Earlier today in federal court in Minneapolis, a former loan officer for Wells Fargo Bank pleaded guilty to participating in a $4.3 million mortgage fraud scheme. Larry Gene Hillard, age 56, of Maple Grove, pleaded guilty to one count of conspiracy to commit wire fraud. Hillard, who was charged on March 10, 2011, entered his plea before United States District Court Judge Ann D. Montgomery.

In his plea agreement, Hillard admitted that between 2007 and August 21, 2008, he participated in 12 fraudulent transactions with Truang Quang Tran and Thanh Van Ngo, owners of Invescorp. Hillard admitted that in his capacity as a loan officer, he received from Tran and Ngo personal information regarding several people for the purpose of running run credit reports on them. He then gave those reports to Tran and Ngo. He subsequently received a loan application in the name of one of the individuals who had a good credit score. In addition, he provided Tran and Ngo with specific information about the assets and income required to qualify for a particular loan. Then, a short time later, he received loan applications that contained the information he previously provided. Hillard also admittedly completed fraudulent loan applications. The loan amounts for the 12 properties involved in this fraud scheme totaled more than $4.3 million. The loss amount was more than $1.4 million.

For his crime, Hillard faces a potential maximum penalty of five years in prison. Judge Montgomery will determine his sentence at a future hearing, yet to be scheduled. This case is the result of an investigation by the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Christian S. Wilton.

Tran was earlier sentenced to 24 months in federal prison for his role in the scheme. On April 20, 2011, Ngo was sentenced to 12 months and one day in prison. Three co-defendants also have been sentenced.

This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. It 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, 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 week, Mary Lee Reinking of Clinton, IA, a former mortgage broker with Crow Valley Mortgage in Bettendorf, Iowa, was sentenced by United States District Judge John A. Jarvey to five years’ probation, including one-year home confinement, in connection with Reinking’s previous guilty plea to one count of wire fraud. Reinking also was ordered to pay $97,343 in restitution.

Reinking and Natalie Long, another broker employed at Crow Valley Mortgage, assisted Darryl Hannken and Robert Herdrich in a scheme to defraud mortgage lenders Argent Mortgage and New Century Mortgage in connection with loans to purchase two rental properties in Davenport, Iowa. Reinking and Long, aware that Hanneken and Herdrich would divert some of the loan proceeds to their own pockets without lender knowledge, facilitated the scheme by acting as broker for Herdrich and Hanneken. Reinking and Long also submitted false information concerning the income and financial assets of Herdrich and Hanneken in order to qualify them for the loans.

This fraud was uncovered as part of a broader FBI investigation of fraudulent mortgage practices in connection with the purchases of dozens of rental properties in Davenport between 2004 and 2006. Thus far, two mortgage brokers, a real estate agent, and two property buyers have pleaded guilty to fraud charges resulting from this investigation. Another mortgage broker and an attorney have been charged and are awaiting trial.

This case was investigated by the FBI and prosecuted by the United States Attorney’s Office, Southern District of Iowa.

United States Attorney Peter F. Neronha and Rhode Island Attorney General Patrick C. Lynch announced today that they have formed and held the first meeting of the Rhode Island Mortgage Fraud Task Force, an initiative linking federal and state agencies in the fight against mortgage fraud.
Consisting of several federal and state agencies and working closely with local police departments, the task force will pool investigative and prosecutorial resources and target deceptive mortgage foreclosure and loan modification operators. Its goals include seizing assets from scam artists and paying restitution to victims.
“Across the country, mortgage fraud has reached crisis proportions,” U.S. Attorney Neronha said. “The task force will use every tool at its disposal to investigate, prosecute, and punish these crimes. The goal is to make meaningful progress protecting families and communities, combating discrimination in our lending markets, recovering proceeds for fraud victims, and restoring confidence in our housing and financial markets.”
“Thousands of Rhode Islanders are still reeling from the effects of the foreclosure crisis, and unfortunately, there are swindlers just waiting to take advantage of them,” Attorney General Lynch said. “By pooling our resources, we think we’ll be able to gain the upper hand on the shady operators who shamelessly leverage the misery of distressed homeowners and, in the process, tear neighborhoods apart.”
The goals of the task force include:
• Streamlining the procedures for criminal mortgage fraud referrals;
• Developing and implementing a training program for state and federal investigators and prosecutors who handle mortgage fraud cases;
• Sharing useful information with and encouraging cooperation among the many agencies that have a stake in these cases;
• Tracking open investigations to ensure that partner agencies do not duplicate their efforts;
• Pursuing asset forfeiture and securing restitution for victims;
• Advising the public about common scams and schemes to help prevent more people from becoming victimized.
The agenda for today’s meeting included briefings about recent mortgage fraud cases prosecuted and under investigation in Rhode Island, an overview of mortgage fraud schemes and investigative strategies, a summary of civil and administrative remedies pursued by state and federal agencies and a discussion of the task force’s objectives.
Joining prosecutors from the Attorney General’s Office and the United States Attorney’s Office in today’s meeting were the Federal Bureau of Investigation, the U.S. Department of Housing and Urban Development’s Office of the General Counsel, the Internal Revenue Service, the Postal Inspection Service, the U.S. Secret Service, and the Rhode Island State Police.

A Staten Island man was arrested earlier this morning on charges arising out of his alleged operation of a $12 million Ponzi scheme from 2007 to 2010. Joseph Mazella, the founder and president of the Great Atlantic Group, Inc., a Staten Island-based real estate and financial consulting company, was charged with securities fraud, wire fraud, and money laundering in a federal indictment that was unsealed earlier today in federal court in Brooklyn. The case has been assigned to Chief United States District Court Judge Carol B. Amon. The defendant is scheduled to be arraigned later today before United States Magistrate Judge Lois Bloom at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Janice K. Fedarcyk, Assistant Director in Charge of the Federal Bureau of Investigation, New York Field Office.

As alleged in the indictment, Mazella solicited investments in Third Millennium Enterprises, Inc. and 150 West State Street Corp., both of which were associated with the Great Atlantic Group that supposedly invested in real estate projects and provided private mortgages. Mazella told prospective investors that he would invest their money in real estate projects, including projects in Trenton, New Jersey, a warehouse in Utica, New York, and a golf course development project. From approximately January 2007 until approximately December 2010, investors contributed a total of nearly $12 million to Third Millennium and 150 West State Street. As of December 2010, the combined closing balance of the bank accounts associated with the two companies was less than $15,000.

According to the indictment, Mazella described the investments as an opportunity to receive the returns of mutual funds and stocks, without any significant loss of liquidity, and at a fixed rate during the entire time period of investment. Solicitation materials distributed by Mazella characterized the investments as “geared toward individuals who are interested in earning more than traditional bank savings and CD rates but without the risk of the stock market.” Some investors were encouraged to obtain mortgages on their homes and to invest the mortgage proceeds with Third Millennium or 150 West State Street, and other investors, typically senior citizens, were encouraged to apply for reverse mortgages on their residences and to invest the proceeds with the two companies.

The indictment charges that, by as early as January 2007, Mazella had virtually stopped investing in real estate projects, and instead operated Third Millennium and 150 West State Street as a Ponzi scheme, in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Many of the properties in which the companies held any mortgage or ownership interest were abandoned and in various states of disrepair, and the property taxes owed on several of those properties had fallen into arrears. Mazella also allegedly used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence, and family expenses.

“Perhaps the most egregious aspect of this case is that the defendant allegedly encouraged victims—some, senior citizens—to obtain mortgages on their homes and to invest the proceeds in what the indictment charges was nothing more than a Ponzi scheme,” stated United States Attorney Lynch. “We will aggressively investigate and prosecute those who perpetrate these crimes.” Ms. Lynch thanked the United States Postal Inspection Service, the Financial Industry Regulatory Authority, the Internal Revenue Service, and the Department of Housing and Urban Development (OIG), for their assistance.

FBI Assistant Director in Charge Fedarcyk stated, “Mazella lured investors with the promise of steady rates of return without market risk. In fact, because the investment scheme allegedly was an investment scam, the only one guaranteed to get rich quick was Mazella himself. The FBI is committed to protecting the investing public.”

If convicted, Mazella faces a maximum sentence of 20 years’ imprisonment for each count of securities fraud, wire fraud, and money laundering.

The government’s case is being prosecuted by Assistant United States Attorneys John P. Nowak and Evan Weitz.

MADISON, WI—Stephen P. Sinnott, United States Attorney for the Western District of Wisconsin, announced the filing of informations charging five individuals with submitting false loan applications to banks and mortgage lenders to obtain home mortgages. Specifically, the informations charged:
1. Brian Bowling, 44, of Sun Prairie, Wisconsin, with wire fraud;
2. Jason Khodadad, 29, of Madison, Wisconsin, with conspiracy to submit a false loan application;
3. Joseph Bowman, 59, of Black Earth, Wisconsin, with conspiracy to submit a false loan application;
4. Joshua Hughes, 28, of Madison, with conspiracy to submit a false loan application; and
5. Richard Hurkman, 62, of Oshkosh, Wisconsin, with conspiracy to submit a false loan application.
If convicted of wire fraud, Bowling faces a maximum penalty of 30 years in prison. If convicted of conspiracy to submit a false loan application, Khodadad, Bowman, Hughes, and Hurkman each face five years in prison.
The informations charged that the defendants defrauded banks and mortgage lenders by submitting loan applications for home loans that, among other things, inflated the borrowers’ income amounts, exaggerated assets and understated liabilities, falsified employment information, misrepresented the source of downpayment funds, and omitted secondary financing information.
Hughes and Bowman pleaded guilty on Wednesday May 19, 2010, in U.S. District Court in Madison before Judge Barbara Crabb. Sentencing for Bowman is scheduled for July 22, 2010, at 1:20 p.m. Sentencing for Hughes is set for July 29, 2010, at 1:20 p.m.
Khodadad is scheduled to plead guilty on Tuesday May 25, 2010, at 1:40 p.m. Bowling is scheduled to plead guilty on Friday May 28, 2010, at 1:20 p.m. Hurkman’s plea hearing has not yet been set.
These cases are 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.
The charges are the result of an investigation conducted by the Madison office of the Federal Bureau of Investigation. The prosecution of this case has been assigned to members of the Financial Fraud Enforcement Task Force in the U.S. Attorney’s Office in Madison.

BOSTON, MA—A Manchester-by-the-Sea woman was sentenced today in federal court for her participation in a mortgage fraud scheme in 2005.
United States Attorney Carmen M. Ortiz; Warren T. Banford, Special Agent in Charge of the Federal Bureau of Investigation – Boston Field Division; Robert Bethel, Inspector in Charge of the U.S. Postal Inspection Service; Susan Dukes, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation – Boston Field Office; and Police Commissioner Edward Davis of the Boston Police Department, announced today that ELIZABETH SON, 26, of Manchester-by-the-Sea, was sentenced by U.S. District Judge Rya W. Zobel to three years of supervised release, with the first six months to be served in a half-way house, and was ordered to pay restitution in the amount of $611,000 to victim mortgage lenders.
On November 25, 2008 SON pled guilty to four counts of wire fraud. In 2005 SON participated in a scheme with others to defraud mortgage lenders in connection with the purchase of two properties in Dorchester by serving as a “straw” borrower on fraudulent loan applications.
The case was investigated by the Federal Bureau of Investigation, the U.S. Postal Inspection Service and the Internal Revenue Service, with assistance from the Boston Police Department. It was prosecuted by Assistant U.S. Attorneys Victor A. Wild and Ryan M. DiSantis of the Ortiz’s Economic Crimes Unit and Mary Murrane of the Asset Forfeiture Unit.

BIRMINGHAM—A federal judge today sentenced the leader of a mortgage fraud ring in Jefferson County to six-and-a-half years in prison, announced U.S. Attorney Joyce White Vance, FBI Special Agent in Charge Patrick Maley and Department of Housing and Urban Development Acting Inspector General Michael Stephens.
U.S. District Judge Inge P. Johnson sentenced TIMOTHY WAYNE JOHNSON, 45, of Bessemer, on two counts of making false statements on a loan application, two counts of mail fraud against a financial institution, and one count of false statements to federal agents. Judge Johnson also ordered the defendant to forfeit $2.5 million to the government as proceeds of illegal activity. JOHNSON pleaded guilty to the charges and consented to the forfeiture in July.
“Mortgage fraud continues to threaten the communities and financial institutions within our district, and throughout the country,” Vance said. “This defendant is responsible for the largest mortgage fraud scheme prosecuted, thus far, in northern Alabama. This conviction should send the message that these frauds will be sought out and prosecuted to the fullest extent of the law. Fraud in loan applications will not be tolerated. We are pleased with the result of this prosecution, but there is much more to accomplish,” she said.
“Mortgage fraud and white collar crimes strike at the economic heart of the American system,” Stephens said. “The Inspector General’s Offices of HUD and the Social Security Administration work collaboratively with the FBI to investigate these crimes. We use a variety of investigative and analytical techniques to identify those who engage in mortgage fraud. To the extent that we can uncover and prosecute these activities, it is to everyone’s benefit,” he said. “This joint prosecutorial effort by the U.S. Attorney’s Office and law enforcement agencies has helped send a strong message that those who seek to unlawfully profit by committing acts of mortgage fraud will be vigorously prosecuted.”
“Mortgage fraud has a direct negative impact on property values, potentially making all of us victims,” Maley said. “I encourage anyone with information on possible fraud to report it to the FBI, so it can be investigated and rooted out.”
JOHNSON’S mortgage fraud scheme involved more than 40 real estate transactions that caused financial institutions to approve $2.5 million in loans that were fraudulently obtained through false statements and documents made by JOHNSON. The loans were on properties in Fairfield, East Lake, inner-city Birmingham and Bessemer, and about 75 percent of those mortgages have been foreclosed. JOHNSON created and controlled nearly every aspect of the mortgage fraud scheme and enlisted the participation of at least 10 other individuals who have been convicted for their conduct in the scheme, according to the government’s sentencing memorandum.
Government documents in the case outline JOHNSON’S illegal scheme as follows: As the center of the fraud, JOHNSON would approach people attempting to sell their homes and discover what price they wanted. He would do minimal work on the homes, have them appraised, and then attach a “mechanics lien” against the property for the difference between the appraised value and what the owner wanted for the house. Johnson would then proceed to find buyers, spreading the word that he could help individuals improve their credit or get approved for a mortgage loan.
His means of helping people secure loans often involved the creation of fraudulent letters purporting to show that the loan applicant received monthly disability payments from the Social Security Administration. Once loans were issued, based on false credit or disability income claims, Johnson would be paid the amount of the liens he placed on the properties.
This case was investigated by the FBI, and the Inspector General’s Offices of HUD and the Social Security Administration. Assistant U.S. Attorney Patrick Carney prosecuted the case.
This prosecution is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency 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.

ALEXANDRIA, VA—Lourdes Rojas Almanza, 28, of Falls Church, Va., was sentenced today to 77 months in prison, followed by five years of supervised release, for her role in a multi-million-dollar mortgage fraud conspiracy. Almanza was also ordered to pay restitution in the amount of $9,718,749.
Neil H. MacBride, United States Attorney for the Eastern District of Virginia; Colonel David Rohrer, Fairfax County Chief of Police; and Shawn Henry, Assistant Director in Charge of the FBI Washington Field Office, made the announcement after sentencing by United States District Judge Gerald Bruce Lee. Almanza pled guilty on Dec. 17, 2009.
According to court documents, Almanza, a loan officer, was part of a wide-ranging mortgage fraud conspiracy, in which she and others recruited straw buyers with good credit to purchase properties for other individuals. As a loan officer, Almanza prepared fraudulent mortgage loan applications in the straw buyers’ names. The straw buyers signed the fraudulent loan applications in order to obtain much larger loans than they were qualified to receive; the loan applications misstated, among other things, the straw buyers’ income, assets, employment, citizenship status, and intent to live in the property. Almanza also obtained fake bank statements, pay stubs, and W-2′s to corroborate the false statements in the loan applications.
During the course of the conspiracy, Almanza and her co-conspirators engaged in more than 30 fraudulent property transactions in the Eastern District of Virginia and obtained over $24 million in mortgage loans to purchase the properties. The straw buyers defaulted on the bulk of the fraudulent loans and the properties either went into foreclosure or were short-sold for sizeable losses. As a result, more than 20 banks and lenders suffered losses in excess of $9 million. Almanza was directly involved in fraudulent transactions that yielded over $2.5 million in loss.
Almanza was initially scheduled to be sentenced on April 30, 2010, but the sentencing was continued after she attempted to flee the country on April 27, 2010. Almanza used her sister’s passport and booked a flight from Reagan National Airport to Bolivia, with a layover in Miami. The FBI, with the assistance of the Fairfax County Police Department, located and arrested Almanza when her flight landed in Miami.
Litcia Linares, 33, of Falls Church, Va., was also sentenced today to 27 months in prison, followed by three years of supervised release, for her role as a real estate agent in the conspiracy. Linares was also ordered to pay restitution in the amount of $7,509,849. Linares pled guilty on Jan. 8, 2010. Linares was married to co-defendant Grovert Rojas during the time she was involved in the conspiracy. Linares collected several commission checks for work that she and her then-husband did as real estate agents on the fraudulent straw buyer transactions.
Almanza’s brother, Ruben Rojas, pled guilty on Dec. 22, 2009, for his role as a realtor in the conspiracy. Rojas was sentenced on May 7, 2010 to 60 months in prison. Ten straw buyers have also been charged for their involvement in the conspiracy. One of the straw buyers, Juan De La Cruz Aguayo, pled guilty on March 18, 2010. Aguayo is scheduled for sentencing on June 11, 2010.
This case was investigated by the Fairfax County and Miami-Dade County Police Departments and FBI’s Washington Field Office. Assistant United States Attorneys Charles Connolly and Marla Tusk prosecuted the case on behalf of the United States.

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.

Defendant Convicted of Submitting Falsified Loan Applications to Obtain Mortgage Loans Totaling $5.5 Million

ALBUQUERQUE—United States Attorney Kenneth J. Gonzales announced that this afternoon, a federal jury convicted Albuquerque real estate agent Kevin Powers, 51, of 17 counts of wire fraud in connection with an unlawful scheme to defraud mortgage lenders and to obtain over $5.5 million in loan proceeds through false pretenses, misrepresentations, and omissions. At sentencing, Powers faces up to 20 years’ imprisonment and a maximum $250,000 fine on each count of conviction. Powers remains on release under pretrial supervision pending his sentencing hearing, which is scheduled for July 18, 2011.

Powers went to trial on an indictment that was filed on July 27, 2010 and charged Powers with 17 counts of wire fraud. According to the indictment, Powers devised a scheme to defraud various mortgage lenders and obtain their money or property by means of false or fraudulent representations. The indictment alleged that Powers submitted loan applications with false information, or caused such loan applications to be submitted, to mortgage lenders and concealed from the lenders that some of the loan proceeds would be returned to the buyers, largely to be used to make mortgage payments until the properties could be resold. Powers allegedly did this to get financing for the loans in residential real estate transactions, and caused others to use interstate wire communications facilities by having the loan proceeds wired from various lenders to the banks of the title companies. Although the indictment alleges 17 counts of wire fraud, the scheme involved only nine real estate transactions in Albuquerque occurring in 2006 and 2007, eight of which involved two loans. Because the loan proceeds were wired separately for each loan, each wire was charged as a separate count.

The evidence at trial established that, from March 2006 through April 2007, Powers was a real estate agent and broker. Initially, Powers was employed as the Albuquerque branch office manager for AAA Worldwide Mortgage, a mortgage brokerage company, but in late 2006, he formed his own mortgage brokerage company, Powers Mortgage. For all nine transactions charged in the indictment, Powers acted as both the realtor and mortgage broker for the buyers in that he represented them in buying the homes and he sought financing for them for the purchases. The buyers who participated in Powers’ scheme testified that Powers helped them invest in residential real estate in Albuquerque even though they had no money to invest by finding houses for them to buy with 100 percent financing. Powers returned approximately 20 percent of the loan proceeds, totaling approximately $1.2 million, to the buyers after closings, and they primarily used the money to make mortgage payments until the houses could be resold.

More specifically, the buyers testified that, after Powers identified a house to be purchased as part of the scheme, he told the seller that he had a buyer who wanted to undertake renovations and remodeling, and asked the seller to raise the sales price so it would include adequate funds for the improvements. After the seller raised the sales price, Powers obtained an appraisal at the higher price and submitted a loan application on behalf of the buyer. The loan application contained false information about the buyer’s income and the intended purpose of the purchase by falsely representing that the buyer was purchasing the house as a primary residence when in fact that buyer primarily was purchasing an investment property.

Bank officials testified that they relied on the falsified loan applications in deciding to finance the purchase of the houses. They said that they would not have approved the loans if they had known that the buyers’ income figures were significantly inflated and that the houses were being purchased as investments, and if they had known that cash kickbacks were being made to the buyers after closing. The evidence showed that all of the buyers ultimately defaulted on the residences purchased as part of Powers’ scheme because the resales did not cover the loans.

The jury deliberated for approximately five hours before returning a verdict of guilty on all counts.

The case was investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorneys Mary L. Higgins and George C. Kraehe.

As evidenced by these announced arrests and indictments, mortgage fraud is a significant crime problem in Nevada. Mortgage fraud has likely accelerated the recent decline in the Las Vegas housing market. As of February 2008, Nevada was the top state in the nation for investor-owned mortgage defaults.

While the vast majority of practioners are honest, mortgage fraud schemes are being orchestrated by individuals within the industry such as: mortgage bankers/brokers, loan officers, realtors, title/escrow officers, appraisers, and other industry related personnel. These schemers have contributed significantly to the demise of the real estate market in Las Vegas and have inflated entire new developments by establishing bogus comparatives. For example, the schemers utilize straw buyers or stolen identities to flip the houses between each other. The schemers make payments on the properties for a short period of time and then allow the house to go into foreclosure. This establishes inflated comps which are used within the real estate industry to establish appraisal values. The end result is that home buyers purchase properties in communities that are greatly over valued, and they are then unable to sell or re-finance the property, eventually leading to foreclosure. The lending institution or the federal government is left to suffer massive economic losses.

To combat this criminal activity, the Las Vegas Division of the FBI has created the Southern Nevada Mortgage Fraud Task Force, which is housed in FBI office space. The following law enforcement partners have allocated investigators to this task force: the Las Vegas Metropolitan Police Department, Internal Revenue Service-Criminal Investigation, the Housing and Urban Development and Social Security Administration-OIGs, United States Postal Inspection Service, and the Nevada Attorney General’s Office. Further, the United States Attorney’s Office has designated an Assistant United States Attorney to work full time on task force matters.

The Las Vegas FBI has an excellent working relationship with each of these participating agencies, and we continue to look forward to leveraging each agency’s strengths to combat mortgage fraud.

A telephone hotline has been established to receive complaints concerning potential mortgage fraud. The telephone number is 702-584-5555.

Earlier today in federal court in St. Paul, three people were charged with orchestrating a scheme to defraud mortgage lenders out of approximately $4.2 million relative to a Minnetonka development. Sheri Lynn Delich, age 45, of Apple Valley; My Dinh Lam, age 30; of Minneapolis; and Ashley Elizabeth Prasil, age 26, of Eden Prairie, were charged via an information with one count of conspiracy to commit mortgage fraud. In addition, Delich was charged with one count of money laundering.

From December 18, 2006, through December of 2007, the defendants allegedly conspired to defraud mortgage lenders in connection with the marketing of the Cloud 9 Sky Flats development (“Cloud 9”). The defendants allegedly found buyers to apply for mortgage loans to purchase units in the development, the defendants and the buyers knowing that each buyer would receive a kickback of approximately 30 percent of the reported purchase price of any unit. The forms submitted to the lenders did not disclose the kickbacks to buyers. The kickback payments were allegedly returned to the buyers through an account controlled by Delich and funded with loan proceeds. Once she received kickback money, Delich allegedly skimmed off a percentage of it for herself and others and then delivered the balance to the appropriate buyer. She did not disclose these payments to the lenders.

More than 40 Cloud 9 units were sold through the scheme, and more than 80 percent of the loans have since defaulted. In excess of $4.2 million was transferred to accounts allegedly controlled by Delich. As for the money laundering charge, Delich is alleged to have accepted a wire transfer of $120,123 in fraud proceeds.

If convicted, the defendants face a potential maximum penalty of five years in prison, and Delich faces a potential maximum penalty of 20 years for money laundering. All sentences will be determined by a federal district court judge.

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 United States Attorney Robert M. Lewis.

This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. It 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, 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.

LAS VEGAS—A former Las Vegas resident has been charged with federal conspiracy and fraud charges for his involvement in a Nevada mortgage fraud scheme involving straw buyers and falsified mortgage loan documents, announced Daniel G. Bogden, United States Attorney for the District of Nevada.

Brian K. Jackson, 38, currently of Anaheim, California, was indicted by the Federal Grand Jury in Las Vegas on October 21, 2009, and charged with Conspiracy to Commit Bank Fraud, Mail Fraud, and Wire Fraud. On Tuesday, November 10, 2009, Jackson was arrested in the Los Angeles area, and appeared before a U.S. Magistrate Judge there and was released on a $50,000 surety bond. Jackson is scheduled to be arraigned by U.S. Magistrate Judge George W. Foley in Las Vegas on Friday, November 20, 2009, at 8:30 a.m.

The Indictment alleges that from about 2002 to May 14, 2008, Jackson, owner of Unlimited Properties, a now-revoked Nevada limited liability corporation, participated in a conspiracy to defraud financial institutions by causing money from mortgage loans to be diverted to his own use and benefit. Jackson solicited and paid persons (straw buyers) to apply for mortgage loans in their name. The loans were processed through Sapphire Mortgage, located in Henderson, Nevada. Jackson caused false and fraudulent information to be placed in the straw buyers’ mortgage loan applications concerning their employment, income, assets, intent to occupy property, etc. Jackson caused the same home to be purchased multiple times by different straw buyers at ever increasing prices. Jackson caused the “equity” to be diverted to himself personally or his company, Unlimited Properties. Jackson also placed renters in the properties, and caused the mortgages to default.

The Indictment specifically discusses several transactions involving a home located at 2061 Scenic Sunrise Drive in Las Vegas. Between March 2002 and late 2004, Jackson twice orchestrated the sale of the property using two straw buyers and the placement of false information in their loan applications. In June 2004, Jackson also orchestrated the sale of the Scenic Sunrise property to himself and falsely stated in his loan application that he intended to reside in the property when he knew he did not. During this period, Jackson also leased the Scenic Sunrise property to another individual and accepted money from the individual as guarantee that he would purchase it in the future, even though Jackson knew that the property at the time was owned by the first straw buyer and was in the process of being sold to the second straw buyer. The indictment alleges that Jackson or his company received about $179,000 from these fraudulent transactions.

In May 2008, the owner of Sapphire Mortgage, Cindy Birkland, was arrested and charged in state court in Las Vegas with mortgage fraud related offenses. If convicted, Jackson faces up to 30 years in prison and a $1,000,000 fine.

This investigation is being led by IRS Criminal Investigation and the FBI, and other agencies of the Southern Nevada Mortgage Fraud Task Force, including the Las Vegas Metropolitan Police Department, the Nevada Attorney General’s Office, Office of the Inspector General for the Social Security Administration, Office of the Inspector General for the Department of Housing and Urban Development, the U.S. Postal Inspection Service, and the U.S. Secret Service. The case is being prosecuted by Assistant United States Attorney Brian Pugh. Persons who have information concerning potential mortgage fraud may contact the Southern Nevada Mortgage Fraud Hotline at (702) 584-5555.

The public is reminded that an indictment contains only charges and is not evidence of guilt. The defendant is presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Bay Area Mortgage Broker and Real Estate Agent Among Those Charged with Conspiring to Defraud Four Different Banks of More Than One Million Dollars

SACRAMENTO, Calif.—Acting United States Attorney Lawrence G. Brown announced today that a federal grand jury has returned an eight-count indictment charging DENNIS AARON MOORE, 50, of Hillsborough, Calif., VERONIKA WRIGHT, 33, of San Ramon, Calif., MITCHELL WRIGHT, 36, of San Ramon, Calif., HAIYING FAN, 42, of Millbrae, Calif., and GARY LORENZO GEORGE, 50, of Olivehurst, Calif., with various crimes in connection with their participation in a mortgage fraud scheme with respect to the purchase of a series of homes in South Lake Tahoe and Nevada City, Calif. Each defendant is charged with one count of conspiring to commit bank fraud and mail fraud; defendants MOORE, VERONIKA WRIGHT, MITCHELL WRIGHT, and FAN are further charged with two counts of bank fraud; and MOORE, VERONIKA WRIGHT and GEORGE are each charged with making false statements on loan applications. MOORE and FAN are also charged with two counts of money laundering. The indictment alleges that the victim lending institutions suffered over $1,000,000 in losses as a result of the defendants’ conduct.

This case is the product of a joint investigation by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation.

“Aggressive pursuit of those who engaged in mortgage fraud during the boom and bust of the region’s housing market remains a top priority for federal law enforcement. These scams hurt not just the lending institutions, but area homeowners and taxpayers alike,” said acting U.S. Attorney Brown.

According to Assistant United States Attorney Sean C. Flynn, who is prosecuting the case, the indictment alleges that between June 2005 and April 2007, the defendants conspired to defraud Washington Mutual Bank, doing business as Long Beach Mortgage, Countrywide Bank, FSB, and other lenders through a “cash-back-to-buyer” mortgage fraud scheme. MOORE purchased five separate properties in South Lake Tahoe and Nevada City, each of which was funded with large primary loans or first mortgages from various lending institutions. It is alleged that as part of each purchase agreement, MOORE insisted that each seller agree that a substantial “commission” – sometimes in excess of 20 percent of the purchase price – be paid from the sale proceeds to MOORE’s real estate agent, defendant FAN. In order to induce the seller to agree to such a commission, MOORE often offered to purchase the properties at prices above the respective list prices.

MOORE further collaborated with his mortgage broker, VERONIKA WRIGHT, and his other co-conspirators to submit to the lending institutions home mortgage loan applications that contained various false statements with respect to MOORE’s income, employment, liquid assets, and compliance with tax obligations. MITCHELL WRIGHT is alleged to have created a bogus Web site to substantiate MOORE’s false employment claims, and GEORGE, a tax professional, created false letters to support MOORE’s false financial claims. The banks relied on these false statements in disbursing funds pursuant to the loans. It is further alleged that once the funds were disbursed, FAN kicked back the majority of her “commission” to MOORE, completing the cashback-to-buyer mortgage fraud scheme.

The maximum statutory penalty on the conspiracy charge is five years in prison, while the bank fraud and false statement charges carry a 30-year maximum sentence. The maximum sentence that can be imposed with respect to the money laundering charges against MOORE and FAN is 10 years in prison. However, the actual sentence will be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and will be imposed at the discretion of the court.

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

Dante DeMiro, 43, of Milford, pled guilty today to five counts of bank and wire fraud, United States Attorney Barbara McQuade announced. Joining in the announcement was Special Agent in Charge Andrew Arena, Federal Bureau of Investigation (FBI).

According to court documents, DeMiro was an investment adviser to various municipalities, credit unions, school districts, and trade unions through his Southfield-based companies MuniVest Financial Group and MuniVest Services LLC. From August 2007 to September 2010, DeMiro used the MuniVest entities to operate a bank and wire fraud Ponzi scheme. DeMiro falsely promised investor clients that he would invest their funds in various certificates of deposit. He did not invest their funds as promised, but instead, used their funds to purchase personal items and real property, to gamble, to make payments to other investors in the same scheme, and to make loans to several individuals and a local jewelry store. DeMiro stipulated that the loss caused by his fraud exceeds $7 million, and that he abused a position of trust in his fiduciary capacity as an investment adviser.

“We have seen more and more of these investment schemes, which prey upon school districts, municipalities, and unions,” McQuade said. “Our hope is that cases like this one will deter other investment advisors from stealing from these vulnerable investors.”

Special Agent in Charge Arena stated, “Today’s swindlers artfully conceal their greed with sophisticated marketing and numerous misrepresentations. Investors and pension plan participants must remain diligent in following their money.”

Sentencing is scheduled for July 12, 2011 at 10:00 am before the Honorable Lawrence P. Zatkoff in Port Huron.

The case is being prosecuted by Assistant United States Attorney Erin Shaw.

TRENTON, NJ—A Marlboro, N.J., real estate developer admitted today to his role in an investment fraud conspiracy which embezzled nearly $1 million raised in connection with purported commercial real estate developments in New Jersey, U.S. Attorney Paul J. Fishman announced.

Allen Weiss, 60, of Marlboro, pleaded guilty to an information charging him with one count of conspiracy to commit wire fraud. Weiss entered his guilty plea before U.S. District Judge Anne E. Thompson in Trenton federal court.

According to the information to which the defendant pleaded guilty and statements made in court:

Weiss admitted that he conspired with others from January 2009 to February 2010 in a scheme to embezzle investment funds he raised in connection with purported commercial real estate developments. Weiss and his co-conspirators founded a series of holding corporations to solicit investments to develop commercial real estate, including professional services locations for physicians in Holdmel, Hazlet, and Neptune, N.J. Weiss admitted that he and his coconspirators embezzled nearly $1 million in investments funds contributed by victims toward the projects. He also admitted that he lied to those and other victims to raise additional funds, which Weiss and his co-conspirators spent on personal expenses. Weiss pleaded guilty to one count of conspiracy to commit wire fraud, which carries a maximum potential penalty of 20 years in prison and a $250,000 fine.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, for the investigation leading to the guilty plea.

The government is represented by Assistant U.S. Attorney André M. Espinosa of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

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

Defense counsel: Robert A. Honecker, Jr., Esq., Ocean, N.J.

David B. Fein, United States Attorney for the District of Connecticut, announced that STEVEN J. KOTTAGE, 45, of Weston, pleaded guilty today before United States District Judge Mark R. Kravitz in New Haven to two counts of conspiracy stemming from mortgage fraud schemes in which KOTTAGE participated.

According to court documents and statements made in court, KOTTAGE conspired with others to commit wire fraud by making materially false statements to H&R Block Home Mortgage, Inc., including a false loan application, W-2, employment verification, and pay stub, in connection with a mortgage on a home on Fire Island, New York. In addition, KOTTAGE admitted that he conspired with others to commit bank fraud by submitting a materially false loan application to Washington Mutual to refinance a condominium in Hillsboro Beach, Florida. A co-defendant, Mary Ellen Durso, served as the straw owner for the condo in order to obtain the fraudulent loan proceeds for the benefit of KOTTAGE and another co-conspirator. Through both schemes, KOTTAGE and others defrauded Wells Fargo and Freddie Mac of more than $600,000.

Judge Kravitz has scheduled sentencing for July 11, 2011, at which time KOTTAGE faces a maximum term of imprisonment of 30 years on each count. He also will be ordered to pay restitution in the amount of at least $616,547.93.

KOTTAGE is currently detained.

On December 14, 2010, Durso pleaded guilty to one count of conspiracy and five counts of filing false tax returns. On March 9, 2011, she was sentenced to three years of probation, the first six months of which she must serve in home confinement.

This case is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant United States Attorney David T. Huang and Senior Litigation Counsel Richard J. Schechter.

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. 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 e-mail 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.

ORLANDO, FL—United States Attorney Robert E. O’Neill announces that Christopher Michael Paladino (35) and Patrick Michael Micheletti (31), both of Melbourne, Florida, pleaded guilty today to an information charging them with conspiracy to commit wire fraud. Paladino and Micheletti each face a maximum penalty of 20 years in federal prison and a fine of $250,000 or two times the gross gain or loss attributable to their conduct, whichever is greater.

According to the plea agreements, Paladino and Micheletti conspired together from December 2006 through September 2007 to defraud certain financial institutions by submitting false loan applications to purchase six homes in Melbourne and Palm Bay, Florida. The loan applications contained false information about their employment, income, and the fact that they intended each home to be their primary residence. The loan applications were approved, the loan money was wired from the financial institutions to the closing agents, and Paladino and Micheletti purchased the properties. Each property has since gone into foreclosure.

This case was investigated by the Federal Bureau of Investigation and the Florida Office of Financial Regulation, Bureau of Financial Investigations. It is being prosecuted by Assistant United States Attorney Bruce S. Ambrose.

MINNEAPOLIS—Three Florida men—a business associate of Thomas J. Petters and two hedge fund managers—were indicted today in federal court in Minneapolis for fraudulently marketing a hedge fund’s investments in Petters Company, Inc. (“PCI”). Frank E. Vennes, age 53, of Stuart, Florida; David W. Harrold, age 51, of Del Ray Beach, Florida; and Bruce F. Prevost, age 51, of Palm Beach Gardens, Florida, were charged with four counts of securities fraud in relation to this alleged crime. In addition, Vennes was charged with one count of money laundering.

PCI was owned and operated by Petters, who represented that funds invested in PCI promissory notes would be used to finance the purchase of electronics and other consumer merchandise. Purportedly, PCI would then resell that merchandise, for a profit, to certain “big box” retailers, including Sam’s Club and Costco. In truth, however, no merchandise was bought or resold. Instead, Petters diverted for his own personal benefit hundreds of millions of dollars. His $3.65 billion Ponzi scheme unraveled in 2008, when federal agents executed search warrants at his business offices and other locations. He was subsequently prosecuted and, in April of 2010, sentenced to 50 years in federal prison. He is currently serving his sentence in the federal penitentiary in Leavenworth, Kansas.

Petters began the PCI Ponzi scheme in or before 1993. Starting in the late 1990s, he raised most of the proceeds of the fraud by selling PCI notes to large hedge funds, managed and operated by hedge fund managers. Hedge fund managers had a fiduciary duty to their investors. They made representations to their investors regarding the investments, the due diligence performed on the investments, and the financial mechanisms put in place to protect the hedge fund’s investments in PCI. In exchange for their efforts, the hedge fund managers obtained management fees from investor funds.

The indictment returned today charges Harrold and Prevost with defrauding hedge fund investors. The men co founded Palm Beach Capital Management, which served as the investment adviser for the four Palm Beach hedge funds. According to the indictment, Vennes directed Harold and Prevost to communicate with Petters and PCI only through him. In November of 2002, Harrold and Prevost purportedly first invested hedge fund money in PCI, and as of September 24, 2008, the hedge funds reportedly held PCI investments totaling approximately $1 billion. Between 2002 and 2008, Harrold and Prevost’s companies allegedly grossed more than $58 million in management fees. For his part, Vennes received more than $60 million in commissions based on the Palm Beach investments in PCI.

Allegedly, the defendants made material misrepresentations and concealed material information about the PCI investments in order to induce investors to purchase securities. For example, investors were told that when a retailer purchased consumer electronics or other goods from PCI, those products were paid for by the retailer with funds directly deposited into a bank account under the control of Harrold and Prevost’s management companies. As a result, investors were falsely assured that all PCI transactions were, in fact, occurring. However, the defendants knew the hedge funds received payments from PCI alone and never from retailers.

Moreover, by February of 2008, millions of dollars of PCI notes were on the verge of default. Between February and September of 2008, the defendants engaged in a scheme to swap more than $1 billion worth of PCI promissory notes to create the appearance that PCI could repay the notes held by the Palm Beach funds. All note swaps allegedly went through Vennes. During that same time period, Harrold and Prevost allegedly continued to report to investors that the hedge funds were generating steady profits and, encouraged and assisted by Vennes, solicited new investors and additional money from existing investors, raising more than $75 million in new money from more than 30 investors.

If convicted, the defendants face a potential maximum penalty of five years on each securities fraud count, while Vennes is subject to as much as ten additional years in federal prison for money laundering. All sentences will be determined by a federal district court judge.

This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service – Criminal Investigation Division, and the U.S. Postal Inspection Service, with the assistance and support of the Securities and Exchange Commission. It is being prosecuted by Assistant U.S. Attorneys Timothy C. Rank and John Docherty.

This law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. It 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, 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.

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.

WASHINGTON—Paul Allen, the former chief executive officer (CEO) at Taylor, Bean & Whitaker (TBW), pleaded guilty today to making false statements and conspiring to commit bank and wire fraud for his role in a $1.5 billion fraud scheme that contributed to the failure of TBW.

The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Acting Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Inspector General of the Department of Housing and Urban Development (HUD-OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC-OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA-OIG); and Victor F.O. Song, Chief of the Internal Revenue Service (IRS) Criminal Investigation.

Allen, 55, of Oakton, Va., pleaded guilty to a two-count criminal information before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia. Allen faces a maximum penalty of five years in prison for each count when he is sentenced on June 21, 2011.

According to a statement of facts submitted with his plea agreement, Allen joined TBW in 2003 as its CEO and reported directly to its chairman. He admitted in court that from 2005 through August 2009, he and other co-conspirators engaged in a scheme to defraud financial institutions that had invested in a wholly owned lending facility called Ocala Funding. Ocala Funding raised money by selling asset-backed commercial paper to financial institutions, including Deutsche Bank and BNP Paribas, and used the money to purchase TBW mortgages. The facility was managed by TBW and had no employees of its own.

According to court records, shortly after Ocala Funding was established, Allen learned there were inadequate assets backing its commercial paper, a deficiency referred to internally at TBW as a “hole” in Ocala Funding. Allen admitted that in an effort to cover up the hole and to mislead investors, he told a co-conspirator to produce reports that concealed the hole. He also admitted that he knew that these misleading reports were sent to Ocala Funding investors and other third parties.

Allen also admitted in court that he kept the chairman of TBW informed of the collateral shortfall, and that in the fall of 2008, Allen was told that the hole had been moved from Ocala Funding to Colonial Bank. At the time that TBW ceased operations, the hole was approximately $1.5 billion. According to court documents, as a result of the Ocala Funding fraud scheme, Freddie Mac, Colonial Bank, and Ocala Funding investors believed they had an undivided ownership interest in thousands of the same mortgage loans.

Court records state that in March 2009, Allen was directed to approach a private equity investor to secure capital to meet a $300 million private capital requirement the U.S. Department of Treasury set for Colonial Bank to receive $553 million from the Troubled Assets Relief Program (TARP). Although Allen failed to secure the funding from the investor, he admitted in court that the TBW chairman represented to others that the investor was a $50 million participant and that the chairman diverted $5 million from Ocala Funding to an escrow account in the investor’s name. This deception caused Colonial Bank to falsely announce publicly it had met its $300 million capital raise contingency and to send a letter to the FDIC that all investors had met a 10 percent escrow deposit requirement. Colonial Bank never received any TARP funds.

In court today, Allen also admitted to making false statements in a letter he sent to the U.S. Department of Housing and Urban Development, through Ginnie Mae, regarding TBW’s audited financial statements for the fiscal year ending on March 31, 2009. In this letter, Allen omitted that the delay in submitting the financial data was attributed to concerns its independent auditor had raised about the financing relationship between TBW and Colonial Bank. Instead, Allen falsely attributed the delay to a new acquisition and TBW’s switch to a compressed 11-month fiscal year.

To date, five other individuals have pleaded guilty for their roles in this and related fraud schemes.

The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia. This case was investigated by SIGTARP, the FBI’s Washington Field Office, FDIC-OIG, HUD-OIG, FHFA-OIG, and the IRS Criminal Investigation. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.

This prosecution 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.