SACRAMENTO, CA—United States Attorney Benjamin B. Wagner announced today that a federal grand jury returned an indictment charging Jake Weathers, 34, Elk Grove, Glenn Watkins, 40, Elk Grove, Kevin Watkins, 25, Elk Grove, Frederick Davis, 40, Elk Grove, and Paul Yearby Jr., 29, of Fair Oaks, with 11 counts of mail fraud relating to their alleged operation of a mortgage fraud scheme that involved the defendants changing their names to Muslim names in order to obtain new credit and to conceal poor credit histories and other liabilities in their birth names.

The indictment alleges that Glenn Watkins legally changed his name to “Rasheed Khaleb” to fraudulently purchase two homes. Once those homes fell into foreclosure, he legally changed his name to “Jason Johnson.” Likewise, the indictment alleges that Kevin Watkins changed his name to “Jamal Ali” then to “Calvin Carter.” Their uncle, Frederick Davis, allegedly changed his name to “Ammar Rashad,” to purchase a home, then to “Corey Green” once that home fell into foreclosure. Paul Yearby Jr. legally changed his name to “Malcom Ali” in order to execute the fraud scheme. Assistant United States Attorney Russell L. Carlberg is prosecuting the case

According to the indictment, Jake Weathers, an unlicensed mortgage broker operating as “Weathers & Associates,” devised the scheme to defraud in order to obtain loan brokerage commissions and other cash payments from sellers made outside of escrow (i.e., they were not disclosed to the title company or to lenders). Weathers also is charged with knowingly providing to lenders false documents such as W-2 tax forms, wage earning statements, bank statements, and other documents, to support loan applications that stated borrowers earned significant income through employment with a company owned by WEATHERS, “C Auto Brokers.” Losses are estimated at over $1 million.

In a separate case, the grand jury returned a four-count indictment charging Nathaniel Blanton, 27, of Roseville, with making false statements to financial institutions in connection with four mortgage loan applications on two residential properties in Roseville and Lincoln. The indictment alleges that Blanton submitted loan applications that falsely inflated his income and cash assets by tens of thousands of dollars. The Blanton case is also being prosecuted by Assistant U.S. Attorney Carlberg.

These cases are the product of an extensive investigations by the Federal Bureau of Investigation and the IRS-Criminal Investigation. The investigations are ongoing.

In the Weathers case, the maximum statutory penalty for each count of conspiracy to commit mail fraud and mail fraud is 20 years in prison, a $250,000 fine, and three years of supervised release. In the Blanton case, the maximum penalty for each false statement count is 30 years in prison, a $1 million fine, and three years of supervised release. The actual sentences, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The charges are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

David B. Fein, United States Attorney for the District of Connecticut, today announced that a federal grand jury sitting in New Haven has returned a second superseding indictment charging a total of 10 individuals with various offenses related to their alleged participation in a mortgage fraud conspiracy. Six defendants, including Syed A. Babar of New London, have been charged previously with various mortgage fraud offenses stemming from the alleged scheme. The second superseding indictment charges four additional defendants, MARSHALL ASMAR, 40, of Joanne Drive, Milford; WENDY WERNER, 45, of Sarasota, Florida; REHAN QAMER, 38, formerly of Ashtabula, Ohio, and MOHAMMAD SALEEM, 39, formerly of Flushing, New York.

The indictment alleges that, between August 2006 and May 2010, Syed A. Babar, also known as “Ali” and “Asad,” 28, of New London, was the de facto leader and organizer of a conspiracy to obtain millions of dollars in residential real estate loans, including loans insured by the Federal Housing Administration, through the use of sham sales contracts, false loan applications and fraudulent property appraisals. The indictment alleges that ASMAR and WERNER entered into sales contracts with straw purchasers to sell homes for a price higher than the actual price that ASMAR and WERNER, as the sellers, would receive. Members of the conspiracy—which included a mortgage broker, two attorneys and a real estate appraiser—submitted false documentation in connection with loan applications that were submitted, including fraudulent appraisals of the properties being purchased in order to justify the inflated sales price and the loan amount being sought to fund each purchase. The indictment further alleges that members of the conspiracy created a fictitious construction company called “Sheda Telle Construction, LLC,” in order to divert fraud proceeds to it and, in some cases, to falsely justify the artificially inflated sales price of houses based on renovations purportedly made to the property that, in fact, did not occur. The co-conspirators then split the fraud proceeds.

It is alleged that, in August 2006, WERNER, through her company, Marbo Restorations, LLC, sold three houses on Lake Street in Norwich to QAMER, a straw purchaser working with Babar. The fraudulently inflated sales prices for 35, 37, and 41 Lake Street were $260,000, $270,000, and $270,000, respectively, and QAMER obtained residential real estate loans to purchase homes for those amounts. WERNER provided Babar with approximately $283,000 of the proceeds generated from the sale of the three houses. Babar then wrote 10 checks totaling approximately $179,000 to QAMER.

SALEEM also is alleged to have served as a straw purchaser during the conspiracy. Babar is alleged to have recruited and paid straw purchasers up to $20,000 to nominally purchase homes.

Contrary to the representations made on the loan applications, it is alleged that the straw purchasers never occupied the houses as their primary residences, failed to make payments on the loans and the properties went into foreclosure, including the three Lake Street properties that QAMER purchased from WERNER.

The alleged mortgage fraud scheme involved approximately 35 properties and loans obtained in the amount of approximately $10 million. Current losses from the scheme are estimated to be at least $2.5 million.

The indictment charges ASMAR, WERNER, QAMER, and SALEEM with one count of conspiracy to commit wire fraud, which carries a maximum term of imprisonment of five years. ASMAR and WERNER also are charged with eight counts of wire fraud, which carries a maximum term of imprisonment of 20 years on each count. The indictment also charges ASMAR with four counts of making false statements, which carries a maximum term of imprisonment of five years on each count. Finally, the indictment charges WERNER and QAMER with one count of mail fraud, which carries a maximum term of imprisonment of 20 years.

The second superseding indictment was returned on July 29, 2010, and unsealed on September 15. ASMAR was arrested on August 20. He entered a plea of not guilty to the charges and is released on a bond in the amount of $250,000, fully secured by real property. WERNER was arrested in Florida on September 10. On September 21, she appeared before United States Magistrate Judge Donna F. Martinez in Hartford and entered a plea of not guilty to the charges. She is released on a bond in the amount of $85,000, fully secured by real property.

QAMER and SALEEM are currently being sought by law enforcement.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

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

This case is being investigated by the Federal Bureau of Investigation and the U.S. Department of Housing and Urban Development – Office of Inspector General, and is being prosecuted by Assistant United States Attorneys Eric J. Glover and Susan Wines.

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

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

To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.

David B. Fein, United States Attorney for the District of Connecticut, today announced that a federal grand jury sitting in New Haven has returned a second superseding indictment charging a total of 10 individuals with various offenses related to their alleged participation in a mortgage fraud conspiracy. Six defendants, including Syed A. Babar of New London, have been charged previously with various mortgage fraud offenses stemming from the alleged scheme. The second superseding indictment charges four additional defendants, MARSHALL ASMAR, 40, of Joanne Drive, Milford; WENDY WERNER, 45, of Sarasota, Florida; REHAN QAMER, 38, formerly of Ashtabula, Ohio, and MOHAMMAD SALEEM, 39, formerly of Flushing, New York.

The indictment alleges that, between August 2006 and May 2010, Syed A. Babar, also known as “Ali” and “Asad,” 28, of New London, was the de facto leader and organizer of a conspiracy to obtain millions of dollars in residential real estate loans, including loans insured by the Federal Housing Administration, through the use of sham sales contracts, false loan applications and fraudulent property appraisals. The indictment alleges that ASMAR and WERNER entered into sales contracts with straw purchasers to sell homes for a price higher than the actual price that ASMAR and WERNER, as the sellers, would receive. Members of the conspiracy—which included a mortgage broker, two attorneys and a real estate appraiser—submitted false documentation in connection with loan applications that were submitted, including fraudulent appraisals of the properties being purchased in order to justify the inflated sales price and the loan amount being sought to fund each purchase. The indictment further alleges that members of the conspiracy created a fictitious construction company called “Sheda Telle Construction, LLC,” in order to divert fraud proceeds to it and, in some cases, to falsely justify the artificially inflated sales price of houses based on renovations purportedly made to the property that, in fact, did not occur. The co-conspirators then split the fraud proceeds.

It is alleged that, in August 2006, WERNER, through her company, Marbo Restorations, LLC, sold three houses on Lake Street in Norwich to QAMER, a straw purchaser working with Babar. The fraudulently inflated sales prices for 35, 37, and 41 Lake Street were $260,000, $270,000, and $270,000, respectively, and QAMER obtained residential real estate loans to purchase homes for those amounts. WERNER provided Babar with approximately $283,000 of the proceeds generated from the sale of the three houses. Babar then wrote 10 checks totaling approximately $179,000 to QAMER.

SALEEM also is alleged to have served as a straw purchaser during the conspiracy. Babar is alleged to have recruited and paid straw purchasers up to $20,000 to nominally purchase homes.

Contrary to the representations made on the loan applications, it is alleged that the straw purchasers never occupied the houses as their primary residences, failed to make payments on the loans and the properties went into foreclosure, including the three Lake Street properties that QAMER purchased from WERNER.

The alleged mortgage fraud scheme involved approximately 35 properties and loans obtained in the amount of approximately $10 million. Current losses from the scheme are estimated to be at least $2.5 million.

The indictment charges ASMAR, WERNER, QAMER, and SALEEM with one count of conspiracy to commit wire fraud, which carries a maximum term of imprisonment of five years. ASMAR and WERNER also are charged with eight counts of wire fraud, which carries a maximum term of imprisonment of 20 years on each count. The indictment also charges ASMAR with four counts of making false statements, which carries a maximum term of imprisonment of five years on each count. Finally, the indictment charges WERNER and QAMER with one count of mail fraud, which carries a maximum term of imprisonment of 20 years.

The second superseding indictment was returned on July 29, 2010, and unsealed on September 15. ASMAR was arrested on August 20. He entered a plea of not guilty to the charges and is released on a bond in the amount of $250,000, fully secured by real property. WERNER was arrested in Florida on September 10. On September 21, she appeared before United States Magistrate Judge Donna F. Martinez in Hartford and entered a plea of not guilty to the charges. She is released on a bond in the amount of $85,000, fully secured by real property.

QAMER and SALEEM are currently being sought by law enforcement.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

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

This case is being investigated by the Federal Bureau of Investigation and the U.S. Department of Housing and Urban Development – Office of Inspector General, and is being prosecuted by Assistant United States Attorneys Eric J. Glover and Susan Wines.

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

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

To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.

ALEXANDRIA, VA—Aaron V. Hernandez, 41, of McLean, Va., was sentenced today to 63 months in prison, followed by four years of supervised release, for running a mortgage fraud scheme that caused more than $4.5 million in losses. Hernandez was ordered to pay more than $4.5 million in restitution and was ordered to forfeit approximately $2.4 million.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia; Shawn Henry, Assistant Director in Charge of the FBI Washington Field Office; and Daniel S. Cortez, Inspector in Charge of the Washington Division of the United States Postal Inspection Service, made the announcement after sentencing by United States District Judge Claude M. Hilton.

On May 21, 2010, Hernandez pled guilty to conspiracy to commit mail fraud and bank fraud. According to court documents, Hernandez was employed by a company in Woodbridge, Va., during 2006 and learned from its employees how to falsify the loan applications of prospective purchasers of vacant, sub-divided lots in North Carolina and South Carolina. The fraud included providing fake employment information and inflating buyers’ income levels, value of the real estate that they owned, or other liquid assets purportedly held by the applicants.

In December 2006, Hernandez struck out on his own and formed mortgage companies in Northern Virginia, using the same fraudulent practices he learned from his previous employer. His businesses grew to more than 10 employees, at least three of whom he conspired with to provide false and fraudulent loan applications to lenders.

Court documents list at least 14 properties that Hernandez financed through these fraudulent practices, all of which eventually resulted in foreclosure. The financial loss suffered totaled more than $4.5 million.

This case was investigated by the FBI Washington Field Office and the United States Postal Inspection Service. Assistant United States Attorneys Mark D. Lytle and Inayat Delawala prosecuted the case on behalf of the United States.

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

Steven M. Dettelbach, United States Attorney for the Northern District of Ohio, announced that a 25-count federal grand jury indictment in Cleveland, Ohio, was returned today against Kimberly Wilson, Michael Boyce, Beyond Wynn, Darlena Rogers, Drummell Coffey, Lawrence Calloway, Gerald Ford, Nafessah Walker, Travis Haynes, Antoinece Robin Boyd, Lavon Ruderson, Wesley D. Rahmon, and Robert M. Wilkes, Jr. in a mortgage fraud scheme involving 28 properties throughout the Cleveland area and over $3.25 million in mortgage loans. The indictment charges one count of conspiracy to commit wire fraud, and 24 counts of wire fraud.

Kimberly Wilson, age 37, currently resides in Shaker Heights, Ohio. Michael Boyce, age 46, has a last known address in Cleveland, Ohio. Beyond Wynn, age 36, currently resides in Shaker Heights, Ohio. Darlena Rogers, age 44, currently resides in South Euclid, Ohio. Drummell Coffey, age 39, has a last known address in Cleveland, Ohio. Lawrence Calloway, age 67, has a last known address in Cleveland, Ohio. Gerald Ford, age 39, currently resides in Euclid, Ohio. Nafessah Walker, age 35, currently resides in Warrensville Heights, Ohio. Travis Haynes, age 39, currently resides in Cleveland, Ohio. Antoinece Robin Boyd, age 39, currently resides in Cleveland, Ohio. Lavon Runderson, age 40, currently resides in Cleveland, Ohio. Wesley D. Rahmon, age 41, currently resides in Beachwood, Ohio. Robert M. Wilkes, Jr., age 41, currently resides in Cleveland, Ohio.

The indictment alleges that from June 2005 through January 2007, all 13 defendants conspired to fraudulently purchase 28 properties in the Cleveland area, securing over $3.25 million in mortgage loans. The indictment further alleges that as part of the conspiracy, Defendant Kimberly Wilson, a loan officer for Park Mortgage, completed and submitted fraudulent loan applications in the names of straw buyers (individuals who applied for mortgage loans on a property, but never intend to live in the home). The straw buyers included Defendants Drummell Coffey, Lawrence Calloway, Gerald Ford, Nafessah Walker and Travis Haynes, whose employment, income and assets were falsified in almost every loan application and who concealed the source of the down-payment funds in order to obtain the financing to purchase the 28 properties. The indictment alleges that Defendant Antoinece Robin Boyd assisted in the scheme by falsely verifying employment for Defendants Drummell Coffey and Nafessah Walker through her tax preparing company, Boyd Management, in order for them to qualify for mortgage loans.

The indictment further alleges that Defendants Lavon Ruderson, Wesley D. Rahmon and Robert M. Wilkes, Jr. appraised the properties for a value in excess of the true market value of the properties allowing Wilson, through her companies, Suburban Home Care and Landscaping, LLC and Dakaliote, LLC, to fraudulently profit by obtaining the excess funds from the mortgage loans for her personal use, and the use of other defendants, such as the straw buyers. Wilson induced the straw buyers to participate by promising they could purchase the properties with no money down and the straw buyers could receive cash back at closing. The indictment also alleges that Defendants Beyond Wynn, Darlena Rogers and Michael Boyce, sellers of 12 of the properties, were aware of, and profited from, the sale of their properties to the straw buyers at the inflated values. The defendants’ fraudulent conduct induced Long Beach Mortgage Company, Argent Mortgage Company, LLC, New Century Mortgage Company, WMC Mortgage Company, and Aegis Mortgage Company to fund the mortgage loans. The victim companies suffered a total loss of approximately $1,942,971 as a result of defendants’ scheme.

If convicted, the defendants’ sentences will be determined by the court after review of factors unique to this case, including the defendants’ prior criminal records, if any, each defendants’ role in the offense, and the characteristics of the violation. In all cases the sentences will not exceed the statutory maximum and in most cases they will be less than the maximum.

United States Attorney Steven M. Dettelbach stated, “Mortgage fraud is one of the top priorities of this office because of the far reaching and devastating economic impact on our community. We are focusing a significant portion of the office’s resources, along with our law enforcement partners, to find and prosecute the perpetrators of mortgage fraud in Northeast Ohio with a goal of eliminating it.”

This case is being prosecuted by Assistant United States Attorney Mark S. Bennett, following an investigation by the Cleveland Division of the Federal Bureau of Investigation.

An indictment is only a charge and is not evidence of guilt. Defendants are entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.

Equity skimming. Property flipping. Straw buyers. Inflated appraisals. These are some of the fraud schemes criminals are using to take advantage of a $2.37 trillion mortgage market in the United States.

To fight this growing scourge, we announced a partnership on March 8 with the Mortgage Bankers Association, which represents an industry hit by fraud costs last year of between $946 million and $4.2 billion.

First, some basics. There are two kinds mortgage fraud: fraud for property and fraud for profit. In general, fraud for property is when a home buyer lies about income, debt, or other information in order to buy a home. This type of fraud accounts for about 20 percent of mortgage fraud cases.

Then there’s fraud for profit. These crimes involve industry insiders, and generally include multiple loan transactions with several financial institutions. There are numerous kinds of for-profit mortgage fraud:

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Property flipping: the property is bought, falsely appraised at a higher value and quickly sold, sometimes several times in rapid succession. Eventually, the mortgage goes into default. The profits, of course, disappear with the criminal.
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Nominee loans/Straw buyers: the identity of the borrower is concealed by using the name and credit history of a willing accomplice.
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Fake/Stolen identity: stolen identities—along with credit histories—are used on a loan application.
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Inflated appraisals: an appraiser agrees to inflate the property of the house.
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Equity skimming: One of the more complicated schemes, an investor uses a straw buyer to get a mortgage. Prior to closing, the straw buyer signs the property over to the investor, who in turn rents the property out without making any mortgage payments.

The problem is growing: in September of 2002, the FBI had 436 mortgage fraud investigations. Currently, we have more than 1,036. That’s an increase of 237 percent in less than five years.

And of the 1,036 current cases, more than half have expected losses of more than $1 million. Of the victims, about 57 percent are federally insured financial institutions; 8 percent are government entities like the Department of Housing and Urban Development; and 35 percent are investors.

Here’s what we’re doing about it. We’re working with the Mortgage Bankers Association by providing their members with an advisory for their customers outlining federal mortgage fraud laws—and penalties. It comes with an assurance that we will aggressively investigate fraud claims.

“This is clearly a crime problem in need of a real answer. That answer is team work,” says Special Agent Karen Spangenberg, chief of the Financial Crimes Section of the FBI’s Criminal Investigative Division. “The newly developed Mortgage Fraud Warning enhances our joint effort to combat this financial crime problem by putting would-be wrong-doers on notice, and potentially stopping the crime before it is committed.”

Read the Mortgage Fraud section of our 2006 Financial Crimes Report to the Public for more details about mortgage fraud, including more types of schemes, successful investigations, and common indicators that a borrower may be attempting to defraud a lender.

Justin Laurin Prather Also Ordered to Pay Nearly $17.5 Million in Restitution

DALLAS—Justin Laurin Prather, 38, of Lubbock, Texas, formerly of Irving, Texas, who pleaded guilty in August 2010 to one count of wire fraud, was sentenced late Friday by Chief U.S. District Judge Sidney A. Fitzwater to 121 months in federal prison, announced U.S. Attorney James T. Jacks of the Northern District of Texas. In addition, Judge Fitzwater ordered that Prather pay $17,471,678 in restitution and surrender to the Bureau of Prisons on January 25, 2011, to begin serving his sentence.
According to plea documents filed in the case, Prather, a former employee of CitiCapital Commercial Corporation (Citi) and senior vice president of GE Capital Commercial, Inc. (GECC), ran three separate fraud schemes.
In the first scheme, in 2004, Prather began a “securities investment scheme,” in which he solicited money from investors and told them that he had unique access to investment opportunities through Corbin Matthews, a purported broker with Lehman Brothers, Inc. He promised his investors substantial, short-term returns. To further his scheme, he manufactured investment documents to provide to some of the investors and some of the investors even reinvested the “profits” they earned. Prather admits that Corbin Matthews is a fictional person he created to further his fraud scheme.
The second scheme, the “construction equipment scheme,” was built upon the premise that Prather, through his position as senior vice president of GECC, could obtain great deals on construction equipment that GECC obtained from foreclosures and lease returns. In this scheme, Prather purportedly obtained buyers for the equipment, but needed bridge financing to acquire the equipment from GECC before it could be sold to the buyers. Prather asked investors to loan him money to purchase the equipment, and once again, he promised investors substantial short-term returns. Also in this scheme, Prather manufactured investment documents to provide to some of the investors and some investors even reinvested the “profits” they earned. Prather admitted that he never obtained the used construction equipment.
Prather used his third scheme, the “golf car scheme,” to fund the other two fraud schemes. Part of Citi’s and GECC’s legitimate business involved financing golf cars for a number of golf car dealers. In this scheme, Prather used the names of four legitimate golf car dealers (actual clients of Citi and/or GECC) and forged documents reflecting the sale of golf cars to the dealers for which Citi and/or GECC provided financing. Based on these forged documents, Citi and/or GECC transferred funds to accounts associated with Prather, resulting in Prather fraudulently obtaining approximately $12.5 million from Citi/GECC from July 2008 through January 2009.
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.

PREET BHARARA, the United States Attorney for the Southern District of New York, announced today that BRIAN H. MADDEN, the former president and co-founder of Liberty Title Agency, LLC (“Liberty Title”), one of the largest independently owned title insurance agencies in New York State, pled guilty in Manhattan federal court to defrauding his clients by misappropriating and embezzling millions of dollars of escrow and other client funds entrusted to Liberty Title and two other entities controlled by MADDEN. MADDEN pled guilty before U.S. Magistrate Judge HENRY B. PITMAN.
Manhattan U.S. Attorney PREET BHARARA said: “Brian Madden brazenly stole millions of dollars from his clients, who included not only sophisticated commercial developers, but also not-for-profit organizations and mom-and-pop real estate owners. In the process, he not only breached his fiduciary and legal duties to his clients, he sunk his own business. This Office, with its partners at the FBI, is committed to prosecuting individuals such as Madden who threaten the integrity of mortgage loan transactions.”
According to the Indictment and Complaint and statements made during the plea proceeding:
MADDEN’s company, Liberty Title, sold title insurance to purchasers of property or lenders financing the purchase of property. Such insurance is meant to protect the owner’s or lender’s financial interest in real property against loss due to title defects or liens. MADDEN also controlled and operated two other title insurance agencies: Skyline Title, LLC, and GNY Liberty Abstract, LLC. Liberty Title closed operations in April 2009. In addition to issuing title insurance policies, MADDEN’s three companies also provided escrow services to clients, and collected and paid taxes and fees.
Beginning around early 2008, MADDEN misappropriated millions of dollars of escrow and other client funds by transferring and commingling those funds among various bank accounts held by Skyline Title, GNY Liberty, and Liberty Title. MADDEN then used the misappropriated funds to sustain Liberty Title’s operations and to make significant withdrawals of monies for his personal use.
In particular, between January 2008 and April 2009, MADDEN took more than $2 million in cash draws from Liberty Title. Those cash draws, which at times amounted to hundreds of thousands of dollars in a single month, far exceeded MADDEN’s draws in prior years, and were taken despite the deteriorating real estate market and Liberty Title’s increasingly precarious financial position.
To sustain Liberty Title’s operations in the face of such withdrawals and to pay current client debts, MADDEN misappropriated escrow and client funds of other clients, essentially using new funds from clients to pay off debts on behalf of other clients—a practice called “playing the float.”
In addition, because MADDEN misappropriated the funds of title insurance agencies, he failed to timely and properly record and pay taxes on dozens of mortgages and other real estate transactions, further exposing his clients to loss.
MADDEN, 56, of Greenlawn, New York, pled guilty to one count of wire fraud and one count of insurance fraud. He faces a statutory maximum sentence of 20 years in prison on the wire fraud charge, and 10 years in prison on the insurance fraud charge. He is scheduled to be sentenced before U.S. District Judge ROBERT W. SWEET on March 29, 2010, at 4:30 p.m.
Mr. BHARARA praised the investigative work of the Federal Bureau of Investigation and the New York State Department of Insurance.
This matter is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney AVI WEITZMAN is in charge of the prosecution.

Civil Complaint Seeks Help for Scam Victims Facing Foreclosure

PHILADELPHIA—An indictment was unsealed and a verified civil complaint was filed today against Anthony J. DeMarco, III and his real estate companies, DeMarco REI, Inc. (“DeMarco REI”) and OPM Group, LLC, (“OPM”), alleging a mortgage fraud scheme involving more than $30 million in loans, announced United States Attorney Zane David Memeger. The civil complaint seeks a temporary restraining order and preliminary injunction against defendant. It also seeks to forestall foreclosures against the victims. The indictment charges DeMarco, Michael Richard Roberts, Sean Ryan McBride, and Eric Bascove with conspiracy; charges DeMarco, Roberts, and McBride with mail, wire, and bank fraud; and charges DeMarco with money laundering. DeMarco and Roberts were arrested this morning.
DeMarco, who operated the real estate investment firm DeMarco REI, Inc., headquartered in Center City, Philadelphia, employed Roberts and Bascove. DeMarco’s business claimed to be able to assist homeowners facing imminent foreclosure. McBride was a title agent at Settlement Engine, Inc., in Pittsburgh, Pennsylvania. According to the indictment, from June 2008 through December 2008, the defendants would scour public records filings to find homeowners in financial distress and pitch a “sale-leaseback” arrangement to them. The pitch was that the real estate company would buy the homeowner’s house, the homeowner would remain in the house and pay rent to the real estate company, and when the homeowner got back on his or her feet financially, the homeowner could buy back the house. The defendants further claimed that if there was equity in the house at the time of the sale to DeMarco REI, then DeMarco REI would put that money into an escrow or rent reserve account for the homeowner. Instead, the defendants used fraudulent documents to obtain mortgage loans from lenders and stole the equity in the homes. It is further alleged that DeMarco and his employees would solicit straw purchasers for these properties, providing them with the down payment for the mortgage and telling them that the real estate investment firm would make the monthly mortgage payments. The result of the scheme is that the mortgage lenders were stuck with loans that are in default, the “straw” purchasers own houses that are going into foreclosure, and the original homeowners face eviction from their own homes once the foreclosures are complete.
The indictment alleges that DeMarco used the proceeds of the scheme to pay his personal and business expenses; that McBride conducted fraudulent real estate closings as part of the scheme; and that the defendants created fraudulent mortgage documents.
The verified complaint seeks novel relief that will bring all the individuals and entities that have a stake in the properties (the homeowners, the “straw” purchasers, and the mortgage lenders) before the court to create an orderly process by which the damage caused by the defendants’ alleged fraud can be mitigated. The goal of the process is to have the parties work towards finding a solution other than foreclosure—perhaps a loan modification, perhaps a forbearance agreement, perhaps a deed-in-lieu of foreclosure. The orderly process sought by today’s filings is the best way to ensure that the greatest number of original homeowners have an opportunity to save their homes.
NAME ADDRESS AGE
Anthony James DeMarco Conshohocken, PA 31
Michael Richard Roberts Sweedesboro, NJ 29
Sean Ryan McBride Pittsburgh, PA 36
Eric Bascove Philadelphia, PA 37
If convicted of all charges: DeMarco faces a maximum possible sentence of 200 years’ imprisonment, a $5 million fine, and a five-year period of supervised release; Roberts faces a maximum possible sentence of 150 years’ imprisonment, a $3.75 million fine, and a five-year period of supervised release; McBride faces a maximum possible sentence of 230 years’ imprisonment, a $6 million fine, and a five-year period of supervised release; Bascove faces a maximum possible sentence of 60 years’ imprisonment, a $2 million fine, and a five-year period of supervised release.
The case was investigated by the Pennsylvania Department of Banking, the Federal Bureau of Investigation, and the United States Postal Inspection Service. The criminal case is being prosecuted by Assistant United States Attorney Karen L. Grigsby. This civil case is being handled by Assistant United States Attorneys Michael S. Blume and Stacey L. B. Smith.

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that MARINA DUBIN, a real estate paralegal, was sentenced yesterday to two concurrent three-year prison sentences in connection with her involvement in a multimillion-dollar, sub-prime mortgage fraud scheme and another foreclosure rescue scheme. DUBIN, 33, of Brooklyn, New York, pleaded guilty to two counts of conspiracy to commit mail, wire, and bank fraud on June 12, 2008, before United States District Judge RICHARD J. HOLWELL, who also imposed the sentence yesterday in Manhattan federal court.

According to the Indictment, other documents filed in these and related cases, and statements made in court:

The Mortgage Fraud Scheme

From 2004 through January 2007, DUBIN was a paralegal who acted as the bank attorney and settlement agent for numerous loans obtained by the participants in a wide-ranging mortgage fraud scheme. The scheme was led by ALEKSANDER LIPKIN, 31, of Brooklyn, New York, and other participants included mortgage brokers and loan processors who worked at the Brooklyn mortgage brokerage firm AGA Capital NY, Inc. (“AGA Capital”) and its successors, as well as real estate appraisers, loan account executives, a lawyer, straw buyers, and others. DUBIN and her co-defendants submitted loan applications containing false information and material omissions, as well as other false documentation such as bank statements, to obtain loans that otherwise would not have been funded.

During the course of the mortgage fraud scheme, AGA Capital and its successors brokered over 1,000 home mortgages and home equity loans with a total face value of at least $200 million dollars and earned at least $4 million in commission fees on those loans. The various lenders defrauded by the scheme have claimed actual losses of approximately $11.6 million on loans that have completed foreclosure.

Of the 27 defendants charged in this case (United States v. Aleksander Lipkin, et al.), 25 pleaded guilty; one of the defendants, attorney ALEXANDER KAPLAN, 35, of Brooklyn, New York, was found guilty following a jury trial and is scheduled to be sentenced on April 6, 2010.

GARRI ZHIGUN, 33, of Brooklyn, New York, who supervised the operations of AGA Capital and was LIPKIN’s business partner, was sentenced on May 28, 2009, by Judge HOLWELL to 100 months in prison, three years of supervised release, and was ordered to forfeit $2.5 million and pay approximately $11.6 million in restitution.

The Foreclosure Rescue Scheme

From November 2003 through April 2005, MAURICE McDOWALL, 55, of Brooklyn, New York, LIPKIN and DUBIN engaged in a fraud scheme targeting homeowners whose homes, primarily in Brooklyn and Bronx, New York, were in foreclosure or facing foreclosure, by offering them a plan to “save” their homes. The proposed plan included the refinancing of the homeowners’ debt with new, larger mortgages. Because the distressed homeowners typically had poor credit and were not eligible to refinance their debt at favorable terms, the defendants induced them to “sell” their homes to straw buyers, who would apply for loans to be used to “save” the home. The defendants promised that once the straw buyer obtained the mortgage, the proceeds would be used to pay off the homeowners’ old debt and make one year’s worth of payments on the new loans. The homeowners were told that, during that year, they could continue to live in their homes and work on improving their finances and credit. Finally, the defendants explained to the homeowners that, at the end of the year, the title to their homes would be returned to them by the straw buyers, with their credit repaired and their homes saved. There were also cases in which the defendants did not explain to homeowners that the plan to “save” their home required them to deed their house to a third party and did not obtain permission to deed the homes to others. In such cases, the defendants effectively stole the property of the homeowners by forging the homeowners’ signatures on various documents that transferred the homes to straw buyers without the homeowners’ knowledge.

McDOWALL, who directed the daily operations of the scheme, and LIPKIN, a mortgage broker who coordinated the submission of fraudulent information to lenders on behalf of straw buyers, obtained more than 80 home mortgages and/or equity loans valued at over $20 million. In some instances, the defendants failed to make even one payment on the loans, causing the loans to default immediately; in nearly every other case, they eventually failed to make the payments and defaulted on the loans, thereby “cashing out” on the properties. As a result, the distressed homeowners lost the titles to their homes and faced eviction, the straw buyers owed the lenders hundreds of thousands of dollars that they were unable to repay, and the lenders suffered losses from the defaulted loans.

DUBIN served as the settlement agent for the vast majority of the fraudulent loans obtained in the course of the scheme. In that capacity, she organized closings, prepared documents, and disbursed the fraudulently obtained proceeds to various defendants.

McDOWALL was previously sentenced by United States District Judge ROBERT P. PATTERSON to 120 months in prison and three years of supervised release, with 100 hours of community service to be performed in the first year after release. In addition, Judge PATTERSON ordered McDOWALL to forfeit $2.5 million.

Of the three other defendants charged in this case, one pleaded guilty and the other two were found guilty on charges of conspiracy, wire fraud, and bank fraud, following a 12-day jury trial in Manhattan federal court.

LIPKIN was sentenced by Judge HOLWELL for his role in both the mortgage fraud scheme and the foreclosure rescue scheme (United States v. Maurice McDowall, et al.) on June 4, 2009, to 110 months in prison, five years of supervised release, and was ordered to forfeit $7 million and pay approximately $11.6 million in restitution.

In addition to the 36-month prison term, DUBIN was sentenced to three years of supervised release. Judge HOLWELL also ordered DUBIN to forfeit $7 million and pay approximately $11.6 million in restitution.

Mr. BHARARA praised the work of the Federal Bureau of Investigation, the New York City Police Department, and the Department of Homeland Security’s U.S. Immigration and Customs Enforcement. He also thanked the New York State Attorney General’s Office for its role in the investigation.

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.

This case is being prosecuted by the Office’s Organized Crime Unit. Assistant United States Attorneys JONATHAN B. NEW, AVI WEITZMAN, JULIAN J. MOORE, and JOHN T. ZACH are in charge of the prosecutions.

David B. Fein, United States for the District of Connecticut, announced that JOHN JACKSON, 42, of Middletown, pleaded guilty today before United States District Judge Christopher F. Droney in Hartford to a one count of conspiring to commit wire fraud stemming from a mortgage fraud scheme.

According to court documents and statements made in court, in 2006, JACKSON conspired with a New Haven-based real estate attorney and an East Hartford-based mortgage broker to defraud Mortgage Lender Network USA, Inc., a Florida corporation with offices in Middletown, through the purchase of Meriden residential property. Working with the attorney and mortgage broker, JACKSON signed a loan application provided by the mortgage broker for a loan in the amount of $280,000. Both JACKSON and the mortgage broker knew that application contained several material misrepresentations, including JACKSON’s true financial condition. The application also falsely represented the purchase price of the property, which was substantially less than reflected on the loan application; that the property was to be JACKSON’s primary residence, when it was not; JACKSON’s total liabilities, which were much higher than represented on the application, and that JACKSON would provide approximately $60,000 in cash at the loan closing.

On approximately July 21, 2008, as part of the scheduled loan closing, Mortgage Lender wired approximately $283,000 into the attorney’s trust account. At the closing, JACKSON signed a HUD settlement statement, which was prepared by the attorney, that overstated the actual purchase price of the property by more than $150,000, and that stated that JACKSON had made an earnest payment toward the purchase. In fact, JACKSON had not made a payment. Instead, the attorney had made a payout to JACKSON.

Judge Droney has scheduled sentencing for October 15, 2010, at which time JACKSON faces a maximum term of imprisonment of five years and a fine of up to $250,000.

This case is being investigated by Federal Bureau of Investigation and the Connecticut State Police. The case is being prosecuted by Senior Litigation Counsel Christopher W. Schmeisser.

Justin Laurin Prather Also Ordered to Pay Nearly $17.5 Million in Restitution

DALLAS—Justin Laurin Prather, 38, of Lubbock, Texas, formerly of Irving, Texas, who pleaded guilty in August 2010 to one count of wire fraud, was sentenced late Friday by Chief U.S. District Judge Sidney A. Fitzwater to 121 months in federal prison, announced U.S. Attorney James T. Jacks of the Northern District of Texas. In addition, Judge Fitzwater ordered that Prather pay $17,471,678 in restitution and surrender to the Bureau of Prisons on January 25, 2011, to begin serving his sentence.

According to plea documents filed in the case, Prather, a former employee of CitiCapital Commercial Corporation (Citi) and senior vice president of GE Capital Commercial, Inc. (GECC), ran three separate fraud schemes.

In the first scheme, in 2004, Prather began a “securities investment scheme,” in which he solicited money from investors and told them that he had unique access to investment opportunities through Corbin Matthews, a purported broker with Lehman Brothers, Inc. He promised his investors substantial, short-term returns. To further his scheme, he manufactured investment documents to provide to some of the investors and some of the investors even reinvested the “profits” they earned. Prather admits that Corbin Matthews is a fictional person he created to further his fraud scheme.

The second scheme, the “construction equipment scheme,” was built upon the premise that Prather, through his position as senior vice president of GECC, could obtain great deals on construction equipment that GECC obtained from foreclosures and lease returns. In this scheme, Prather purportedly obtained buyers for the equipment, but needed bridge financing to acquire the equipment from GECC before it could be sold to the buyers. Prather asked investors to loan him money to purchase the equipment, and once again, he promised investors substantial short-term returns. Also in this scheme, Prather manufactured investment documents to provide to some of the investors and some investors even reinvested the “profits” they earned. Prather admitted that he never obtained the used construction equipment.

Prather used his third scheme, the “golf car scheme,” to fund the other two fraud schemes. Part of Citi’s and GECC’s legitimate business involved financing golf cars for a number of golf car dealers. In this scheme, Prather used the names of four legitimate golf car dealers (actual clients of Citi and/or GECC) and forged documents reflecting the sale of golf cars to the dealers for which Citi and/or GECC provided financing. Based on these forged documents, Citi and/or GECC transferred funds to accounts associated with Prather, resulting in Prather fraudulently obtaining approximately $12.5 million from Citi/GECC from July 2008 through January 2009.

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.

LOS ANGELES—Representatives of the Financial Fraud Enforcement Task Force met in Los Angeles today for the latest in 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 comprised of representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement agencies.
According to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the Los Angeles metropolitan area now ranks first in the nation for the number of subjects named in Mortgage Fraud Suspicious Activity Reports filed since 2008 by financial institutions.
Today, the task force members met with community members, legal services providers, 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, attendees participated in panels on mortgage fraud trends and the community impact of mortgage fraud in the Los Angeles area. In the afternoon, task force representatives will meet privately with law enforcement officials involved in the investigation of mortgage fraud.
“This Administration has made protecting America’s working families from financial fraud a top priority,” said Assistant Attorney General for the Civil Division Tony West. “The President’s Financial Fraud Enforcement Task Force has brought together the government’s civil and criminal capabilities to uncover mortgage fraud schemes and hold those who commit fraud accountable to the fullest extent of the law.”
“White collar financial crimes strike at the economic heart of the American system. To the extent that we can uncover and prosecute these activities, it’s to everyone’s benefit,” said Deputy Inspector General at the Department of Housing and Urban Development (HUD) Michael P. Stephens. “Accordingly, I am happy to lend the HUD Office of Inspector General’s nationwide expertise to this exceptional group of law enforcement agencies.”
“Today’s Mortgage Fraud Summit in Los Angeles is particularly timely because our region is now a national epicenter of mortgage fraud,” said United States Attorney André Birotte Jr. “In the last month alone, my office has indicted two dozen defendants for their involvement in mortgage and real estate fraud, and has pursued civil remedies in other mortgage fraud cases.”
Steven Martinez, Assistant Director of the FBI’s Los Angeles Field Office, said: “As we’ve increased our efforts in addressing mortgage fraud, new challenges arise as the nature of the fraud evolves with the economic situation of homeowners. Our multi-agency partnership has successfully targeted many of these complex schemes but we hope to further educate our seasoned investigators and prosecutors through efforts such as today’s summit. Southern California is dedicated to curbing the abysmal mortgage fraud problem that has victimized tens of thousands of homeowners, a large number of whom reside in and around Los Angeles.”
Summit participants also include Executive Director of the Financial Fraud Enforcement Task Force Robb Adkins and representatives from the Federal Trade Commission, the Treasury Department’s Financial Crimes Enforcement Network, the United States Postal Inspection Service, the U.S. Secret Service, the California Department of Justice and local police agencies.
Mortgage fraud is a key focus of the Financial Fraud Enforcement Task Force’s efforts. 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.

PHILADELPHIA—Frank J. Dattilo, 64, of Holland, Pennsylvania, was sentenced today to 15 months in prison for a scheme to defraud mortgage lenders in an effort to obtain money and property, announced United States Attorney Zane David Memeger. DAttilo was the owner and operator of the mortgage brokerage firm Provident Financial Group (“PFG”), located in Bensalem, PA. He employed Michael Giello as a mortgage broker and loan officer, and Jason Megow as a loan processor. Dattilo marketed to people with poor credit or low incomes. Between January 2004 and February 2007, Dattilo, Giello, and Megos created false documents for use in mortgage applications. The falsified forms, among other things, overstated borrowers’ income, falsely showed that borrowers had rental histories, and showed that a property was an income-producing rental property when, in fact, it was not. These fraudulent documents made borrowers appear more creditworthy than they were, thereby misleading the banks into funding the mortgage loans.
All three defendants pleaded guilty to two counts, each, of mail fraud. Giello was sentenced to one year and one day; Megow was sentenced to one day in prison and five years of supervised release. In addition to the prison term, U.S. District Court Judge Norma Shapiro ordered the three defendants to pay total restitution in the amount of $117,673.66.
This case was investigated by the Federal Bureau of Investigation and Pennsylvania Department of Banking. It was prosecuted by Assistant United States Attorney Maria M. Carrillo.

Two mortgage brokers and one real estate appraiser were indicted yesterday in federal court in St. Paul for allegedly orchestrating a mortgage fraud scheme in which they induced lenders to loan more than $1 million to purchasers to buy properties at inflated prices. The excess money was then shared among those involved in the scheme. The indictment charges John Anthony Spencer, age 30, of Albertville; Patrick Arthur Dols, age 37, of Minneapolis; and Bryan Joseph Lenton, age 31, of Oakdale, with one count of conspiracy to commit mortgage fraud through interstate wire and 10 counts of wire fraud. In addition, Spencer was charged with one count of money laundering. The properties involved included six single-family homes in north Minneapolis, five residential condominium units located on Fisk Avenue in St. Paul, and four condo units located on Dayton Avenue in St. Paul.

Specifically, in September of 2005, Spencer, a mortgage broker at Minnesota One, allegedly agreed to assist the unnamed co-conspiring owner of the Fisk Avenue condos in fraud involving the sale of those five units. Then, in December of 2005, Spencer purportedly recruited Lenton, a real estate appraiser, to appraise each of the units at substantially more than their actual value. After that, Spencer reportedly recruited a straw buyer to purchase the units with loan proceeds provided based on a fraudulent loan application made by Spencer and Dols, another mortgage broker. Spencer also allegedly arranged for $227,800 in bogus payments to AC Standard Construction for purported work on two of the five units. In reality, however, no works was done. In fact, AC Standard Construction was nothing more than a sham company through which those involved in the fraud received kickbacks.

In April of 2006, Spencer purportedly engaged in similar conduct with an unnamed coconspiring real estate developer who had been unable to sell six single-family homes in north Minneapolis at their true market value. Again, Lenton allegedly appraised each of the homes for far more than they were worth. Then, two purchasers were reportedly recruited to buy the properties, again with loan proceeds fraudulently brokered by Spencer and Dols. In addition, Spencer allegedly purchased 10 properties from that same real estate developer with borrowed funds and pocketed $77,106.58 in kickbacks.

Also in April of 2006, Spencer allegedly conducted the same scam with the condominium owner of the Dayton Avenue units. After the closing on each of the four units, Spencer allegedly caused more than $320,000 to be paid into an account, which was then used to pay out more kickbacks.

If convicted, the defendants face a potential maximum penalty of five years in prison on the conspiracy charge and 20 years on each wire fraud count. Spencer faces an additional potential 10 years on the money laundering count. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the Internal Revenue Service-Criminal Investigation Division and the Federal Bureau of Investigation. It is being prosecuted by Assistant United States Attorney David J. MacLaughlin.

An indictment is a determination by a grand jury that there is probable cause to believe that offenses have been committed by a defendant. A defendant, of course, is presumed innocent until he or she pleads guilty or is proven guilty at trial.

DENVER—Shawnee Carver, age 34, of Grand Junction, Colorado, pled guilty today before U.S. District Court Judge Philip A. Brimmer to conspiracy to commit securities and mail fraud in connection with a investment fraud scheme perpetrated by Philip Lochmiller, Sr., and Philip Lochmiller, Jr., also known as Valley Investments. The scheme was mainly implemented on the Western Slope of Colorado. Carver is scheduled to be sentenced on April 22, 2011, at 10:30 a.m. by Judge Brimmer in Grand Junction, Colorado. Philip Lochmiller, Jr., who pled guilty last month to conspiracy to commit securities and mail fraud and money laundering, will also be sentenced on that date in Grand Junction.

Carver was hired by the Lochmillers in August 2005 as a full-time employee and as the personal assistant to Lochmiller, Jr. Carver communicated with investors more than any other employee of Valley Investments and participated in providing false information to investors. Beginning in approximately 2007, Carver prepared documents for investors, and was fully aware that the specific real estate that was to secure the investments made by the investors was already encumbered despite representations to the contrary. Carver was also entrusted with investors’ financial records, which gave her access to information about investments, interest rates and calculations, payment schedules, dates of payment, and total amounts of principle and interest owed and paid. Carver repeatedly reassured investors that Valley Investments’ business was doing well even when she knew that was not true.

Carver faces not more than five years’ imprisonment and up to a $250,000 fine for conspiracy to commit securities and mail fraud.

This case was investigated by the Federal Bureau of Investigation (FBI) and the IRS Criminal Investigation, and prosecuted by Assistant U.S. Attorneys Michelle Heldmyer and Pegeen Rhyne.

This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud 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.

A former Los Angeles-based real estate developer who admitted playing a key role in a $50 million mortgage fraud scheme was sentenced today to 14 years in federal prison for masterminding a scheme that defrauded banks by deceiving them into funding inflated mortgages.

Charles Elliott Fitzgerald, 48, formerly of Newbury Park and Beverly Hills, was sentenced by United States District Judge Dean D. Pregerson, who also ordered Fitzgerald to pay $42,676,269 in restitution to two of the victim banks that he defrauded.

At today’s sentencing hearing, Judge Pregerson said, “This is not a case about deregulation or exploiting loopholes. This is a case of good old-fashioned lying and cheating.”

A representative of one of the victim banks, RBC Mortgage Company, told Judge Pregerson that the fraud scheme caused not only the direct financial loss, but also millions of dollars of indirect costs and loss of jobs at the bank.

Fitzgerald pleaded guilty in May to one count of conspiracy to commit bank fraud and loan fraud; three counts of bank fraud; one count of organizing, managing, and supervising a continuing financial crimes enterprise; one count of concealment money laundering; and one count of obstruction of justice.

Fitzgerald has been in federal custody since December 2006, when he was arrested and deported by authorities in the Independent State of Samoa, a Pacific island nation to which he fled in June 2003 after he was sued by the two victim banks.

Fitzgerald was the seventh defendant to plead guilty in the scheme. Previous defendants who pleaded guilty are:

Mark Alan Abrams, 47, of Los Angeles, who along with Fitzgerald orchestrated the scheme;

Nicole LaViolette, 38, of Palm Springs;

Jamieson Matykowski, 35, of Laguna Niguel;

Timothy Holland, 37, of Santa Ana;

Richard Maize, 54, of Beverly Hills; and

L. Scott Robinson, 46, of Dana Point.

Charges are still pending against three other defendants allegedly involved in the scheme. These are real estate agents Joseph Aram Babajian, 55, of Beverly Hills and Kyle Grasso, 37, of Paso Robles; and appraiser Lila Rizk, 41, of Trabuco Canyon. Trial for those defendants is currently set to begin on October 21 before Judge Pregerson.

In another development in this investigation, prosecutors on Tuesday filed a criminal information against mortgage banker Thomas R. Schiff, 47, of Brentwood. Schiff was charged with, and has agreed to plead guilty to, making a false statement on his 2001 federal income tax return. Schiff, along with Maize, was a co-owner of the mortgage brokering company Americorp Funding. In his plea agreement, Schiff admitted that in 2001 he received more than $170,000 in payments from Fitzgerald, Abrams and their companies. He further admitted that he willfully failed to report this income on his 2001 federal income tax return.

The case against Schiff marks the 11th defendant charged, and he will become the 8th defendant to plead guilty.

According to court documents, Fitzgerald and the others were involved in a wide-ranging and sophisticated conspiracy to defraud federally insured mortgage lenders out of tens of millions of dollars. As part of the scam, the co-conspirators obtained inflated mortgage loans on expensive homes in some of California’s most exclusive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. The court documents charge that the co-conspirators sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars higher than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

Lehman Brothers Bank and RBC Mortgage Company sued Fitzgerald, Abrams and others in federal court in Los Angeles in 2003 and obtained a receivership, temporary restraining orders, and preliminary injunctions against them. Judge Pregerson appointed David J. Pasternak as receiver to recover assets acquired with proceeds of the fraud. The receiver, as well as attorneys and forensic accountants employed by him, have cooperated extensively with the government’s ongoing criminal investigation.

The charges against Fitzgerald and the others are part of an ongoing investigation being conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation.

LOS ANGELES—A former mortgage broker who helped orchestrate a massive mortgage fraud scheme that caused well over $40 million in losses was sentenced today to 78 months in federal prison.

Mark Alan Abrams, 49, of downtown Los Angeles, was sentenced by United States District Judge Dean D. Pregerson. In addition to the prison term, Judge Pregerson ordered Abrams to pay more than $41 million in restitution to two federally insured banks.

In issuing the sentence, Judge Pregerson said it was important to hold fraud artists “accountable for great misdeeds.” The court noted that Abrams’ willingness to defraud banks, utilize credit information belonging to unknowing victims and induce underlings to participate in the scheme was “particularly evil.”

Abrams’ sentencing followed his guilty pleas to conspiracy to commit bank fraud and loan fraud, bank fraud, making a false statement on a tax return and obstruction of justice. Abrams was one of two men who led a massive mortgage fraud that involved properties across California. In addition to being a leader of the scheme, Abrams engaged in active efforts to cover up his role and destroy evidence when the fraud started to come to light. Abrams’ obstruction in a related civil case was so serious that a Judge Pregerson found him in contempt of court and put him in jail for 30 days.

A real estate developer, Charles Elliott Fitzgerald, who along with Abrams ran the fraud scheme, was previously sentenced to 14 years in federal prison (see: http://www.justice.gov/usao/cac/pressroom/pr2008/136.html).

Abrams and Fitzgerald ran a wide-ranging and sophisticated scheme that obtained inflated mortgage loans on homes in some of California’s most expensive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach, and La Jolla. Members of the conspiracy—real estate brokers, appraisers, and mortgage bankers, who all shared in the profits from the fraudulent sales—sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into funding mortgage loans that were hundreds of thousands of dollars more than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

A total of 11 real estate professionals have been convicted of federal charges related to the scheme.

This case is the result of an investigation by the Federal Bureau of Investigation and IRS-Criminal Investigation.

Joseph M. Braas, 45, of Lititz, PA, pleaded guilty today to one count of conspiracy and two counts of mail fraud for his role in a sophisticated loan fraud scheme that caused losses of approximately $53 million at Equipment Finance, LLC (“EFI”), announced United States Attorney Zane David Memeger. Braas was indicted November 18, 2010, with seven co-defendants. EFI was a logging industry lender that was based in Lititz, Pennsylvania. The company provided funding for the purchase of forestry and land clearing equipment. In March 2002, EFI was acquired by Sterling Financial Corporation (“Sterling”), a former financial services company that was headquartered in Lancaster, Pennsylvania. At that time, EFI became a wholly owned subsidiary of the Bank of Lancaster County, N.A., which in turn was a wholly owned subsidiary of Sterling.

It was alleged in the indictment that as far back as 2001, before EFI was acquired by Sterling, the defendants, five of whom were former EFI employees, were engaging in a systematic fraud that included looting accounts and falsifying EFI’s books. Braas was EFI’s Chief Operating Officer and was one of the leaders of the conspiracy. He and a co-defendant directed other employees of the company to make false entries in EFI’s books, create false documents for EFI’s files, and undermine the audit process conducted by Sterling’s inside and outside auditors. As a result of the scheme, EFI was made to appear more profitable than it actually was. The scheme also included creating numerous bogus loans, forging EFI loan documents and auditor confirmation letters, and paying nominal borrowers to sign false EFI loan documents.

A sentencing hearing for Braas is scheduled for March 9, 2011. He is facing a total statutory maximum sentence of 65 years in prison, mandatory restitution, plus a possible fine and forfeiture.

The case was investigated by the Federal Bureau of Investigation and the United States Postal Inspection Service. It is being prosecuted by Assistant United States Attorney Nancy Potts.

PREET BHARARA, the United States Attorney for the Southern District of New York, announced that ANTOINETTE HODGSON was sentenced yesterday in Manhattan federal court to six years in prison for running a $50 million real estate Ponzi scheme that fraudulently solicited investments from over 20 New York and New Jersey investors. HODGSON operated the scam between 2006 and her arrest in early 2010, tricking investors into providing money to her for purported investments in real estate when, in fact, HODGSON was simply using the money to pay off other investors in the scheme and to enrich herself and her family members. HODGSON previously pled guilty on September 14, 2010, to one count of conspiracy to commit wire fraud and one count of wire fraud. The sentence was imposed by U.S. District Judge ROBERT W. SWEET.
Manhattan U.S. Attorney PREET BHARARA said: “Through her massive Ponzi scheme built on the false promise of large returns, Antoinette Hodgson destroyed the financial security of dozens of people, all so that she could live a comfortable life and indulge a penchant for gambling, using other people’s money. The substantial sentence imposed on her sends yet another message that such conduct will be punished severely.”
As set forth in the complaint, the superseding indictment, statements made at the plea proceeding, and documents filed in the case:
HODGSON solicited tens of millions of dollars from investors in New York and New Jersey on the false pretense that she would use the investors’ money to purchase and/or renovate residential real estate properties, and then re-sell the properties to third party buyers or rent them for a period of time before re-selling them. HODGSON promised investors high rates of return on their investments, which she represented was based on the profits generated by her successful real estate business.
In fact, however, HODGSON, misappropriated tens of millions of dollars of investors’ funds, and used those funds to repay other investors or for her own purposes. Between 2006 and 2009, HODGSON solicited approximately $50 million from investors who understood, based on HODGSON’s representations, that they were investing in her real estate business. During the same period, HODGSON only spent approximately $6 million on residential real estate, and made less than approximately $700,000 profit on sales of her properties. Most of the $50 million she received from investors was immediately used to repay other investors, in the pattern of a classic Ponzi scheme.
HODGSON used some of the investor money to enrich herself and her family members. HODGSON spent hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas, invested over $700,000 in a Dunkin Donuts franchise in Arizona, and gave tens of thousands of dollars to friends and family members.
In addition to the prison term, Judge SWEET imposed an order of forfeiture in the amount of $45,000,000, and is expected to impose an order of restitution exceeding $17 million once victim losses have been fully accounted for.
Mr . BHARARA praised the work of the FBI and thanked them for their assistance 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.
This case is being prosecuted by the Office’s Complex Frauds Unit. Assistant U.S. Attorneys ANTONIA APPS and DAVID MILLER are in charge of this case.