Scheme Forced Bank to Close, FDIC Paid $4.3 Million in Losses

KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced that the former president of Hume Bank in Bates County, Mo., pleaded guilty in federal court today to making false statements to the FDIC as part of a bank fraud scheme that caused such significant losses that the bank was pushed into insolvency.
Jeffrey W. Thompson, 40, of Hume, Mo., pleaded guilty before U.S. Magistrate Judge Sarah W. Hays to the charges contained in a Dec. 1, 2009, federal indictment.
Thompson became president of Hume Bank in 2001. From Jan. 1, 2004, through Aug. 31, 2007, when he left the bank, Thompson concealed problem loans from state and federal bank examiners. Due primarily to loan losses on loans originated and administered by Thompson, in which he masked past due loans by altering loan maintenance records, the bank became insolvent and was closed by the Missouri Division of Finance on March 7, 2008. In order to meet obligations to depositors, the FDIC insurance fund sustained a loss of $4,324,463.
Thompson admitted that he masked past due loans by altering loan maintenance records. For example, past due principal was reduced to zero in 1,584 instances, past due interest was reduced to zero on 1,460 occasions, and 1,445 maturity dates were changed on the loan maintenance reports. The great majority of these changes were not supported by loan modification agreements in bank files. Thompson personally made the majority of the changes. The false loan maintenance reports concealed problem loans from state and federal bank examiners and from the bank’s board of directors.
Thompson also completed false Officer’s Questionnaires, by falsely stating that the bank had no accommodation loans, or nominee loans, and by falsely stating that the bank had no instances of capitalized interest. In truth, Thompson had made accommodation, or nominee loans, to relatives from which he personally profited, and had made loans which capitalized interest.
By pleading guilty today, Thompson agreed to forfeit to the government $300,000, which represents proceeds from the fraud scheme, or his residential property.
Under federal statutes, Thompson is subject to a sentence of up to 30 years in federal prison without parole, plus a fine up to $1 million 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 Kate Mahoney. It was investigated by the Federal Deposit Insurance Corporation and the Federal Bureau of Investigation.

A 46-year-old Golden Valley man pled guilty earlier today in federal court in Minneapolis to orchestrating a mortgage fraud scheme that resulted in the theft of more than $2.5 million from lenders nationally. The scheme centered on obtaining fraudulent loans for the purchase of 24 homes in the Twin Cities. Appearing before United States District Court Judge Joan N. Ericksen, Zack Zafer Dyab pled guilty to one count of conspiracy to commit wire fraud and one count of money laundering in connection to the crime. Dyab was indicted along with Julia Alexander Rozhansky, age 46, of Minnetonka, on December 8, 2009.
In his plea agreement, Dyab admitted that from 2003 through early 2007, he conspired with Rozhansky and others to induce through fraudulent means numerous mortgage lenders throughout the U.S. to loan substantial sums of money to unindicted co-conspirators, who happened to be relatives of Rozhansky. Dyab also admitted stealing large amounts of loan proceeds for his personal use.
At the time, Dyab owned American Choice Lending, Inc., a mortgage brokerage company. Rozhansky was his assistant and had supervisory authority over the company’s loan officers and loan processors.
To further the fraud scheme, Dyab often arranged for straw buyers to purchase properties at inflated prices from him or companies he owned. In other instances, he had straw buyers purchase properties at inflated prices from third-party sellers. After those sales, Dyab and Rozhansky purportedly caused the sellers to pay them a portion of the sale proceeds. In addition, Dyab sometimes had a real estate broker receive so-called real estate commissions from the transactions, which the broker then would sign over to Dyab.
In each transaction, Dyab admitted submitting a mortgage loan application that greatly exaggerated the monthly income and bank account balance of the straw buyer. On occasion, he also deposited funds into the bank account of a straw buyer in an effort to trick the lender into believing that the buyer had substantial liquidity. In addition, Dyab routinely provided straw buyers with money to bring to transaction closings, to be passed off as “down payments.” Moreover, he led lenders to believe that the straw buyers intended to live in the homes they were purchasing, when, in fact, he knew they actually planned to sell the homes to third-party straw buyers within a year. The third-party straw buyers then would default on the mortgage loans.
On February 15, 2005, at the conclusion of one of these real estate transactions, Dyab obtained $63,938.94 in seller proceeds by forging the seller’s name on the back of the proceed check. He then deposited the check into his own bank account. Then, on February 17, 2005, Dyab used $15,000 of those funds to purchase a cashier’s check.
For his crimes, Dyab faces a potential maximum penalty of five years in prison on the conspiracy charge and ten years on the money laundering charge. Judge Ericksen will determine his sentence at a future hearing, yet to be scheduled. Rozhansky also pled guilty before Judge Ericksen today. She, too, will be sentenced at a future hearing.
This case is the result of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation Division. It is being prosecuted by Assistant U.S. Attorney David J. MacLaughlin.

WASHINGTON—Former (NCFE) executive Rebecca S. Parrett, 62, has been arrested in Mexico, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Carter M. Stewart for the Southern District of Ohio and U.S. Marshal Cathy Jones for the Southern District of Ohio. Parrett fled in March 2008 after a federal jury convicted her on charges stemming from her role in a $2.8 billion fraud that led to NCFE’s collapse.
Mexican authorities arrested Parrett in Ajijic, Jalisco, Mexico, based on information provided to them by the U.S. Marshals Service in Columbus, Ohio. Parrett was immediately deported according to Mexican immigration laws. Mexican authorities escorted Parrett to Los Angeles where deputy U.S. Marshals arrested her on the warrant issued after her conviction. Parrett will appear before a federal judge in U.S. District Court in Los Angeles today, then will be returned to Columbus.
“Corporate executives found guilty for their fraudulent activity will not be allowed to escape justice by fleeing the United States,” said Assistant Attorney General Lanny A. Breuer. “Like any defendant convicted by a jury, Ms. Parrett is today facing the consequences of her actions.”
“The U.S. Marshals Service has followed all leads and devoted countless hours to the search for Parrett,” said U.S. Attorney Stewart. “Their persistence has led to her arrest. Now she will finally face justice.”
“The U.S. Marshal Service never wavered or slowed in our commitment to bring Rebecca Parrett to justice,” said U.S. Marshal Cathy Jones. “Even fugitives with great financial resources willing to flee the country for years, as she did, will always have to look over their shoulder. The U.S. Marshals Service is world-renowned for having the resources to conduct complicated fugitive investigations, and this arrest again displays our commitment to ensuring the integrity of the criminal justice system.”
A jury convicted Parrett, the former vice chairman, secretary, treasurer, director and owner of NCFE, on March 13, 2008, of charges including conspiracy, securities fraud and wire fraud. Parrett fled after the conviction. She was sentenced on March 27, 2009, to 25 years in prison. She was also ordered to forfeit $1.7 billion in property representing the proceeds of the conspiracy and to pay restitution of $2.3 billion, jointly and severally with other defendants.
NCFE, formerly based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002. Parrett and other NCFE executives engaged in a scheme from 1995 until the collapse of the company to deceive investors and rating agencies about the company’s financial health and how investors’ money would be used. The court noted that 275 healthcare providers filed bankruptcy in whole or in part because of NCFE’s collapse. Parrett and nine other executives were convicted or pleaded guilty in connection with the fraud that led to the company’s collapse.
The investigation into Parrett’s disappearance generated leads in more than a dozen U.S. states and several foreign countries. Many federal, state and local police agencies assisted the U.S. Marshals Service in Columbus with its pursuit of the fugitive.
The cooperative investigation that led to Parrett’s arrest included assistance from the Southern Ohio Fugitive Task Force (SOFAST); the U.S. Department of State, Diplomatic Security Service; the Internal Revenue Service – Criminal Investigation Division; the Columbus Division of Police; the FBI; the Grove City, Ohio, Police Department; the Ohio Bureau of Criminal Identification and Investigation; the Drug Enforcement Administration; the U.S. Immigration and Customs Enforcement; the Ohio Adult Parole Authority; and the U.S. Postal Inspection Service. Officials also expressed their gratitude to Mexican authorities for their significant assistance in this matter.

MADISON, WI—John W. Vaudreuil, United States Attorney for the Western District of Wisconsin, announced that Carlos R. Solis and Marty G. Mendez were sentenced yesterday by U.S. District Judge William M. Conley in prosecutions stemming from a federal mortgage fraud and tax fraud investigation.
Carlos R. Solis, 33, Morrisonville, Wis., a former real estate agent, was sentenced to a year and a half in federal prison. He pleaded guilty on May 25, 2010, to a bank fraud charge.
Marty G. Mendez, 27, Sun Prairie, Wis., a former tax preparer at Mendez Connection—a Madison area tax preparation business owned by his mother—was sentenced to a year and a day in federal prison. He pleaded guilty on May 17, 2010, to assisting in the filing of a false income tax return.
Three other individuals have been convicted of related charges:
Gail L. Mendez, 45, Sun Prairie, Wis., the former owner of Mendez Connection and the mother of Marty Mendez, pleaded guilty to bank fraud and assisting in the filing of a false tax return. She will be sentenced on November 4.
Amy B. Strait, 43, McFarland, pleaded guilty to conspiracy to obstruct the bank fraud investigation. She will be sentenced on November 23.
David Knickmeier, 45, Madison, a former tax preparer at Mendez Connection, pleaded guilty to assisting in the filing of a false income tax return and was sentenced on September 28, 2010, to one year and a day in federal prison.
The Mortgage Fraud Scheme
In pleading guilty to the bank fraud, Solis acknowledged the following facts:
During 2006 and 2007 Gail Mendez worked as a tax preparer in the Madison area, doing business as Mendez Connection. Amy Strait was employed as a mortgage loan officer at Park Bank, a federally insured financial institution. Carlos Solis did business as a real estate agent.
Park Bank had a mortgage loan program that allowed borrowers to apply for a loan using an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number. An ITIN is a nine-digit tax processing number issued by the IRS to aliens who are required to have a U. S. taxpayer identification number but are not eligible to obtain a social security number. Under Park Bank’s ITIN mortgage program, a borrower applying for an ITIN loan was required to submit to the bank copies of the borrower’s income tax returns for the prior two tax years. Under the program, the bank did not check with the IRS to verify the income stated on a borrower’s submitted federal tax returns.
From February 2006 to October 2007, Gail Mendez, Strait, and Solis engaged in a scheme to defraud Park Bank and to obtain money owned by the bank and under its custody and control. In connection with approximately 50 ITIN loans totaling more than $8 million, Gail Mendez, Strait and Solis caused false tax returns to be fabricated and presented to Park Bank. The returns falsely inflated borrowers’ income and had not been filed with the IRS. When Park Bank discovered the scheme, Gail Mendez, Carlos Solis, and Amy Strait, conspired to obstruct the investigation. After Gail Mendez learned from Solis and Strait which loans were under investigation, she directed her employees to destroy evidence of the scheme.
The scheme resulted in losses to Park Bank exceeding $400,000.
The Tax Fraud Scheme
In pleading guilty to the tax charge, Marty Mendez acknowledged the following facts:
Marty Mendez was employed as a tax preparer at Mendez Connection a Madison area tax preparation business owned by his mother—Gail Mendez—in the Madison area. On various dates from 2005 to 2008, Gail Mendez and her employees, including Marty Mendez and David Knickmeier, willfully aided and assisted taxpayers in filing U.S. Individual Income Tax Returns that falsely and fraudulently claimed dependents and child tax credits to which they were not entitled. At sentencing the Court found that the tax loss was in excess of $900,000.
On December 7, 2007, Gail Mendez learned that the IRS was investigating the claiming of child tax credits on returns prepared at Mendez Connection. At her direction, employees of Mendez Connection removed from the Mendez Connection files and destroyed any notes referring to the fraudulent child tax credits.
These charges are the result of an investigation conducted by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation. The prosecution of these individuals has been handled by First Assistant U.S. Attorney Stephen P. Sinnott.
This case 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.

United States Attorney John E. Murphy announced that in San Antonio, former LaCoste National Bank president Jodi P. Gwyn faces between three and five years in federal prison and restitution totaling more than $8 million after pleading guilty this afternoon to one count of making false entries in bank books and records.
Appearing before United States Magistrate Judge Pamela Mathy, Gwyn admitted that in September 2008, he intentionally made a false entry in the LaCoste National Bank’s general ledger in order to deceive bank examiners. Gwyn’s false entry noted a $2.5 million loan to particular individuals when, in fact, the loan proceeds had already been advanced to a different bank customer.
Sentencing is scheduled for January 27, 2011, before United States District Judge Orlando Garcia.
This case was investigated by special agents with the Federal Deposit Insurance Corporation Office of Inspector General and the Federal Bureau of Investigation. Assistant United States Attorney Thomas Moore is prosecuting this case on behalf of the government.

The lifting of the major banks’ “foreclosure moratoriums” — which had been instituted to stem the outcry over massive fraud in the processing of foreclosure documents — demonstrates the necessity for the working class to launch a struggle to win a genuine two-year moratorium on foreclosures and evictions predicated on the premise that housing is a fundamental human right.

With the federal government having essentially nationalized the mortgage industry, the president has the authority to implement such a moratorium through executive action.

Bank of America on Oct. 18 announced its intent to resume foreclosures in the 23 states which have judicial foreclosures. BOA had suspended foreclosures in those states on Oct. 1 due to revelations of fraud in the processing of foreclosure documents. BOA also announced it would resume foreclosures in a few weeks in the remaining 27 states. This move will likely encourage JP Morgan Chase and GMAC, who had similarly suspended foreclosures in the 23 judicial foreclosure states, to resume taking people’s homes. (New York Times, Oct. 18)

Barbara J. Desoer, president of Bank of America Home Loans, stated, “We did a thorough review of the process and we found the facts underlying the decision to foreclose have been accurate. We paused while we were doing that, and now we’re moving forward.”

While even bourgeois commentators treated this announcement with the cynicism and derision it deserved, Bank of America was emboldened to make this move with the backing of the federal government.

From the onset of the exposure of massive bank fraud, the Obama administration has opposed any calls for a national moratorium on foreclosures. When David Axlerod, President Barack Obama’s chief advisor, appeared on CBS’s “Face the Nation” Oct. 10, he came out against a national moratorium. He was followed by Housing and Urban Development Secretary Shaun Donovan, who published an article Oct. 17 in the Huffington Post that also rejected calls for a national moratorium, saying it would hurt the economy.

Billions for banks

Bank of America noted that the major holders of its mortgages, Fannie Mae and Freddie Mac, had been consulted during the review and had signed off on the decision to resume foreclosures. Of 14 million mortgages BOA services, one-half of them — worth $2.1 trillion — are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies controlled by the U.S. Treasury. (NYT, Oct. 18)

Fannie Mae and Freddie Mac were formerly government-sponsored enterprises, private corporations chartered by the federal government to give them enhanced standing to buy or back up mortgage loans.

However, in July 2008 Fannie Mae and Freddie Mac were taken over by the federal government due to massive losses they incurred as a result of the record rise in foreclosures caused by the fraudulent and predatory lending practices of the banks. The federal government placed Fannie Mae and Freddie Mac in trusteeship under the Federal Housing Finance Administration, guaranteeing up to $200 billion in federal tax dollars to back up their loans. That figure was raised to $400 billion, and is now uncapped.

According to a June 3, 2009, statement by FHFA Director James Lockhart, Fannie Mae and Freddie Mac own or guarantee 56 percent of single-family mortgages worth $5.4 trillion in the U.S. When combined with the Federal Housing Administration, the federal government backs or issues a whopping 75 percent of the country’s mortgages. (Associated Press, Sept. 9, 2008)

What this means is that when a borrower goes into foreclosure, the bank which made the loan gets paid off at the loan’s full value by Fannie Mae or Freddie Mac. In addition, the government pays the bank to process the foreclosure. Then the government takes over the home, evicts the homeowner and any tenants, places the home on the market, and sells it at a fraction of the loan’s value.

The difference in what the government paid the bank for the loan, and what the home sells for after foreclosure and eviction, is paid for by taxpayers. That arrangement amounts to a silent bailout of the banks.

For example, a home several doors from where this writer lives in Detroit sold for $137,000 in 2001. The home was then foreclosed and the loan was taken over by Fannie Mae. The home is now being listed by Fannie Mae for $31,000. The $99,000 difference between the $130,000 still owed on the home for which the bank received full value, and the $31,000 for which Fannie Mae is selling the home, is paid for out of taxpayer funds.

This bailout to the banks, which occurs with virtually every foreclosure, has already amounted to $145 billion.

While the FHFA estimated that the total cost of this bailout will be $221 to $363 billion, in 2009 the Congressional Budget Office estimated that Fannie Mae and Freddie Mac would require $389 billion in federal subsidies through 2019. (Bloomberg News, Oct. 21)

Barclays Capital Inc. analysts put the price tag as high as $500 billion, and Sean Egan, president of Egan-Jones Ratings Co., estimated that the total taxpayer bailout to the banks through Fannie Mae and Freddie Mac will total $1 trillion. (BN, June 13)

These figures do not include the additional hundreds of millions of dollars in federal subsidies on FHA-backed loans.

Still-soaring foreclosures, no relief for homeowners

The Obama administration has announced modest loan modification programs to help homeowners, such as the Home Affordable Modification Program, in exchange for this continued massive bailout.

HAMP and other programs are supposed to be mandatory for the banks. But the banks do not comply to help homeowners in any significant way. The government relies on the banks themselves to carry out these modifications, and the federal government and most courts have refused to enforce any sanctions for refusal to perform them.

With the banks knowing they will be getting paid full value on the loans after foreclosure, the banks have little incentive to modify loans and have sabotaged HAMP and led to the program’s virtual collapse. As of August less than one-sixth of the 3 million homeowners who were supposed to be helped have received loan modifications, and the number of borrowers being offered trial modifications has drastically declined. (NYT, Aug. 20)

It was recently exposed that Fannie Mae and Freddie Mac are using the same law firms that prepared the fraudulent documents for the major banks in their processing of foreclosures and evictions. Fannie Mae and Freddie Mac are sanctioning loan servicers if they do not toss people out of their homes within a short period of time. (NYT, Aug. 22)

Obama: Issue moratorium now!

Today the foreclosure crisis continues to intensify. An estimated 2.8 million foreclosures are projected across the U.S. during 2010, with foreclosures totaling 9 million for the years 2009 to 2012. The total lost home-equity wealth due to foreclosures is expected to be $1.9 trillion for the years 2009 to 2012. (Center for Responsible Lending, Aug. 20)

Foreclosures and evictions are a direct product of persistent high unemployment. Of the 1 million homeowners who received foreclosure counseling through the National Foreclosure Mitigation Counseling Program, 58 percent listed unemployment as the main reason for default. (HousingWire, June 1)

With the federal government controlling or backing the vast majority of mortgage loans, President Obama has the clear authority to implement a two-year moratorium on foreclosures and foreclosure-related evictions through an executive order.

A moratorium would let homeowners and tenants remain in their homes, stabilize communities and allow time to develop a long-term solution to this crisis. Then home loans could be restored to their proper value and housing for all guaranteed.

We must fight each foreclosure and eviction and begin implementing such a moratorium through direct action. During the Depression of the 1930s, move-ins reversed many evictions and led to foreclosure moratoriums being enacted in 25 states, which were upheld as constitutional by the U.S. Supreme Court.

What is needed is for the working class to launch a mass struggle to win this demand. It’s time to fight to reverse the government policies which place the well-being of the financial institutions ahead of the welfare of the people.

Jerry Goldberg is an anti-foreclosure attorney and a leader in the Detroit-based Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs. Articles copyright 1995-2010 Workers World. Verbatim copying and distribution of this entire article is permitted in any medium without royalty provided this notice is preserved.

WASHINGTON—Former National Century Financial Enterprises (NCFE) executive Rebecca S. Parrett, 62, has been arrested in Mexico, announced Assistant Attorney General Lanny A. Breuer of the Criminal Division, U.S. Attorney Carter M. Stewart for the Southern District of Ohio and U.S. Marshal Cathy Jones for the Southern District of Ohio. Parrett fled in March 2008 after a federal jury convicted her on charges stemming from her role in a $2.8 billion fraud that led to NCFE’s collapse.
Mexican authorities arrested Parrett in Ajijic, Jalisco, Mexico, based on information provided to them by the U.S. Marshals Service in Columbus, Ohio. Parrett was immediately deported according to Mexican immigration laws. Mexican authorities escorted Parrett to Los Angeles where deputy U.S. Marshals arrested her on the warrant issued after her conviction. Parrett will appear before a federal judge in U.S. District Court in Los Angeles today, then will be returned to Columbus.
“Corporate executives found guilty for their fraudulent activity will not be allowed to escape justice by fleeing the United States,” said Assistant Attorney General Lanny A. Breuer. “Like any defendant convicted by a jury, Ms. Parrett is today facing the consequences of her actions.”
“The U.S. Marshals Service has followed all leads and devoted countless hours to the search for Parrett,” said U.S. Attorney Stewart. “Their persistence has led to her arrest. Now she will finally face justice.”
“The U.S. Marshal Service never wavered or slowed in our commitment to bring Rebecca Parrett to justice,” said U.S. Marshal Cathy Jones. “Even fugitives with great financial resources willing to flee the country for years, as she did, will always have to look over their shoulder. The U.S. Marshals Service is world-renowned for having the resources to conduct complicated fugitive investigations, and this arrest again displays our commitment to ensuring the integrity of the criminal justice system.”
A jury convicted Parrett, the former vice chairman, secretary, treasurer, director and owner of NCFE, on March 13, 2008, of charges including conspiracy, securities fraud and wire fraud. Parrett fled after the conviction. She was sentenced on March 27, 2009, to 25 years in prison. She was also ordered to forfeit $1.7 billion in property representing the proceeds of the conspiracy and to pay restitution of $2.3 billion, jointly and severally with other defendants.
NCFE, formerly based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002. Parrett and other NCFE executives engaged in a scheme from 1995 until the collapse of the company to deceive investors and rating agencies about the company’s financial health and how investors’ money would be used. The court noted that 275 healthcare providers filed bankruptcy in whole or in part because of NCFE’s collapse. Parrett and nine other executives were convicted or pleaded guilty in connection with the fraud that led to the company’s collapse.
The investigation into Parrett’s disappearance generated leads in more than a dozen U.S. states and several foreign countries. Many federal, state and local police agencies assisted the U.S. Marshals Service in Columbus with its pursuit of the fugitive.
The cooperative investigation that led to Parrett’s arrest included assistance from the Southern Ohio Fugitive Task Force (SOFAST); the U.S. Department of State, Diplomatic Security Service; the Internal Revenue Service – Criminal Investigation Division; the Columbus Division of Police; the FBI; the Grove City, Ohio, Police Department; the Ohio Bureau of Criminal Identification and Investigation; the Drug Enforcement Administration; the U.S. Immigration and Customs Enforcement; the Ohio Adult Parole Authority; and the U.S. Postal Inspection Service. Officials also expressed their gratitude to Mexican authorities for their significant assistance in this matter.

MADISON, WI—John W. Vaudreuil, United States Attorney for the Western District of Wisconsin, announced that Carlos R. Solis and Marty G. Mendez were sentenced yesterday by U.S. District Judge William M. Conley in prosecutions stemming from a federal mortgage fraud and tax fraud investigation.
Carlos R. Solis, 33, Morrisonville, Wis., a former real estate agent, was sentenced to a year and a half in federal prison. He pleaded guilty on May 25, 2010, to a bank fraud charge.
Marty G. Mendez, 27, Sun Prairie, Wis., a former tax preparer at Mendez Connection—a Madison area tax preparation business owned by his mother—was sentenced to a year and a day in federal prison. He pleaded guilty on May 17, 2010, to assisting in the filing of a false income tax return.
Three other individuals have been convicted of related charges:
Gail L. Mendez, 45, Sun Prairie, Wis., the former owner of Mendez Connection and the mother of Marty Mendez, pleaded guilty to bank fraud and assisting in the filing of a false tax return. She will be sentenced on November 4.
Amy B. Strait, 43, McFarland, pleaded guilty to conspiracy to obstruct the bank fraud investigation. She will be sentenced on November 23.
David Knickmeier, 45, Madison, a former tax preparer at Mendez Connection, pleaded guilty to assisting in the filing of a false income tax return and was sentenced on September 28, 2010, to one year and a day in federal prison.

The Mortgage Fraud Scheme

In pleading guilty to the bank fraud, Solis acknowledged the following facts:
During 2006 and 2007 Gail Mendez worked as a tax preparer in the Madison area, doing business as Mendez Connection. Amy Strait was employed as a mortgage loan officer at Park Bank, a federally insured financial institution. Carlos Solis did business as a real estate agent.
Park Bank had a mortgage loan program that allowed borrowers to apply for a loan using an Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number. An ITIN is a nine-digit tax processing number issued by the IRS to aliens who are required to have a U. S. taxpayer identification number but are not eligible to obtain a social security number. Under Park Bank’s ITIN mortgage program, a borrower applying for an ITIN loan was required to submit to the bank copies of the borrower’s income tax returns for the prior two tax years. Under the program, the bank did not check with the IRS to verify the income stated on a borrower’s submitted federal tax returns.
From February 2006 to October 2007, Gail Mendez, Strait, and Solis engaged in a scheme to defraud Park Bank and to obtain money owned by the bank and under its custody and control. In connection with approximately 50 ITIN loans totaling more than $8 million, Gail Mendez, Strait and Solis caused false tax returns to be fabricated and presented to Park Bank. The returns falsely inflated borrowers’ income and had not been filed with the IRS. When Park Bank discovered the scheme, Gail Mendez, Carlos Solis, and Amy Strait, conspired to obstruct the investigation. After Gail Mendez learned from Solis and Strait which loans were under investigation, she directed her employees to destroy evidence of the scheme.
The scheme resulted in losses to Park Bank exceeding $400,000.
The Tax Fraud Scheme
In pleading guilty to the tax charge, Marty Mendez acknowledged the following facts:
Marty Mendez was employed as a tax preparer at Mendez Connection a Madison area tax preparation business owned by his mother—Gail Mendez—in the Madison area. On various dates from 2005 to 2008, Gail Mendez and her employees, including Marty Mendez and David Knickmeier, willfully aided and assisted taxpayers in filing U.S. Individual Income Tax Returns that falsely and fraudulently claimed dependents and child tax credits to which they were not entitled. At sentencing the Court found that the tax loss was in excess of $900,000.
On December 7, 2007, Gail Mendez learned that the IRS was investigating the claiming of child tax credits on returns prepared at Mendez Connection. At her direction, employees of Mendez Connection removed from the Mendez Connection files and destroyed any notes referring to the fraudulent child tax credits.
These charges are the result of an investigation conducted by the Federal Bureau of Investigation and Internal Revenue Service Criminal Investigation. The prosecution of these individuals has been handled by First Assistant U.S. Attorney Stephen P. Sinnott.
This case 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.

Juan Rangel Agrees to Serve 15-Year Sentence for Targeting Spanish-Speaking Victims and Stealing Their Savings and Titles to their Homes
LOS ANGELES—A Downey man has agreed to plead guilty to federal fraud and money laundering charges, admitting that he ran two fraudulent operations—a Ponzi scheme that took in $30 million from more than 300 victims and a mortgage fraud scheme that preyed on homeowners by stealing the equity from their homes and secretly taking title to their properties.
Juan Rangel, 46, who is currently in federal custody, signed a plea agreement that was filed late Friday in United States District Court. Rangel agreed to plead guilty to one count of mail fraud and one count of money laundering. In the plea agreement, federal prosecutors and Rangel ask the court to impose a sentence of 15 years in prison.
Rangel agreed to plead guilty to a mail fraud count related to the Ponzi scheme in which Rangel and his company, the Commerce-based Financial Plus Investments, recruited new investors through Spanish-language newspapers and magazines, as well as in radio advertisements and infomercials broadcast on television. Rangel and Financial Plus promised to pay investors guaranteed returns of 60 percent each year out of the profits from Financial Plus’ real estate investments and lending business. However, Rangel admitted in the plea agreement that Financial Plus did not make any actual profits from real estate or lending. Rangel instead used the victims’ money to make Ponzi payments to other investors and for his own personal use, including the monthly mortgage payments on his $3 million home and monthly payments for his Lamborghini sports car.
In the plea agreement, Rangel also admitted that he and others operated a mortgage fraud scheme that targeted Latino homeowners at risk of losing their homes by offering them help to avoid foreclosure. Rather than assisting the distressed homeowners, however, Rangel took titles to their homes and drained the remaining equity out of the properties. As part of this scheme, Rangel arranged to sell the homeowners’ properties, usually without their knowledge, to third-party straw buyers. He then applied for loans in the straw buyers’ names related to these supposed purchases, and used a variety of falsified documents to ensure that the fraudulent loans were approved. Rangel admitted that the scheme caused mortgage lenders to fund more than $10 million in fraudulent loans.
Rangel is scheduled to plead guilty Wednesday afternoon before United States District Judge S. James Otero. Once he pleads guilty, Rangel will face a statutory maximum sentence of 30 years in federal prison. Although the parties will recommend a sentence of 15 years, Judge Otero will make the final determination as to the appropriate sentence in the case.
A federal grand jury indicted Rangel last month in the Financial Plus schemes. The indictment also charges Javier Juanchi, 42, of Sherman Oaks, a vice president at Financial Plus, and Pablo Araque, 40, of Downey, who owns the Downey-based tax preparation and bookkeeping company A-One Tax Pros. Juanchi and Araque were charged in relation to the mortgage fraud and are currently scheduled to go to trial before Judge Otero on November 23.
The case involving Financial Plus is the result of an investigation by the Federal Bureau of Investigation, the United States Postal Inspection Service, and IRS-Criminal Investigation.

David B. Fein, United States Attorney for the District of Connecticut, announced that ROBERT A. NIXON, 48, of Maynard Road, East Haven, was sentenced today by United States District Judge Janet Bond Arterton in New Haven to 55 months of imprisonment, followed by three years of supervised release, for embezzling more than $1 million from the former Castle Bank and Trust, now Naugatuck Savings Bank. On August 6, 2010, NIXON pleaded guilty to one count of theft, embezzlement, or misapplication by a bank officer or employee, and one count of income tax evasion.
According to court documents and statements made in court, NIXON was employed as the vice president of Operations of Castle Bank and Trust (“Castle”) in Middletown. Between 2000 and 2008, NIXON made or caused other bank personnel to make computer entries that transferred funds from Castle’s general account into a friend’s personal savings and checking accounts at the bank. NIXON then withdrew cash from his friend’s account and directed his friend to withdraw cash from his friend’s account and provide that cash to the defendant. NIXON also directed his friend to transfer funds by check from the Castle account to accounts that his friend held at other banks, and then directed his friend to withdraw cash from the accounts (by either checks made payable to “cash” or ATM withdrawals) and provide the cash to NIXON.
The total amount of money embezzled through this scheme was $1,039,227.34.
In order to hide his theft, NIXON used his position to cause false entries to be made in Castle’s general account and “reprocess” official Castle bank checks that had already been cashed by the respective payees and debited by Castle, which caused an additional debit to appear in the general account.
NIXON used the proceeds of his theft to make mortgage payments, personal credit card payments, car payments, home improvements, and also to gamble.
The fraud was discovered after NIXON left the employment of the bank in August 2009, and after the parent company of Naugatuck Savings Bank had acquired Castle.
NIXON also failed to pay federal taxes on the funds that he embezzled. For the 2002 through 2008 tax years, this resulted in an underpayment of $268,784 to the Internal Revenue Service.
Today, Judge Arterton ordered NIXON to pay a total of approximately $1.2 million in restitution to Naugatuck Savings Bank and its insurer, which includes costs the bank incurred while investigating the fraud. NIXON also must pay full restitution to the IRS, plus applicable interest and penalties.
This matter was investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case was prosecuted by Assistant United States Attorneys David E. Novick and Michael J. Gustafson.

In a surprising turn of events, the NYFed—no less—has gone after the Bank of America for its fraudulent mortgage business. Yes, the former home to Treasury Secretary Geithner–the best friend Wall Street has ever had–is now acting like the lapdog that bites the hand that feeds.

BofA has reacted as expected, trying to slap the little pipsqueak pet back into submission, announcing an end to its moratorium on foreclosure fraud and threatening to unleash its dark army of lawyers who are ready to do battle in the courts to maintain the myth that the junk banks securitized met required underwriting standards.

It is of course all high drama worthy of a mid-afternoon soap opera, with the Fed proclaiming dismay, nay, shock!, that banks sold it toxic waste. The over-acting would be hilarious if this were not such a serious issue.

In truth, it is all fraud, from start to end—from origination of the mortgages through the securitization, on to the duping of investors, and to the foreclosing on (mostly) innocent bystanding homeowners. The FBI warned of an epidemic of mortgage fraud in 2004, investigations demonstrate that 80% of the fraud is at the hands of lenders, and the fraud was no secret within the industry and within government long before the NYFed, USFed, and Treasury started bailing out the control fraud banks by purchasing their assets, guaranteeing their liabilities, lending against toxic waste, and buying their worthless equities—putting Uncle Sam on the hook in an amount estimated to total more than $20 trillion.

Meanwhile, the bank frauds have been kicking Americans out of their homes, manufacturing fake documents, and re-selling property to which they have no legitimate title.

But the past week has not been good for control fraud banks. State Attorneys General have gone after them, thumbing their collective noses at the weak-kneed Obama Administration that had done nothing more than to plead with the frauds to please be a tad bit nicer as they steal homes.

Judges have also gone after banks—noticing how amateurish the doctored and counterfeited documents looked, and they began to throw the bank plaintiffs out of court. We know that in many or most cases the banks do not have the borrowers’ notes—that are required in almost all states to take away someone’s home. Lots of bank officials and employees have committed crimes for which they can be prosecuted and for which they will serve real prison time.

All of this seems to have forced the Fed’s hand. Most bettors had put their money on Fannie and Freddie, not the Fed, to first call the bluff of the bank frauds. They have far more on the line—no doubt they are sitting on well over a trillion dollars worth of junk that does not meet the underwriting standards claimed by the securitizers. To be sure, they had taken some action, but it was the NYFed’s audacity that grabbed the headlines. Hey, there is, finally, the audacity of hope that President Obama used to talk about—funny that it should rest in the hands of the thoroughly compromised NYFed.

The banks, predictably, claim everything is fine. BofA supposedly spent a couple of hours during its self-imposed introspective moratorium to check through hundreds of thousands of foreclosures to ensure that all its procedures were appropriate. Surprise, surprise, it could not find a single mistake! Boy, these guys ARE good, even though they took over the mother of all control frauds, Countrywide Financial—inheriting its toxic waste. Yet, not one error! There is, again, a certain audacity there—perhaps one more in tune with the protect-Wall-Street-at-any-cost sort of song Karaoked so far at the White House.

Right—please sell me a Brooklyn bridge, or two, too. The fraud continues apace. The banks intend to continue to defraud both homeowners and investors in the toxic securities it sold.

How do we know it is all fraud?

Look, when lenders market “low doc”, “Ninja” and “Liar’s loans” (that accounted for half of all mortgages at the peak of the bubble), there is no question that the intent is to defraud investors. The appellations say it all. When lenders market “nuclear” hybrid loans with low teaser rates that blow up in two or three years, forcing borrowers into default, there is no question that the intent is to defraud borrowers. Fraud was the business model. Everyone in the industry knew that—from property appraisers to originators to credit raters to securitizers to insurers. Fraud, fraud, fraud. It is time to break out that F word and to use it liberally.

In an important piece by Felix Salmon (blogs.reuters.com/felix-salmon/2010/10/13/the-enormous-mortgage-bond-scandal/), a “smoking gun” is produced. The big investment banks (Goldman, Bear, Citigroup, Merrill, Lehman, Morgan, Deutsche) used Clayton Holdings to do “third-party due diligence” on the mortgages that were pooled into securities. Note that this was most certainly NOT done to protect the investors who would buy the securities—rather it was to SCREW them. Clayton would “taste sample” some of the mortgages (5% to 35%), typically finding that a third or more did not meet underwriting standards. The investment bank would then kick those out and go back to the originator to renegotiate the price on the entire mortgage pool. Since the investment bank had proof that the pool did not meet standards, it would be able to get a better price.

Here’s the kicker. The investment bank did not, and did not want to, examine the whole pool in order to reject all the bad loans. Indeed, it WANTED a bad pool–a package of mortgages that contained many mortgages that did not meet underwriting standards–because this allowed it to reduce the price paid. Then it would tell the investment buyers of the securities “Oh, yes, we did due diligence, using an expert third party”. Of course the investment bank would not pass along the price discount it had obtained from the originator, and would not tell the buyer that the pool still contained an untold amount of junk mortgages. That would defeat the whole purpose of the third party “due diligence”—which was done only for the benefit of the investment bank in order to screw more profits out of the investor. Amazingly, the banks turned “due diligence” into a mechanism for fraud. These guys ARE audacious. They ARE good!

So here we are. The Fed, Fannie and Freddie, Pimco, and other big holders of the securities are now going after the banks. This is going to get really fun.

There is no better time to declare a bank holiday to try to unravel this mess. The banks will not survive the onslaught. The only question is how long do we really want to drag this out? Should we go through years of court battles while the economy suffers and Americans lose their homes? Or do we just get it over this weekend by shutting down the control frauds? Void all the fraudulent paper, let occupants keep their homes and negotiate fair “rents” in lieu of unaffordable mortgages. Swiftly deal with the fall-out. Pursue, prosecute, and incarcerate the guilty. Return the nation to the rule of law.

By L. Randall Wray

Juan Rangel Agrees to Serve 15-Year Sentence for Targeting Spanish-Speaking Victims and Stealing Their Savings and Titles to their Homes

LOS ANGELES—A Downey man has agreed to plead guilty to federal fraud and money laundering charges, admitting that he ran two fraudulent operations—a Ponzi scheme that took in $30 million from more than 300 victims and a mortgage fraud scheme that preyed on homeowners by stealing the equity from their homes and secretly taking title to their properties.
Juan Rangel, 46, who is currently in federal custody, signed a plea agreement that was filed late Friday in United States District Court. Rangel agreed to plead guilty to one count of mail fraud and one count of money laundering. In the plea agreement, federal prosecutors and Rangel ask the court to impose a sentence of 15 years in prison.
Rangel agreed to plead guilty to a mail fraud count related to the Ponzi scheme in which Rangel and his company, the Commerce-based Financial Plus Investments, recruited new investors through Spanish-language newspapers and magazines, as well as in radio advertisements and infomercials broadcast on television. Rangel and Financial Plus promised to pay investors guaranteed returns of 60 percent each year out of the profits from Financial Plus’ real estate investments and lending business. However, Rangel admitted in the plea agreement that Financial Plus did not make any actual profits from real estate or lending. Rangel instead used the victims’ money to make Ponzi payments to other investors and for his own personal use, including the monthly mortgage payments on his $3 million home and monthly payments for his Lamborghini sports car.
In the plea agreement, Rangel also admitted that he and others operated a mortgage fraud scheme that targeted Latino homeowners at risk of losing their homes by offering them help to avoid foreclosure. Rather than assisting the distressed homeowners, however, Rangel took titles to their homes and drained the remaining equity out of the properties. As part of this scheme, Rangel arranged to sell the homeowners’ properties, usually without their knowledge, to third-party straw buyers. He then applied for loans in the straw buyers’ names related to these supposed purchases, and used a variety of falsified documents to ensure that the fraudulent loans were approved. Rangel admitted that the scheme caused mortgage lenders to fund more than $10 million in fraudulent loans.
Rangel is scheduled to plead guilty Wednesday afternoon before United States District Judge S. James Otero. Once he pleads guilty, Rangel will face a statutory maximum sentence of 30 years in federal prison. Although the parties will recommend a sentence of 15 years, Judge Otero will make the final determination as to the appropriate sentence in the case.
A federal grand jury indicted Rangel last month in the Financial Plus schemes. The indictment also charges Javier Juanchi, 42, of Sherman Oaks, a vice president at Financial Plus, and Pablo Araque, 40, of Downey, who owns the Downey-based tax preparation and bookkeeping company A-One Tax Pros. Juanchi and Araque were charged in relation to the mortgage fraud and are currently scheduled to go to trial before Judge Otero on November 23.
The case involving Financial Plus is the result of an investigation by the Federal Bureau of Investigation, the United States Postal Inspection Service, and IRS-Criminal Investigation.

As the most massive, systemic fraud in the history of human commerce continues to unfold before us, there is no lack of topics and issues – while we poke through these cesspools of Wall Street slime. By now, everyone has heard ad nauseum the announcements by U.S. fraud-factories that they were “suspending” foreclosure proceedings “in 23 states”. An automatic question which arises from these announcements is: what about the other 27 states?
We have a situation where Wall Street banks (and the “foreclosure-mills” they hired to do their “dirty work”) didn’t just “cut corners” in processing these foreclosures, they threw the rule-book out the window and willfully committed millions of fraudulent acts – any and every time it was convenient to do so.
Yet despite the severity of the acts of which we already know, most of these fraud-factories are still steaming ahead with getting corrupt judges to rubber-stamp these systemic acts of fraud, in more than half of all U.S. states. This begs another question: what sort of defective legal systems, and defective land-titles systems must these other states have – so that even after this massive fraud is exposed, the bankers are still ramming-through fraudulent foreclosures with impunity?
Bear in mind that unlike countries which maintain honesty and integrity in their legal systems in general, and their land-title registries in particular, virtually none of the millions of foreclosures being rubber-stamped in the U.S. are “final” judgments. Thanks to greedy Wall Street bankers totally abandoning a legal process which was perfected over a period of two centuries (so they could boost profits by a few more percent), permanent defects have been created in (at least) millions of residential properties, and more likely tens of millions – leaving all of these properties open to future legal challenges, indefinitely.
In this respect, my own opinion is conservative. A recent edition of MSNBC’s “Dylan Ratigan Show” provides a more extreme view of this issue. U.S. attorney, Michael Pines: “As bad as you think it is, it’s probably a thousand times worse.”
Pines was responding to a question from Ratigan about Pine’s clients: the Earl family. This middle-class family was trying to get caught up on its mortgage, and making payments to the bank. The Earl’s allege that even after large payments were made on their account (more than $100,000 in total), that there was no change in the balance owing. The moment the Earls requested an “accounting” on their mortgage (which is obviously within their rights), the bank refused to provide an accounting, and simply sent them a “notice of default” (foreclosure) instead.
In other words, if the Earl’s account of the matter is correct, the conduct of the bank did not simply represent “fraud”, but blatant extortion – such as we might literally expect the Mafia to engage in. Give the bank whatever it asks for, with “no questions asked”, or the bank will foreclose on you.
What happened at trial, when the trial judge heard this evidence? Naturally, the trial judge never heard this evidence, because as with 90% of all these fraudulent foreclosures, the judge simply rubber-stamped the bank’s request: giving the bank “legal” permission to take the Earl’s home – without the homeowners ever being permitted to say one word in their own defense.
At this point, many already know the next chapter of the story. The Earl’s (and their nine children) “broke in” to their own house, changed the locks, “repossessed” the house – and are now forced to live as “squatters” because in The Land of Foreclosure Fraud, “justice” is on a long holiday. Attorney Pine’s statement to Ratigan: “This happens all the time.”
Ratigan then introduced a second guest – another bank-victim. This victim alleges that even though a foreclosure process had never been commenced, that one evening someone (representing the bank) broke into her home (while she was there), and attempted to change the locks on her home.
This client’s lawyer, another foreclosure specialist, was equally strident. He simply stated that this massive scandal would “fundamentally destabilize” the entire U.S. real estate market. Pines interjected again.
“This is not only residential, this is commercial.” In that respect, what Pines meant is that we are about to see the same scenario play-out in the multi-trillion dollar U.S. commercial real estate market. At this point he came out with his real “bombshell”: “Nobody in this country knows for sure who owns any real estate.”

By Jeff Nielson

PREET BHARARA, United States Attorney for the Southern District of New York, announced that CLYDE “PETER” HALL was sentenced today in Manhattan federal court to 20 years in prison for defrauding investors of millions of dollars by fraudulently promising them access to high-yield investment programs and bank instruments with purported high rates of return. HALL, who decades ago played football for the New York Giants, was also sentenced on separate charges of bankruptcy fraud. The sentence was imposed by U.S. District Judge RICHARD J. SULLIVAN.

Manhattan U.S. Attorney PREET BHARARA said: “Today’s sentence reaffirms our commitment to prosecute anyone who targets the innocent through advance-fee schemes or attempts to manipulate the bankruptcy system to the disadvantage of the unsuspecting. This office will continue to work with our law enforcement partners to protect victims of fraud and intercept those who would seek to perpetrate them.”

According to the Indictment to which HALL pled guilty, documents filed in this case, and statements made in court:

HALL held himself out as the “representative” or “attorney-in-fact” of two purported business trusts and told his victims that in exchange for upfront or advance fees he could obtain various bank instruments worth hundreds of millions of dollars which could be used as collateral for loans or to fund trading in high yield investment programs.

Despite HALL’s promises to victims that the advance fees were completely refundable, and that he had over a decade of success promoting these investments, HALL used the advance fees to pay personal and family expenses and for the benefit of his co-conspirators. At the time of his arrest, HALL possessed fake bank letters of credit or bank guarantees on paper bearing the logos of well-known international banks, including UBS AG, ABNAMRO, Citibank, J.P. Morgan Chase Bank, Bank of America, and Sumitomo Mitsui Banking Corporation.

In addition to the advance-fee scheme, HALL also committed bankruptcy fraud. Specifically, In April 2003, HALL and his wife ANNE TORSELIUS HALL signed a $5,800 per month, one-year lease for an apartment occupying the top three floors of a five-story brownstone building on Manhattan’s Upper West Side. In November 2003, the HALLs stopped paying rent to the owner of the apartment (the “Owner”) and refused to move out when the lease expired in May 2004. Between August 2004 and December 2004, and after the Owner successfully obtained an order for the HALLs’ eviction, CLYDE HALL filed or caused to be filed a series of last-minute bankruptcy petitions in U.S. Bankruptcy Court for the Southern District of New York, which contained false representations, for the purpose of halting the eviction proceeding and allowing him to remain in the apartment without paying rent.

The HALLs eventually moved out of the apartment in early January 2004, and into a new, $9,500 per month apartment on the Upper West Side. By that time, the HALLs owed the Owner approximately $81,200 in rent, which they never paid. At the same time, CLYDE HALL caused a total of approximately $78,000 to be paid to his new landlord for alterations to the new apartment and to pre-pay a significant amount of the rent.

HALL, 71, pled guilty to one count of conspiring to commit wire fraud and five counts of substantive wire fraud on April 20, 2009, in connection with the advance-fee scheme. On November 4, 2009, HALL pled guilty to one count of conspiracy to commit bankruptcy fraud. HALL’s wife, ANNE TORSELIUS HALL, 45, pled guilty on November 3, 2009, to a charge related to HALL’s bankruptcy fraud scheme and is scheduled to be sentenced on November 3, 2010.

In addition to the prison term, Judge SULLIVAN sentenced HALL to three years of supervised release and ordered HALL to forfeit $4.275 million and to pay over to $1.9 million in restitution.

During the sentencing proceeding, Judge SULLIVAN said that HALL left a “wake of wreckage” and that he crafted the sentence to “send a message about what will be tolerated and what will not be tolerated.”

Mr. BHARARA thanked the FBI, the IRS-CID, USPIS, the Office of the U.S. Bankruptcy Trustee for the Southern District of New York, and the U.S. Attorney’s Office Criminal Investigators for their assistance in the case.

These cases were brought in coordination with President BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a Co-Chair of the Securities and Commodities Fraud Working Group. 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.

This case is being handled by the office’s Complex Frauds Unit. Assistant U.S. Attorney THOMAS G. A. BROWN is in charge of the prosecution.

A Loan Modification is a permanent change in one or more of the terms of a Mortgagor’s loan, allows the loan to be reinstated, and results in a payment the Mortgagor can afford.

Question 1: In utilizing the Loan Modification option to bring an asset current, can the Mortgagee include all fees and corporate advances??

Answer: Mortgagee Letter 2008-21 states in part: Legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be capitalized into the modified principal balance.

Question 2:May a Mortgagee perform an interior inspection of the property if they have concerns about property condition?

Answer: Yes, per Mortgagee Letter 2000-05, page 20, the Mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the Mortgagor’s continued ability to support the modified mortgage payment.

Question 3: Can a Mortgagee include late charges in the Loan Modification?

Answer: Mortgagee Letter 2008-21 states that the goal in providing the Mortgagor a Loan Modification is to bring the delinquent mortgage current and give the Mortgagor a new start, the Mortgagee should waive all accrued late fees.

Question 4: When utilizing a Loan Modification option, can a Mortgagee capitalize an escrow advance for Homeowner’s Association fees?

Answer: HUD Handbook 4330.1 REV-5 (Paragraph 2-1, Section B, Escrow Obligations) states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.

Question 5: Is there a new basis interest rate which Mortgagees may assess when completing a Loan Modification?

Answer: Yes, Mortgagee Letter 2009-35 states that the Mortgagee shall reduce the Loan Modification note rate to the current Market Rate. Please refer to Mortgagee Letter 2009-35 for more details.

Question 6: Are Mortgagees required to re-amortize the total amount due over 360 month period?

Answer: Yes, per Mortgagee Letter 2009-35, the Mortgagee must re-amortize the total unpaid amount due over a 360 month period from the due date of the first installment required under the modified mortgage.

Question 7: What date is utilized when determining the correct interest rate for a Loan Modification?

Answer: The date the Mortgagee approves the Loan Modification (all verification completed and servicing notes documented, reported to SFDMS) is the date that Mortgagees are to use in determining the interest rate.

Question 8: Will HUD subordinate a Partial Claim, should a Mortgagor subsequently default and qualify for a Loan Modification?

Answer: If a Mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.

Question 9: Are Mortgagees required to perform an escrow analysis when completing a Loan Modification?

Answer: Yes, Mortgagees are to perform a retroactive escrow analysis at the time the Loan Modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

Question 10: Can a Mortgagee qualify an asset for the Loan Modification option when the Mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

Answer: Based upon this scenario, the Mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the Mortgagee should then consult with their legal counsel to determine if the asset is eligible for a Loan Modification since the spouse is not on the original mortgage.

In the still-developing “mortgagegate” scandal, the Obama White House is pledging its loyalties to the letter of the law, vowing Tuesday to hold “accountable” any bank that engaged in foreclosure fraud.

“As institutions are determining their next steps in addressing these issues, we remain committed to holding accountable any bank that has violated the law,” White House Press Secretary Robert Gibbs told reporters.

“Mortgagegate,” as it’s been dubbed in the media, centers around the use of unqualified workers given jobs as “mortgage experts,” who were then tasked with signing off on thousands of documents required by courts in foreclosure proceedings.

Many times, paperwork was not properly examined. In some cases, according to sworn statements, bribes of jewelry, cars and even houses were offered if an employee would forge documents or notary seals.

And all of it, according to the allegations, happened in an effort to speed up the foreclosure process.

It was enough for attorneys general in all 50 states to initiate investigations. Only 23 states currently require a court approval before a bank may foreclose on a home.

Now, the Obama administration has directed its Financial Fraud Enforcement Task Force to find out whether banks that used so called “robo-signers” actively mislead government housing agencies, or if they committed mail or wire fraud by submitting false paperwork.

“The administration’s Federal Housing Administration and Financial Fraud Enforcement Task Force have undertaken their own regulatory and enforcement investigation into the foreclosure process,” Gibbs explained Tuesday.

It is possible the investigation will result in criminal charges, The Washington Post noted.

In the wake of the “robo-signing” revelations, several major lenders froze foreclosures temporarily to review paperwork, Bank of America being the largest. The institution said Monday it would be resuming foreclosures this week.

The Obama administration has resisted calls for a national moratorium on foreclosures, with spokesman Robert Gibbs warning of the “unintended consequences” of such an action.

While many House Democrats, including Speaker Nancy Pelosi (D-CA), have called for a congressional investigation into foreclosure fraud, Congress is widely expected to attempt legislation retroactively forgiving the mortgage industry for its abuses.

Up to 1.2 million homes are expected to be foreclosed upon this year, according to data provided by RealtyTrac Inc.

By Stephen C. Webster

NEWARK, NJ—A former mortgage broker and his purported co-conspirator in a mortgage fraud scheme were arrested today on a criminal complaint which alleges they conspired to defraud various mortgage lenders of more than $7 million by conducting at least 50 fraudulent real estate transactions involving residential properties in New Jersey, U.S. Attorney Paul J. Fishman announced.
Eddie Dukhman, aka Eddie Dukeman, 34, of Sewaren, N.J., and Frank Corallo, 37, of Maywood, N.J., were arrested this morning by special agents of the FBI and the U.S. Secret Service on a charge of conspiracy to commit wire fraud. Dukhman was arrested this morning at his home. Corallo, who awaits sentencing after pleading guilty to conspiracy to commit wire fraud in an unrelated scheme, was arrested this morning when he reported to pretrial services concerning that case. Both defendants are expected to appear today before U.S. Magistrate Judge Michael A. Shipp in Newark federal court.
According to the complaint unsealed today, Dukhman, supposedly in the real estate business, and Corallo, a former mortgage broker, engaged in a conspiracy to defraud mortgage lenders from January 2007 to December 2009. Dukhman, with the assistance of two attorneys, arranged to purchase properties owned by financial institutions – commonly referred to as real-estate-owned or REO properties. Corallo recruited other individuals to purchase those same properties at around the same time, referred to in the complaint as the “borrowers.”
Dukhman, Corallo and other unidentified co-conspirators employed numerous fraudulent techniques to effect their scheme – including falsifying financial documents, HUD-1 settlement statements (HUD-1s) and residential loan applications; causing borrowers to apply and obtain loans on properties that they did not own; and failing to record deeds with the county clerk’s office.
Specifically, Dukhman and Corallo caused fraudulent loan applications and HUD-1s to be submitted to mortgage lenders claiming that the purchaser of the REO property was the borrower (rather than Dukhman); that the borrowers put money down at the closing; that the properties would be the primary residences of the borrowers; that the borrowers had more assets and earned more than they actually did; and that the purchase price was almost twice that actually paid by Dukhman.
When the loans were approved, the two attorneys identified in the complaint as “GT” and “EF” furthered Dukhman’s scheme by depositing the proceeds of the loans in one of their respective attorney trust accounts. Either of the two attorneys would then act as closing agents for Dukhman, who would purchase a REO property using the proceeds of the mortgage fraud scheme. After paying the closing costs, the attorneys distributed the proceeds of the mortgage fraud to Dukhman, Corallo and their co-conspirators.
After the attorneys gave Dukhman the deed to an REO property, he had it altered to reflect a sale between the REO bank and the borrower for the purchase price listed in the fraudulent documents submitted to the lenders. Altered deeds were filed in the county clerk’s office – leaving Dukhman out of the title history.
Additionally, Dukhman set up shell companies to receive the proceeds of the fraud. To that end, proceeds were funneled through financial institutions in the United States and ultimately transferred to various foreign accounts, including an account in the Cook Islands. The government is seeking to forfeit the money in that account.
In all, Dukhman and Corallo conspired to defraud numerous mortgage lenders out of more than $7 million.
The wire fraud conspiracy count with which each of the defendants is charged carries a maximum potential penalty of 30 years in prison and a $1 million fine.
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 Secret Service, under the direction of Acting Special Agent in Charge James Mottola, with the investigation leading to the criminal Complaint.
The government is represented by Assistant U.S. Attorneys Stacey A. Levine of the U.S. Attorney’s Office Heath Care and Government Fraud Unit and Peter Gaeta of the office’s Asset Forfeiture Unit.
The charge and allegations contained in the complaint are merely accusations, and each defendant is presumed innocent unless and until proven guilty.
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.’

BOSTON, MA—A realtor convicted of conspiracy and wire fraud by a federal jury in June was sentenced late yesterday for various roles in a mortgage fraud ring that conducted 21 fraudulent property transactions in the Greater Boston area involving 10 mortgage lenders and more than $10.6 million in loan proceeds.

ERNST APPOLON, 30, of Braintree, was sentenced yesterday by U.S. District Judge George A. O’Toole, Jr. to a term of 120 months’ imprisonment, to be followed by three years of supervised release.

A total of 11 defendants were indicted in May of 2008. Ernst Appolon was found guilty of one count of conspiracy to commit wire fraud and thirty-four counts of wire fraud by a federal jury following a seven-week trial in June 2010. Also convicted on conspiracy and wire fraud charges at the same trial were Eric L. Levine of Brookline; J. Daniel Lindley of Jamaica Plain; Daniel Appolon of Dorchester; and LaToya Haltiwanger of California. Levine and Lindley were also convicted of money laundering. Five other defendants pleaded guilty before trial and one defendant is pending trial.

The evidence at the jury trial showed that between May 2005 and June 2006, the defendants participated in a conspiracy to obtain $10.6 million in mortgage loan proceeds by fraud. The scheme involved the use of inflated purchase prices and documents containing numerous false representations, including false information about the purchase price, borrower income, employment, and intent to reside in the property. The difference between actual purchase prices negotiated with sellers and the inflated purchase prices submitted to lenders ranged as high as $255,000 on properties in South Boston, Dorchester, Jamaica Plain, Quincy, Hyde Park and Cohasset, aggregating to more than $1.9 million. From this $1.9 million, the defendants pocketed more than $1.7 million in illegal proceeds. The mortgages on all of the properties were defaulted upon and nearly all went into foreclosure.

Ernst Appolon served as the real estate agent to identify properties for use in the fraud scheme. He participated in inflating the purchase prices on mortgage loan applications and helped recruit individuals to act as straw buyers to obtain the fraudulent loans in their names. He was also involved in determining how $1.7 million in proceeds from the loans would be distributed among the conspirators, obtaining a very large share for himself.

Ernst Appolon is the third defendant sentenced to date. On October 18, 2010, Judge O’Toole sentenced Daniel Appolon to 42 month in prison and ordered co-defendant Samuel Jean-Louis to serve a prison term of 22 months. Seven additional defendants are currently pending sentencing.

United States Attorney Carmen M. Ortiz; Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; Robert Bethel, Inspector in Charge of the United States Postal Inspection Service; William P. Offord, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation, Boston Field Division; Boston Mayor Thomas M. Menino; and Boston Police Commissioner Edward Davis made the announcement today. The case is being prosecuted by Assistant U.S. Attorneys Victor A. Wild and Ryan M. DiSantis of Ortiz’s Economic Crimes Unit and Mary B. Murrane, Chief of Ortiz’s Asset Forfeiture Unit.

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that MARK ALAN SHAPIRO, the founder of the Cobalt Companies was sentenced today to 85 years in prison on charges stemming from a fraud that raised more than $23 million from over 250 investors in private placement real estate offerings. SHAPIRO was sentenced in Manhattan federal court by U.S. District Judge KIMBA M. WOOD, who presided over the three-week jury trial at which SHAPIRO, along with codefendants IRVING STITSKY and WILLIAM B. FOSTER, was found guilty.
Manhattan U.S. Attorney PREET BHARARA said: “Mark Shapiro is a career con-man who stole millions of dollars from hundreds of investors by selling worthless interests in a bogus investment offering. This Office will continue to work with our partners at the Federal Bureau of Investigation to ensure that sham investment opportunities like Cobalt do not corrupt the marketplace.”
According to the Superseding Indictment previously filed in Manhattan federal court, the evidence at trial, and statements made at the sentencing proceeding:
Beginning in late 2003, SHAPIRO, STITSKY, and FOSTER founded a group of companies that operated under the name “Cobalt,” which purportedly engaged in the acquisition and development of multi-family real estate properties throughout the United States. Through the Cobalt entities, SHAPIRO, STITSKY, and FOSTER fraudulently induced victims to invest by, among other things: (a) misrepresenting Cobalt’s operating history; (b) failing to inform prospective investors that Cobalt was owned and controlled by SHAPIRO and STITSKY, both convicted felons; and (c) misrepresenting and causing others to misrepresent Cobalt’s purported ownership interests in certain properties to prospective investors. In fact, Cobalt was a new company with little or no record of real estate investment success, was managed and controlled by SHAPIRO and STITSKY, and did not own several of the properties that it claimed to own.
In order to carry out their scheme, SHAPIRO, STITSKY, and FOSTER established Cobalt’s corporate headquarters in Springfield, Massachusetts, a satellite Cobalt office in Miami, Florida, and a telemarketing center in Great Neck, New York. SHAPIRO controlled and managed all aspects of Cobalt’s Massachusetts and Florida offices, while Stitsky was in charge of the telemarketing center in New York. The defendants and their employees solicited funds from investors by making false and misleading oral and written representations about, among other things, the investment for which the investors’ funds were solicited, and the identities and relevant background information about the individuals controlling the Cobalt entities.
In addition, in furtherance of the scheme, SHAPIRO and FOSTER created and sent false financial statements and fake account statements that purported to show that SHAPIRO had liquid assets in excess of $3 million.
In addition to the prison term, Judge WOOD sentenced SHAPIRO, 50, of Avon, Massachusetts, to three years of supervised release and ordered him to pay $22,075,631 in restitution and to forfeit $23,152,235 in proceeds from his offenses.
IRVING STITSKY, 56, of Milan, New York, was sentenced to 85 years in prison on July 6, 2010, and WILLIAM B. FOSTER, 70, of East Hampton, Massachusetts, was sentenced to 3 years in prison on September 22, 2010.
During the sentencing proceeding, Judge WOOD stated: “The offense resulted in devastating injury to hundreds of victims. For many, it wiped out their life savings at the end of their lives when they no longer had the ability to earn substantial amounts of money.”
Mr. BHAHARA praised the work of the Federal Bureau of Investigation in this case.
This case was brought in coordination with President BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a Co-Chair of the Securities and Commodities Fraud Working Group. 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.
Assistant U.S. Attorney MARC P. BERGER of the Office’s Security and Commodities Fraud Task Force is in charge of the prosecution.

Caused Loss of Over $850,000 to Banks
GREENBELT, MD—Lynzi Malissa Richardson, age 31, of Glenn Dale, Maryland, pleaded guilty today to conspiring to commit wire fraud in connection with making false statements to obtain three home mortgages within a three month period.
The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Assistant Inspector General for Investigations Harvey Witherspoon of the Board of Governors of the Federal Reserve System – Office of Inspector General; and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.
According to Richardson’s plea agreement and court documents, between June and September 2007, Richardson, Melva Massey, her husband D’Von Massey and others submitted mortgage applications for three properties in Washington, D.C. to different banks. Richardson submitted the loan applications with the following fraudulent documents: a rental lease created by Richardson which purported to show that the Masseys had substantial rental income; a cashier’s check fraudulently altered by Richardson to show that the Masseys were the payees, when in fact they were not; and a verification of deposit purporting to show that the Masseys had over $50,000 in deposits, when in fact no such account existed. Richardson used her employment at a bank to general some of the false documents. The three banks approved the mortgage loans in the total amount of $1,205,267.
Each of the three properties went into foreclosure or short sale, resulting in a total loss to the banks of $859,190.
Richardson faces a maximum sentence of 20 years in prison and a $1 million fine. U.S. District Judge Alexander Williams, Jr. scheduled her sentencing for January 12, 2011 at 9:30 a.m.
Melva Massey, age 29, and D’Von Massey, age 37, both of Waldorf, Maryland, previously pleaded guilty to the conspiracy and are scheduled to be sentenced on December 15, 2010 and January 6, 2011, respectively.
The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available http://www.justice.gov/usao/md/Mortgage-Fraud/index.html.