Attorney Joseph P. Russoniello announced. Over the last few months, a federal grand jury in San Francisco indicted these individuals on charges relating to alleged mortgage fraud schemes perpetrated between 2005 and 2009. The indictments were unsealed this afternoon after the defendants were arrested and made their initial court appearances before United States Magistrate Judge Bernard Zimmerman.

Of the 18 individuals charged, seven are charged with bank fraud, 10 are charged with conspiracy to commit mail fraud, and one is charged with conspiracy to commit wire fraud. According to the indictments, each defendant charged with bank fraud is alleged to have participated in a scheme to defraud financial institutions and lenders to obtain money from those entities by making materially false and fraudulent misrepresentations. The defendants charged with conspiring to commit mail fraud are charged with participating in a scheme to defraud financial institutions and other lenders by knowingly and intentionally submitting false and fraudulent information to those lenders to obtain loans for various borrowers.

Those charged and arrested include at least three current or former bank employees, eight real estate agents licensed by the California Department of Real Estate (DRE), and one mortgage broker licensed by the DRE. (The DRE’s website, which lists current and former licensees, can be found at www.dre.ca.gov.) The current or former bank employees include: Ciu (“Carrie”) Du (employed at Washington Mutual during the pertinent time frame, now employed elsewhere); Marilyn Infante (employed at Washington Mutual during the pertinent time frame, now retired); and Joseph John Pugliese (employed at Countrywide Home Loans during the pertinent time frame, now employed elsewhere).

The following is the list of defendants arrested today, as well as each defendant’s age, residence, whether and what type of license they have been issued by the DRE, and what charge each defendant is facing:

Norberto (“Noli”) AGUSTIN Conspiracy to Commit Mail Fraud

John Randolph Errazo BERNABE Bank Fraud

Sam BOWLEY Bank Fraud

Vangeline S. BROYLES Conspiracy to Commit Mail Fraud

Roy CERVANTES Conspiracy to Commit Mail Fraud

Maria COMFORT Bank Fraud

Jeanie S. CUSING Bank Fraud

Ginger DANIELS Bank Fraud

Ciu DU Bank Fraud

Marilyn INFANTE Bank Fraud

Cleofe Soledad NOGAVICH Conspiracy to Commit Mail Fraud

Wilfredo C. PASCUAL Conspiracy to Commit Mail Fraud

Leonora POMAR Conspiracy to Commit Mail Fraud

Joseph John PUGLIESE Conspiracy to Commit Mail Fraud

Wazhma (“Nilo”) RAHIMI Conspiracy to Commit Mail Fraud

Clarin TAMBOT-QUERIMIT Conspiracy to Commit Mail Fraud

Ricardo TANG Conspiracy to Commit Mail Fraud

Gina TCHIKOVANI Conspiracy to Commit Wire Fraud

The maximum statutory penalty for bank fraud, in violation of Title 18, United States Code, Section 1344, is 30 years of imprisonment, a $1,000,000 fine, five years of supervised release, and restitution. The maximum statutory penalties for conspiracy to commit mail/wire fraud are the same as those for bank fraud. 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, Title 18, United States Code, Section 3553.

The prosecution is the result of a seven-month investigation by the Federal Bureau of Investigation, the United States Postal Service, and the United States Department of Housing and Urban Development, Office of Inspector General. Several Assistant United States Attorneys are prosecuting these cases.

These mortgage fraud cases are being prosecuted federally as part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

According to U.S. Attorney Russoniello, the criminal conduct these defendants are accused of engaging in, i.e. obtaining or using false documents to submit to lenders, exaggerating income and assets, understating liabilities, providing false employment records, and/or false banking information, was all too common during the years 2005-2009. Agents of the Financial Fraud Enforcement Task Force are pursuing a substantial number of leads in other similar matters that are expected to result in the filing of criminal charges against other individuals in the near future.

If you have information relating to potential mortgage fraud or other financial fraud, please call 415-553-7400.

Please note, indictments contain only allegations against individuals and, as with all defendants, these defendants must be presumed innocent unless and until proven guilty.

SPRINGFIELD, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced today that the owner of Guaranty Title, formerly headquartered in Nixa, Mo., pleaded guilty in federal court today to his role in a $2.7 million wire fraud conspiracy and money laundering.

Richard G. “Rick” Burton, 59, of Nixa, pleaded guilty before U.S. Magistrate Judge James C. England this morning to conspiracy to commit wire fraud and conspiracy to commit money laundering. Burton was charged in a Nov. 17, 2009, federal indictment.

Burton admitted that he participated in a scheme to defraud financial institutions of more than $2.7 million through a series of illegal financial transfers related to stolen escrow payments. Burton attempted to conceal his criminal activities through a substantial check-kiting scheme.

Burton was the president and majority owner of Guaranty Title Company of Southwest Missouri, Guaranty Title Company d/b/a Guaranty Title and Closing Company, and Guaranty Properties, Inc. The companies, referred to collectively as Guaranty, provided real estate title and closing services. Guaranty’s main office was located in Nixa, with at least 10 branch offices located in Aurora, Branson, Mount Vernon, Ozark, Springfield, and Republic, Mo.

Conspiracy to Commit Wire Fraud

Burton admitted that, from May 12, 2005, to June 18, 2007, he defrauded mortgage companies and individual customers of escrow money which had been wired to Guaranty to pay real estate closing costs.

When real estate buyers and sellers hired Guaranty to facilitate the closing of real estate contracts, Guaranty agreed to hold buyers’ money for closing costs in an escrow funds account separate from funds that Guaranty owned. Guaranty was prohibited from commingling that escrow money with the firm’s business operations money, because it did not own the escrow money it received.

Burton admitted that he took a portion of the escrow money that had been transferred into these escrow accounts. In violation of Guaranty’s promise not to do so, Burton caused $2,040,937 of stolen escrow funds to be diverted into the firm’s business operations account and used the money for the day to day business operations of Guaranty.

Burton instructed Guaranty’s in-house bookkeeper to record deposits of stolen escrow money into Guaranty’s business operations account as loans, including loans from a fictitious company called “K & S Investments,” which was created to help conceal the source of the deposits.

By April 2007, deposits into Guaranty’s main escrow account no longer covered shortages caused by the theft of escrow funds. Burton assisted in concealing this shortage by causing checks to be written and deposited between various accounts held by Guaranty at Great Southern Bank and Ozark Mountain Bank that did not contain sufficient funds to cover the checks. This check-kiting scheme continued until June 18, 2007, when Old Missouri Bank discovered the fraud and closed the bank account. As a result of this check kiting, Burton caused Ozark Mountain Bank to lose approximately $682,954.

Conspiracy to Commit Money Laundering

Burton admitted that he participated in a conspiracy to commit money laundering from May 12, 2005, to June 18, 2007. Burton conducted financial transactions that involved the proceeds of the wire fraud and bank fraud conspiracies, in order to promote that criminal activity and to conceal the source of the proceeds of the unlawful activity.

Under federal statutes, Burton is subject to a sentence of up to 40 years in federal prison without parole, plus a fine up to $1,250,000 and an order of restitution. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

This case is being prosecuted by Assistant U.S. Attorney Randall D. Eggert. It was investigated by the Federal Bureau of Investigation, IRS-Criminal Investigation, and the Missouri Department of Insurance, Financial Institutions and Professional Registration.

Federal officials have charged 13 individuals in an alleged elaborate $16.9 million mortgage fraud scheme targeting sales of luxury condominium units in downtown Miami and single-family homes in Coral Gables, according to an unsealed superseding indictment.

According to court documents, the fraud ring – which included a real estate broker and a Wells Fargo Bank loan officer – recruited “straw” buyers to make fraudulent loan applications to Wells Fargo, inflating their salary and deposit figures so they could qualify for loans in excess of $1 million. At closing, those charged then diverted millions by skimming the difference between the inflated purchase price and what actually was paid to the seller, officials said.

The straw buyers ultimately defaulted on the loans, sending the properties into foreclosure and costing Wells Fargo $9.7 million, federal officials said. The case is being prosecuted by the U.S. Attorney’s Office in the Southern District of Florida.

Those charged include: Greta Medina, Ricardo Estrada, Dania Arguelles, Fernanda Abrea, Obed Hernandez, Martin Mere, Nestor Collantes, Alfonso Velasco, Adan Vasquez, Yohamel Caballero, Ana Aviles, Leismy Barcia and Christina Roberts. Real estate broker Margaret Roberts, who negotiated the sales, pleaded guilty earlier.

LAS VEGAS—Joseph D. Milanowski, 48, former officer of the real estate development investment company USA Capital, was sentenced today by Chief U.S. District Judge Roger L. Hunt to 12 years in prison and ordered to pay $86.9 million in restitution to over 1,000 victims for his guilty plea to one count of wire fraud, announced Daniel G. Bogden, U.S. Attorney for the District of Nevada.

Milanowski’s sentence included enhancements because the loss was greater than $50 million, and because the defendant abused a position of private trust to facilitate the commission of the offense. Milanowski was allowed to self-report to federal prison by August 6, 2010, at noon, but must continue to cooperate with the government and U.S. Bankruptcy trustees during that period of release.

Milanowski was the President and de facto Chief Operating Officer of USA Commercial Mortgage Company, which did business as USA Capital from 1998 through April 2006. USA Capital raised money from investors to loan to developers for the construction of real estate. In May 2000, USA Capital created the Diversified Fund to make secured loans to the developers and to pay the investors interest on the loans. Milanowski and others represented to investors that all of the loans made by the Diversified Fund would be secured by first deeds of trust. Investors were also advised that no loans would be made to company insiders, that no loans larger than $20 million would be made once the Diversified Fund reached a certain value, that no loan would exceed 15 percent of the value of the Fund, and that the Fund would not loan more than 25 percent of its funds to a single borrower.

On about April 15, 2002, Milanowski created a loan known as the “10-90 Loan” which he used to fund private developments and investment projects for himself and other company insiders and affiliates. From about March 27, 2003, to about November 12, 2004, Milanowski transferred approximately $22 million to 10-90 Inc. and to another entity he controlled to fund his own development projects. Milanowski and others concealed the existence of the 10-90 Loan from investors until September 30, 2005, when Milanowski included the 10-90 Loan on a list of the Diversified Fund’s loan portfolio in which he claimed that the 10-90 Loan was secured by three master-planned communities in Southern California when he knew that the loan was not secured by three communities. When USA Capital Mortgage Company and the Diversified Fund filed for bankruptcy on April 13, 2006, Milanowski had caused the Diversified Fund to attribute $55.9 million of its principal to the 10-90 Loan. The investigation of USA Capital is ongoing.

The case was investigated by the FBI, and prosecuted by Assistant United States Attorneys Daniel R. Schiess and Roger Yang.

This prosecution is sponsored by President Barack Obama’s Financial Fraud Enforcement Task Force, http://www.justice.gov/opa/pr/2009/November/09-opa-1243.html. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Earlier today at the federal courthouse in Brooklyn, New York, an indictment was unsealed charging 10 defendants, including three attorneys and two licensed real estate brokers, with conspiracy, bank fraud, and wire fraud arising out of their mortgage fraud scheme. The indictment alleges that the defendants fraudulently obtained over $10 million in loans from American Home Mortgage, Fremont Bank, BNC Mortgage (a subsidiary of Lehman Brothers), and WMC Mortgage (a subsidiary of GE Money Bank).

The indictment was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Joseph M. Demarest, Jr., Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office, and Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation. The defendants’ initial appearances and arraignments are scheduled later today before United States Magistrate Judge Roanne L. Mann, at the U.S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The case has been assigned to United States District Judge I. Leo Glasser.

The indictment charges Akin Ayorinde, Hervin Henry, Anthony Onua, Umana Oton, Max Shimba, John Star, Anthony Suazo, Marisol Vasquez, and two others with conspiracy to commit bank and wire fraud. In addition, Ayorinde, Henry, Onua, Oton, Shimba, Star, Suazo, and two others are charged with bank fraud, and Ayorinde, Henry, Onua, Shimba, and two others are charged with wire fraud.1

As detailed in the indictment, from January 2005 to May 2007, Ayorinde, Onua, and Star purchased properties located in Brooklyn and Queens. Ayorinde and Onua are attorneys licensed to practice in the State of New York, and Star is a real estate broker licensed in the State of New York. As part of the scheme, the defendants allegedly submitted false loan applications to create the appearance that the properties were being purchased by creditworthy individuals, when, in fact, the properties were purchased at inflated prices by straw buyers who were controlled by Ayorinde, Onua, and Star. Many of these straw buyers were recruited by Henry, a real estate broker licensed in the State of New York. The indictment charges that Suazo furnished fraudulent appraisals to support the inflated purchase prices of the properties, and Onua, Shimba, and Marisol Vasquez provided fraudulent title abstract reports and other documentation that falsely enhanced the purported value of the properties. These false documents induced lenders to issue loans which were far in excess of the true value of the properties.

The defendants were assisted in the fraud by a third attorney, Oton, who is also licensed to practice in the State of New York. Ayorinde, Onua, and Oton served as attorneys at the closings and allegedly were aware that there were fraudulent misrepresentations made to lenders in connection with the closings.

“This prosecution is another example of the results of the department’s ongoing efforts to investigate and prosecute allegations that licensed professionals abused their positions to perpetrate mortgage fraud,” stated United States Attorney Campbell. “We believe that professionals who serve as gatekeepers against fraud owe a duty to their clients and their oaths and should not compromise that duty by promoting their own selfish interests.”

FBI Assistant Director-in-Charge Demarest stated, “As attorneys and real estate brokers, these men know the ins and outs of dealing in real estate. We should expect them to be honest and serve their clients, but in this case they allegedly did just the opposite. Their activity hurts the trust that everyone should be entitled to when dealing with their attorneys and brokers. The FBI is dedicated to tracking down those that work to abuse the system and steal money while causing further damage to the real estate market.”

FDIC Inspector General Rymer stated, “The Federal Deposit Insurance Corporation Office of Inspector General is committed to its partnerships with others in the law enforcement community as we address mortgage fraud cases throughout the country. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that if the individuals indicted today have undermined that integrity, they will be held accountable.”

The maximum term of imprisonment for any defendant convicted of conspiracy to commit bank and wire fraud is 30 years. The indictment also seeks forfeiture of the proceeds of the defendants’ bank and wire fraud activities, including a criminal forfeiture money judgment and money traceable to the offenses.

The government’s case is being prosecuted by Assistant United States Attorneys Jonathan E. Green and Daniel A. Spector.

Equity skimming, illegal property flipping, foreclosure rescue scams.
And now, say hello to the newcomer on the fraud block, the home loan modification scam.

“There’s no evidence that the same companies or the same people are involved,” said Deborah Bortner, director of consumer services for the Washington State Department of Financial Institutions. “But the intent is about the same: They are looking to take people’s money.”

State agencies like DFI were established to regulate and examine a variety of state-chartered financial services. The agencies also provide education and outreach to protect consumers from financial fraud. Given the peaks and valleys of real estate and mortgage banking, the agency has had its hands full.

“We proposed a new loan servicer bill because we received so many complaints from homeowners who lost their dreams – their homes – to questionable third-party loan servicing practices,” Bortner said. “Throughout the foreclosure crisis, homeowners desperately hoping to avoid losing their homes have fallen victim to companies offering to help, for a substantial fee. In many cases, the homeowner pays several thousand dollars, receives no loan modification and loses their home to foreclosure anyway.”

All servicers now must explain all fees, credit all payments within one business day of receipt, make reasonable attempts to comply with requests for information from the borrower, and promptly correct errors and refund invalid fees.

A typical loan modification is a permanent change in one or more of the terms of a borrower’s loan. It allows the loan to be reinstated and results in a payment the borrower can afford. This can mean a lower interest rate or an adjustment in loan term or monthly payment.

While there are legitimate loan modification companies, there are many more which charge fees for services never rendered.

New loan servicing/modification laws require licensure of loan servicers and create prohibited practices. They also compel all servicers to comply with many of the laws applicable to loan originators and demand them to maintain a surety bond.

Other guidelines address escrow shortcomings and require an escrow agent’s bond to cover the owner, a director or an officer in addition to all employees.

Investigators and regulators see all kinds of deceptive pitches. In every case, the program offers a desperate consumer hope of escaping a deep, dark hole. Three years ago, the big play was “foreclosure rescue,” where scammers peruse county records to find properties that face foreclosure for nonpayment of mortgages or taxes. And, like loan modification programs, these companies would charge questionable upfront fees and then not do any work.

Consumers who think they are being scammed should not sign anything until they have a neutral party look over the documents. They should contact the consumer protection division of their state attorney general’s office to get information about who would be an appropriate neutral party to review the documents.

Tom Kelly is a former real estate editor for the Seattle Times.