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June 5, 2011

Dallas Businessman Sentenced in Federal Prison for Orchestrating Multi-Million-Dollar Mortgage Fraud Scheme

Farrington is Last Defendant to be Sentenced in Case
U.S. Attorney’s Office June 02, 2011

DALLAS—Eric Rulack Farrington, 58, of Irving, Texas, was sentenced today by U.S. District Judge Sam A. Lindsay to 132 months in federal prison for largely orchestrating a multi-million-dollar mortgage fraud scheme in the Dallas area, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Judge Lindsay also ordered that Farrington pay approximately $2.5 million in restitution and forfeit approximately $1.2 million to the U.S. Farrington and seven other defendants were convicted in April 2010, following a nearly two-month trial on various felony offenses related to the fraud scheme that they operated in the Dallas area from March 2002 until January 2006. He is the last defendant in this case to be sentenced and was ordered to surrender to the Bureau of Prisons on September 6, 2011.

The jury convicted Farrington on all 32 counts of the superseding indictment, including: one count of conspiracy to commit wire fraud, one count of bank fraud and aiding and abetting, 15 counts of wire fraud and aiding and abetting, 10 counts of money laundering and aiding and abetting, and five counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. Farrington was the president of Eric Farrington Seminars, Inc. and Prestige Capital Corporation, which did business as Farrington Mortgage Group. He was also a manager of EFC Investments, LLC, which did business as EFC Management Company. All were located in Dallas.

Farrington’s former fiancé, Janice Little Shepherd, 51, of Irving, Texas, a mortgage broker who did business as EFC Capital Mortgage Company, was sentenced yesterday by Judge Lindsay to five years in prison and ordered to pay $1,564,498 in restitution and forfeit approximately $1.2 million to the U.S. She was convicted at trial on one count of conspiracy to commit wire fraud, 11 counts of wire fraud and aiding and abetting, and four counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. She was also ordered to surrender to the Bureau of Prisons on September 6, 2011.

Other defendants convicted and sentenced in the scheme include:

Regis Lamont Williams, 45, of Dallas, was a Texas certified real estate appraiser who did business as Executive Certified Appraisal. He was convicted on one count of conspiracy to commit wire fraud, one count of bank fraoud and aiding and abetting, nine counts of wire fraud and aiding and abetting, and five counts of engaging in a monetary transaction wtih criminally derived property and aiding and abetting. He was sentenced on April 28, 2011 to 46 months in prison and ordered to pay approximately $1 million in restitution and forfeit approximately $1.2 million to the U.S. In addition, the U.S. Attorney’s office will send a copy of his judgment order to the Texas Appraiser Licensing and Certification Board for whatever action they deem appropriate.
Kevin Ray Sanderson, 36, of Irving, Texas, was a business associate of Farrington and the vice president of Farco Construction, Inc., Dallas, which also did business as Farrington Mortgage Group. He was convicted on one count of conspiracy to commit wire fraud, one count of bank fraud, four counts of wire fraud and aiding and abetting, and one count of money laundering. Earlier this week he was sentenced to 57 months in prison and ordered to pay $762,983 restitution, and forfeit approximately $1.2 million to the U.S.
James Edward Jones, 45, of Dallas, was a real estate agent. He was convicted on one count of conspiracy to commit wire fraud and two counts of wire fraud and aiding and abetting. On August 27, 2010, he was sentenced to 30 months in prison and ordered to pay $624,414 restitution and forfeit approximately $1.2 million to the U.S.
Edwin Terrence Bell, 44, of Fort Worth, Texas, was in the real estate management business and was the president of Togetherness, Inc. Bell also did business as The Togetherness Group and TTG, Inc. He was convicted on one count of conspiracy to commit wire fraud, five counts of wire fraud and aiding and abetting, and two counts of engaging in a monetary transaction with criminally derived property and aiding and abetting. On August 27, 2010, he was sentenced to 41 months in prison and ordered to pay $442,604 in restitution and forfeit approximately $1.2 million to the U.S.
Micheal (sic) Lewis Andrews, 51, of Plano, Texas, was chief executive officer of Second Chance Mortgage, Inc. and did business as 2nd Chance Mortgage. He was convicted on two counts of wire fraud and aiding and abetting. He was sentenced last week to 24 months in prison and ordered to pay $108,659 in restitution.
Robert John Mason, 56, of Oak Leaf, Texas, was an employee of Prestige Capital Corporation. He was convicted of two counts of wire fraud and aiding and abetting. He was sentenced in July 2010 to 30 months in prison and ordered to pay $463,722 in restitution.

Prior to trial, Marcus Allen Parker, 36, of Rowlett, Texas, who was an associate of defendant Kevin Ray Sanderson, pleaded guilty to one count of conspiracy to commit wire fraud and was sentenced in July 2010 to three years’ probation.

The scheme was largely orchestrated by Farrington—a motivational speaker and author of a real estate book who had an infomercial on making money in real estate that ran on late night television. The defendants located single-family residences for sale in the Dallas area, including distressed and pre-foreclosure properties, and negotiated a sales price with the seller. They created surplus loan proceeds by inflating the sales price to an arbitrary amount substantially more than the fair market value of the residence, many times using inflated appraisals. In some cases, they would create a bogus outstanding mortgage lien to be discharged. They recruited individuals with high credit scores to act as borrowers and falsely represented to them that the property would be managed by the defendants and rented by a suitable tenant; that the mortgage, interest, taxes, insurance and property maintenance would be paid from the rental income; and the purchasers/borrowers would have no expenses. The borrowers had no intention to live in the property and did not have sufficient income to repay the loans. They said they relied on Farrington.

The defendants prepared and submitted fraudulent loan documents showing inflated incomes in the names of the borrowers and obtained loans in inflated amounts based on these fraudulent loan documents. Then they used the fraudulently obtained surplus loan proceeds to pay the sellers kickbacks, to conceal the fraud, and distributed the bulk of the proceeds among themselves. They would then allow the loan to go into foreclosure after a few payments were made on the loan.

Some of the residences used in the scheme include:

1420 Travis Circle South, Irving, Texas
6231 Azalea Lane, Dallas
7730 Cliffbrook Drive, Dallas
10907 Cinderella Lane, Dallas
7617 Arborgate Drive, Dallas
13735 Ashridge Drive, Dallas
6824 Winterwood Lane, Dallas
6840 Winterwood Lane, Dallas
6915 Winterwood Lane, Dallas
7012 Creek Bend Road, Dallas
1509 Appalachian Drive, Allen, Texas

Mortgage fraud is a major focus 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. For more information about the task force visit: www.stopfraud.gov.

U.S. Attorney Jacks praised the investigative efforts of the FBI and Internal Revenue Service – Criminal Investigation and the cooperation of several state agencies including the Texas Department of Savings and Mortgage Lending and the Texas Appraiser Licensing and Certification Board. Assistant U.S. Attorneys Joseph Revesz and Walt Junker prosecuted the case.

May 28, 2011

Mortgage Fraud Defendant Sentenced to Prison

TAMPA, FL—U.S. Attorney Robert E. O’Neill announces that U.S. District Judge Susan C. Bucklew today sentenced Sang Min Kim, a/k/a Sonny Kim (37, Tampa) to 41 months in federal prison for conspiracy to commit wire, mail, and bank fraud and money laundering in connection with a mortgage fraud scheme. As part of his sentence, the court entered a money judgment in the amount of $5,826,778.65, the proceeds of the charged criminal conduct.

Kim pleaded guilty on June 29, 2010. According to court documents, from about January 2005 through October 2008, Kim engaged in numerous residential real estate transactions in the Middle District of Florida, primarily in Hillsborough County, at least 48 of which involved fraud and resulted in losses of approximately $5,826,778.65.

Kim purchased residential properties as an “investor” with the intention of “flipping” the properties in subsequent sales. Kim’s co-conspirators identified the properties he purchased, usually at market value, by accepting quit claim deeds from the sellers. Frequently, Kim’s co-conspirators also identified the “buyers” to whom he flipped the properties. Kim’s buyers’ mortgage loan applications typically included the false claim that they intended to occupy the properties they were purchasing, when in fact they never intended to purchase Kim’s properties as places to live. Moreover, Kim’s buyers made no genuine financial commitment of funds to their purchase transactions. The buyers’ stated down payments were fictitious because the funds used to make the down payments were either provided by Kim or another, or the buyer used his or her own money and was subsequently reimbursed by Kim who used loan proceeds to do so. The “buyers” were motivated to participate in these transactions by the fact that they were being paid to assume the role of “purchaser.”

As a part of the fraud scheme, Kim used appraisers whom he knew would “come in higher” on appraised values. He also regularly provided a title agent with additional compensation in the form of “side commissions” in exchange for expediting closings. Kim was aware that at least one mortgage broker created false W-2 forms to document a prospective borrower’s stated income. Kim was also aware that his company, SK Investment Group, LLC, was used to provide false employment verifications for other fraudulent transactions from which he did not directly benefit. Kim was also aware that one or more mortgage brokers, through whom he conducted his purchase/sales transactions, made up fictitious income and false assets that were inserted on prospective buyers’ loan applications. Kim was assisted in his fraudulent purchase/sales transactions by persons employed by federally insured financial institutions. Those persons were aware that Kim, as the seller, received a portion of funds derived from equity lines of credit acquired by his buyers.

This case was investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. It was prosecuted by Assistant United States Attorney Rachelle DesVaux Bedke.

May 23, 2011

Feds indict Washington Mutual mortgage fraud perpetrators-New York business litigation lawyers

New York business attorneys-Washington Mutual target of $92 million mortgage fraud scam

Federal attorneys filed charges against 9 people for $92 million WaMu mortgage fraud scheme.

New York, NY(JusticeNewsFlash.com)–The U.S. Attorney’s Office in Brooklyn filed federal charges against, real estate developer Thomas Kontogiannis plus eight other defendants in U.S. District Court in Brooklyn, New York on Thursday. Reuters reported lawyers for the federal government charged nine persons with conspiracy to commit bank and wire fraud through an orchestrated $92 million mortgage fraud scheme aimed at Washington Mutual Bank and a subsidiary of Credit Suisse Group AG, DLJ Mortgage Capital Inc.

Agents with the U.S. Federal Bureau of Investigation (FBI) www.fbi.gov and prosecuting attorneys allege Kostogiannis used New York City property developments in Brooklyn and Queens to defraud Washington Mutual and Credit Suisse Group of $92 million through fraudulent loans. Federal court documents claim the nine defendants, charged with federal fraud, sold properties with values based on false appraisals to finance projects. The defendants were so blatant as to provide appraisals of properties not even built and listed fake addresses. Government lawyers say the real estate developer used loans, financed by lenders under their control, and then sold the bogus mortgage loans to Washington Mutual and DLJ. The defendants will be arraigned in U.S. District Court in Brooklyn before the judge, on Thursday afternoon, plus face additional charges of bank fraud and money laundering.

This is another legal and financial blow which has come to light recently since former Washington Mutual Bank (WaMu), now Washington Mutual Inc., was seized by the U.S. Office of Thrift Supervision (OTS) and placed into the hands of the Federal Deposit Insurance Corporation (FDIC) http://www.fdic.gov on September 25, 2008. A 10-day bank run, which resulted in $16.4 billion in withdrawals, caused the federal government to step in, take over, and then sell off the banking subsidiaries to JPMorgan Chase for a mere $1.9 billion. JPMorgan chase acquired the bank with $33 billion in assets, minus its unsecured debt or equity claims as outlined by Wiki. On September 26, 2008, the very next day, JPMorgan Chase filed for Chapter 11 bankruptcy protection in Delaware. Washington Mutual Bank was the largest United States’ savings and loan association, and its closure and receivership, by the federal government, remains the largest bank failure in American history. The United States District Court, for the District of Columbia, received a lawsuit filing by lawyers representing Washington Mutual Inc., on March 20, 2009, demanding $13 billion in damages. Business litigation attorneys representing WaMu accuse the OTC and FDIC with the unjustified seizure of the bank and the ridiculously low sale price to JPMorgan Chase as part of its legal complaint. The U.S. Federal Bankruptcy Court in Delaware, in turn, received a counterclaim by attorneys representing JPMorgan Chase.

JusticeNewsFlash.com news for New York bank fraud attorneys.

May 11, 2011

Loan Officer Sentenced to 21 Months in Prison for Mortgage Fraud Scheme

PITTSBURGH—A resident of Allegheny County has been sentenced in federal court to 21 months of incarceration followed by two years of supervised release on his conviction of wire fraud conspiracy, United States Attorney David J. Hickton announced today.

United States District Judge Joy Flowers Conti imposed the sentence yesterday on Constantino Papastergous, 40, of Allison Park, Pa. Judge Conti’s sentencing order also requires Papastergous to repay more than $1,000,000 in restitution.

According to information presented to the court, Papastergous was a loan officer for Steel City Mortgage, which was a mortgage broker company. Papastergous and other individuals associated with Steel City Mortgage used Kenneth Cowden, an unlicensed appraiser who submitted fraudulent appraisals using the names of licensed appraisers, to prepare more than $85 million of fraudulent appraisals for Steel City Mortgage. The appraisals were fraudulent in that they falsely represented that they were prepared by a licensed appraiser and because they overstated the value of the property serving as collateral for the loans. Papastergous and other individuals associated with Steel City also submitted loan applications and supporting documents that misrepresented the financial status of the borrowers, including their income and assets.

Assistant United States Attorney Brendan T. Conway prosecuted this case on behalf of the government.

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

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

April 15, 2011

Jury Finds Four Guilty of Multiple Federal Charges Stemming from Extensive Mortgage Fraud Scheme

More Than $3.2 Million Stolen From Lenders; Total of 13 Defendants Now Guilty

David B. Fein, United States Attorney for the District of Connecticut; Kimberly K. Mertz, Special Agent in Charge of the Federal Bureau of Investigation; and Michael P. Stephens, Acting Inspector General, U.S. Department of Housing and Urban Development, Office of Inspector General, today announced that a jury in Hartford has found four individuals guilty of multiple federal offenses related to their participation in an extensive mortgage fraud conspiracy that defrauded lenders of more than $3.2 million. The jury returned the verdicts this afternoon.

MORRIS OLMER, 82, of New Haven, was found guilty of one count of conspiracy to defraud the United States, eight counts of wire fraud, and four counts of making false statements.

RAB NAWAZ, 47, of Waterford, was found guilty of one count of conspiracy to defraud the United States, eight counts of wire fraud, and one count of obstruction of justice.

WENDY WERNER, 46, of Sarasota, Florida, was found guilty of one count of conspiracy to commit mail fraud and wire fraud, and one count of mail fraud,

MARSHALL ASMAR, 40, of Milford, was found guilty of one count of conspiracy to defraud the United States, three counts of wire fraud, and three counts of making false statements.

The jury could not reach a verdict on any counts against a fifth defendant, David Avigdor, 57, of New Haven. A sixth defendant, THOMAS GALLAGHER, 68, of West Haven, pleaded guilty during the trial. Eight other individuals involved in the scheme pleaded guilty prior to the commencement of the trial.

“This case demonstrates the commitment of the U.S. Attorney’s Office and our federal and state law enforcement partners to investigate and prosecute those individuals whose illegal activity contributed to our nation’s banking crisis,” stated U.S. Attorney Fein. “I want to thank the FBI, HUD-OIG, and all the participants in the Connecticut Mortgage Fraud Task Force who are investigating these crimes, protecting the public, and helping to restore confidence in our housing and financial markets.”

According to court documents, statements made in court and the evidence disclosed during the trial, between approximately August 2006 and May 2010, Syed Babar of New London led a mortgage fraud scheme during which participants obtained approximately $10 million in residential real estate loans, including loans insured by the FHA, through the use of sham sales contracts, false loan applications and fraudulent property appraisals. As part of the scheme, Babar arranged for straw buyers to purchase houses they did not intend to occupy at fraudulently inflated prices and to apply for loans in the amount of the fraudulently inflated prices. The loans were supported by fraudulent appraisals and a variety of fraudulent information about the buyer, including information about his or her occupation, income, assets, liabilities, and intention to occupy the house as a primary residence. Babar and his co-conspirators also created a fictitious construction company called “Sheda Telle Construction, LLC”—which trial testimony revealed means “ring the bell and run” in Babar’s native language—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. Babar and his co-conspirators then split the fraud proceeds generated from the scheme.

Thomas Gallagher, who operated Autumn Appraisals, LLC, in West Haven, created fraudulently inflated appraisals of residential real estate in exchange for payments, often in cash, of thousands of dollars per home. The payments were well beyond the basic appraisal fee of about $375 that was disclosed in appraisals and on federal mortgage documents.

Morris Olmer, a former attorney, conducted many of the closings for the fraudulent real estate transactions at his New Haven office, which resulted in hundreds of thousands of dollars in fraudulent proceeds being sent by wire and check to Sheda Telle Construction, LLC.

Wendy Werner and Marshall Asmar made hundreds of thousands of dollars selling properties at fraudulently inflated prices to straw purchasers. In August 2006, Werner, through her company, Marbo Restorations, LLC, sold three houses on Lake Street in Norwich to a straw purchaser working with Babar. The fraudulently inflated sales prices for the three properties were $260,000, $270,000 and $270,000, respectively. Werner provided Babar with approximately $283,000 of the proceeds generated from the sale of the three houses, and Babar then wrote 10 checks totaling approximately $179,000 to the straw purchaser.

Asmar, working with Olmer, rented out houses that had purportedly been “sold” to straw buyers in FHA-insured loan transactions. The straw buyers never received the keys to the properties, never intended to live in the properties, and never made any mortgage payments.

Rab Nawaz also profited by acting as seller on several fraudulent property transactions. In addition, Nawaz had a phone number subscribed to his home address that was also identified with “Global Home Painting,” which was listed on certain loan applications as the fictitious employer of the straw buyer of a property. The number was used by co-conspirators to receive calls from lenders seeking to verify an applicant’s employment information.

During the trial, which began on March 16, the government called 20 witnesses, played numerous recorded conversations and presented hundreds of exhibits. On March 21, at the conclusion of the fourth day of trial, Thomas Gallagher pleaded guilty to one count of making a false statement to the government in connection with an FHA-insured loan.

On February 1, 2011, Babar pleaded guilty to multiple federal charges related to his leadership of this extensive mortgage fraud scheme. Seven other individuals have also previously pleaded guilty to various charges related to their involvement in this scheme. All await sentencing.

The charge of conspiracy to commit wire fraud carries a maximum term of imprisonment of five years. Wire fraud and mail fraud carry a maximum term of imprisonment of 20 years on each count. The charge of making a false statement carries a maximum term of imprisonment of five years on each count. And the charge of obstruction of justice carries a maximum term of imprisonment of 10 years.

This matter has been investigated by the Federal Bureau of Investigation and the U.S. Department of Housing and Urban Development – Office of Inspector General. The case is being prosecuted by Assistant United States Attorneys Eric J. Glover and Susan Wines and Special Assistant United States Attorney Liam Brennan.

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 is focusing 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 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.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which was established to wage an aggressive and coordinated 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.

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

February 28, 2011

Former Real Estate Appraiser Sentenced to Four Years in Mortgage Fraud Scheme

JACKSONVILLE, FL—United States Attorney A. Brian Albritton announces that U.S. District Judge Henry Lee Adams, Jr. yesterday sentenced Barry C. Westergom (age 60, of Jacksonville) to four years in federal prison for conspiracy to commit wire and bank fraud. The court also ordered restitution in the amount of $866,141.62 and entered a money judgment for $100,000, the amount that Westergom had obtained from the fraud. Westergom had pleaded guilty on October 8, 2009.

According to court documents, during 2004 and 2005, Westergom’s co-conspirator, Juan Carlos Gonzalez, contracted to purchase about 55 houses. Gonzalez retained Westergom, who was a licensed real estate appraiser, to appraise most of the properties. Westergom then fraudulently inflated the appraisals, valuing each property at a significantly higher price than the negotiated purchase price. Westergom knew that Gonzalez intended to submit the appraisals to lenders in support of mortgage loan applications in which the inflated appraisal value was listed as the purchase price. The lender was not informed that the price listed in the transaction documents was higher than the actual price negotiated with the seller. Gonzalez also submitted fraudulent financial documents and information, including altered bank statements and payroll records, to the lenders in support of the loan applications.

At each closing, Gonzalez received the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, and Westergom received commissions and fees.

Westergom’s plea agreement details one transaction in which Westergom, acting as a buyer’s agent for Gonzalez, negotiated with a seller to purchase a house for $490,000. Westergom then fraudulently appraised the house for $625,000. Gonzalez submitted first and second mortgage loan applications for the house reflecting a sales price of $625,000. Gonzalez also submitted altered bank account statements showing significantly larger cash balances in the account than actually existed. The lender approved the loans and, at the closing, Gonzalez received $134,000, which was listed on closing documents as an “Assignment of Contract Fee.” Westergom received $12,250 as a broker’s fee and $550 as an appraisal fee.

The conspirators’ fraudulent acts resulted in lenders extending more than $29,272,000 in first and second mortgage loans. Westergom received a total of about $100,000 in commissions and fees. Gonzalez received $6,296,303.65 from the scheme.

Gonzalez pleaded guilty to a conspiracy charge and was sentenced to seven years in federal prison on November 5, 2009.

The case was investigated by the Federal Bureau of Investigation and was prosecuted by Assistant United States Attorney Arnold B. Corsmeier. It was brought as part of the Middle District of Florida’s Mortgage Fraud Surge, a joint effort by the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, Tampa and Jacksonville Divisions, and numerous other federal, state, and local law enforcement agencies. The Surge focused intensive investigative and prosecutorial resources on the mortgage fraud crisis that plagues middle Florida and has contributed to the current economic situation nationwide. The Surge accelerated mortgage fraud cases to bring perpetrators to justice quickly and provide maximum deterrence, and it was the first step in an ongoing effort to prosecute mortgage fraud of all types throughout the Middle District. For more information on the Middle District of Florida’s Mortgage Fraud Surge, please contact Steve Cole, Public Affairs Officer for the United States Attorney’s Office.

Posted By: Ralph Roberts @ 1:43 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Appraisals,Bank Fraud,Loan Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Mortgage Loan Fraud,Wire Fraud

February 23, 2011

New London Man Charged with Operating Mortgage Fraud Scheme

David B. Fein, United States Attorney for the District of Connecticut, today announced that a federal grand jury sitting in New Haven has returned an indictment charging SYED A. BABAR, also known as “Ali,” 28, of Ledyard Street, New London, with one count of conspiracy to commit wire fraud and two counts of wire fraud. The charges stem from a mortgage fraud conspiracy that BABAR is alleged to have headed.

The indictment alleges that, between February 2007 and April 2010, BABAR, along with a mortgage broker, a real estate appraiser, two attorneys, and others, engaged in a scheme 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 BABAR recruited and paid straw purchasers to nominally purchase homes. BABAR and his co-conspirators then directed the straw purchasers to enter into sales contracts with the sellers of homes for a price higher than the actual price that the seller would receive. Members of the conspiracy 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 BABAR and others 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. BABAR and his co-conspirators then split the fraud proceeds.

Contrary to the representations made on the loan applications, it is alleged that the straw purchasers never occupied the houses as their primary residences. They defaulted on the loans they obtained and let the houses go into foreclosure.

According to statements made in court, it is alleged that BABAR and his co-conspirators conducted this scheme on more than 25 properties in New London, New Haven, and other locations in Connecticut. As a result, it is alleged that various lenders suffered a loss of at least $2.5 million.

The indictment was returned on April 27, 2010, and unsealed today. BABAR was arrested on May 12. Today, United States Magistrate Judge Donna F. Martinez in Hartford ordered BABAR detained while the case is pending.

The charges of conspiracy to commit wire fraud and wire fraud carry a maximum term of imprisonment of 20 years on each count.

U.S. Attorney Fein stressed that an indictment is only a charge and is not evidence of guilt. The defendant is entitled to a fair trial at which it is the government’s burden to prove guilt 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 is being prosecuted by Assistant United States Attorney Eric J. Glover.

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 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.

Posted By: Ralph Roberts @ 8:20 pm | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Loan Fraud,Loan Officer Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Mortgage Loan Fraud,Wire Fraud

February 18, 2011

Delaware County Woman Pleads Guilty in Mortgage Fraud Scheme

Acting United States Attorney Robert S. Cessar announced today, April 6, 2010, that on April 1, 2010, Jeanette Gray, a resident of Yeadon, Pennsylvania, pleaded guilty in federal court to a charge of wire fraud conspiracy in connection with a mortgage fraud scheme.

Gray, age 24, pleaded guilty to one count before United States District Judge Joy Flowers Conti.

In connection with the guilty plea, Assistant United States Attorney Brendan T. Conway advised the court that Gray was a licensed appraiser. She participated in a conspiracy with an individual associated with the mortgage broker company First Capital Home Equity in which First Capital Home Equity submitted appraisals to lending institutions representing that Gray had actually done the appraisals, when, in fact, she neither prepared nor reviewed the appraisals. In exchange, First Capital Home Equity paid Gray $4,000 per month.

Judge Conti scheduled sentencing for July 23, 2010. The law provides for a total sentence of 20 years in prison, a fine of $250,000, or both. Under the Federal Sentencing Guidelines, the actual sentence imposed is based upon the seriousness of the offense and the criminal history, if any, of the defendant.

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

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

Posted By: Ralph Roberts @ 10:24 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Mortgage Fraud Task Force,Wire Fraud

January 31, 2011

Nine Sentenced in Alaska’s Largest Mortgage Fraud Investigation

ANCHORAGE, AK—United States Attorney Karen L. Loeffler announced that on August 21, 2009, lead defendant Lance Lockard was sentenced to 70 months in prison for his leadership of a large-scale mortgage fraud scheme.

Lockard was the ninth and last defendant to be sentenced for his role in the largest mortgage fraud investigation in Alaska’s history. In total, nine individuals and one corporate defendant were convicted and sentenced for their roles in a widespread, three-year long scheme to defraud some 13 mortgage lenders and banks in 57 different loan transactions netting over $1,700,000 in profits and over $2.5 million in losses to the financial institutions. United States District Court Judge Ralph Beistline, who presided over the case, sentenced the nine defendants to a total of 14 and ½ years of imprisonment, and imposed fines of over $90,000 and restitution of over $2.5 million dollars.

The defendants convicted as a result of the scheme are: Lance Lockard, of Anchorage, age 34, Gary Paterna, of Anchorage, age 62, Charles Carlson, of Anchorage, age 74, Holli Stroud, of Chugiak, age 30, Jonathan Ruf, of Anchorage, age 33, Keith Facer, of Anchorage, age 41, Don Murray, of Anchorage, age 35, Cerise Sanders, of Anchorage, age 31, and Alaska State Mortgage Company, Inc., of Anchorage.

Lockard, a licensed real estate investor and the lead defendant pled to 64 counts and was sentenced to 70 months and ordered to pay 2.5 million in restitution. Lockard also admitted the forfeiture allegation in an additional count, forfeiting his interest in $116,000 held in an investment account under his name. Charles Carlson, a licensed real estate appraiser, was sentenced on July 11, 2009, to 24 months and to pay restitution of $2,360,185. Holli Stroud, a title company loan closer, was sentenced on June 25, 2009, to 18 months and to pay restitution of $403,733.60. Keith Facer, a licensed real estate agent, was sentenced on May 29, 2009, to 16 months and to pay restitution of $221,065.24. Don Murray, a licensed real estate agent, was sentenced on May 19, 2009, to 21 months and pay restitution of $493,868.77. Cerise Sanders, a loan originator, was sentenced on May 19, 2009, to 12 months and one day. Jonathan Ruf, was sentenced on May 28, 2009, to 12 months and one day and to pay restitution of $1,066.390. Gary Paterna. Mr. Lockard’s father-in-law, was sentenced on May 18, 2009, to three days in jail and pay restitution of $1,162,884.86. Alaska State Mortgage, a local mortgage company, was sentenced on May 13, 2009, to a fine of $91,478.53. The defendants pled to a total of 64 counts charging conspiracy, wire fraud, bank fraud, and false statements to a financial institution.

The pleas and sentencing bring to a close the largest mortgage fraud scheme ever prosecuted in the District of Alaska. The fraud was perpetrated by professionals in all areas of the real estate industry. Between on or about December 23, 2003, and May 31, 2006, Lockard and his co-defendants arranged to purchase and sell real estate in Alaska, and to obtain mortgage loans for the purchase and sale of that real estate, through a series of fraudlent schemes that relied upon false and fraudulent statements, inflated appraisals, falsified down payments, nominee borrowers and purchasers, hidden cash-back payments and other improper practices that concealed the true details of the financial transactions from the mortgage lenders involved. The effect and result of this conduct was to transfer the investment risk from Lockard and the other co-conspirators to the mortgage lenders and to provide inflated profit and fraudulently obtained loan funds to Lockard and the other co-conspirators. The charges in the indictment to which the defendants pled guilty outlined a total of five separate schemes, involving properties in numerous Anchorage subdivisions, and two large undeveloped properties in the Talkeetna area.

According to the indictment, in the first scheme, Lockard, Paterna, his father-in-law, Carlson, the appraiser and Stroud, the loan closer, arranged for fraudulent loan documentation on the purchase of 10 properties. The indictment alleges that Lockard arranged for the simultaneous purchase and sale of the properties using Paterna as a nominee purchaser and that Carlson inflated the appraisals of the properties with Stroud falsifying the closing documents to conceal the fact that no down payments had been made.

The second scheme in the indictment charges that Lockard and Ruf with the aid of Carlson, Stroud and Cerise Sanders, and Alaska State Mortgage Company as loan originators arranged for Ruf, acting as a nominee for Lockard, to purchase13 separate properties on the same day, with all purchases fraudulently listed as purchases of his primary residence by Sanders and McCready acting for Alaska State Mortgage. According to the indictment, Carlson and Stroud, as in scheme one, inflated the appraisals and falsified loan closing paperwork. The indictment further alleges that the defendants, acting on behalf of Lockard sold the properties obtained through the fraudulent loans listed in schemes one and two to third-party buyers using further inflated appraisals provided by Carlson and illegal cash-back payments to the buyers aided by real estate agents Keith Facer and Don Murray to induce them to purchase the overpriced properties.

The indictment further alleges that Lockard, Stroud, Carlson, Ruf and Paterna engaged in similar fraud involving two other property purchases. It charges that Stroud and Lockard with the aid of an inflated appraisal provided by Carlson, arranged for Stroud to purchase a property with a falsified down payment. It further charges that Lockard, Paterna, Carlson, Stroud and Ruf again used nominees and falsified loan paperwork in a purchase financed by FNBA. Finally, the indictment alleges that Lockard engaged in a “bust out” scheme by purchasing properties with the aid of Paterna, Ruf and Carlson, at inflated prices with the purpose of taking the loan proceeds and defaulting immediately on the loans.

At Friday’s sentencing hearing, Judge Beistline concluded that Lockard was an organizer and leader of the criminal activity, that he had fraudeulently obtained more than $1 million in gross proceeds from the First National Bank of Alaska, and that his crimes caused total losses of approximately $2.5 million dollars. Judge Beistline commented that Mr. Lockard’s crimes were motivated by greed and had an impact on our community. In addition to the financial institutions that were defrauded, one of the individual victims testified at setencing about his personal financial losses, and his struggles to pay the mortgages on three duplexes he had unwittingly purchased for grossly inflated prices. Judge Besitline admonished that there was “no excuse for lying and deception, and no excuse for breaking the law,” and that Mr. Lockard was going to have to “face the consequences of the very poor choices he made.”

United States Attorney Karen L. Loeffler noted that these convictions and sentences point out the vast harm that can be done to an industry and the public when a handful of dishonest individuals are willing to falsify the documents and information on which the mortgage market relies.

Ms. Loeffler also commended the diligent and extensive investigation by special agents of the Federal Bureau of Investigation for their investigation that lead to this result.

Posted By: Ralph Roberts @ 1:16 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Bank Fraud,Loan Fraud,Mortgage Fraud,Mortgage Fraud Summit,Real Estate Fraud

January 8, 2011

Rhode Island Man Admits Involvement in Mortgage Fraud Scheme

David B. Fein, United States Attorney for the District of Connecticut, announced that NATHAN RUSSO, 34, of Johnston, Rhode Island, pled guilty today before Chief United States District Judge Alvin W. Thompson in Hartford to one count of conspiracy to commit wire fraud stemming from his participation in a mortgage fraud conspiracy.

According to court documents and statements made in court, RUSSO and others engaged in a scheme 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.

RUSSO was a mortgage broker employed by Action Mortgage Corp., a licensed mortgage broker in Cranston, Rhode Island. In pleading guilty, RUSSO admitted that he acted as a mortgage broker for five residential property sales that closed in between April and September 2007. All but one of these properties were in Connecticut. RUSSO prepared loan packages for these transactions, including loan applications for the buyer, which he knew to include false information about the buyer’s employment, assets and liabilities and the buyer’s intention to occupy the property as his principal residence. The loan applications also were supported by false documentation, including earning statements and fraudulent bank records.

Judge Thompson has scheduled sentencing for April 4, 2011, at which time RUSSO faces a maximum term of imprisonment of five years and a fine of up to $250,000.

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.

Posted By: Ralph Roberts @ 1:42 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Loan Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Mortgage Loan Fraud,Real Estate Fraud,Wire Fraud

December 30, 2010

Schenectady Man Sentenced to 27 Months in Prison for Role in Mortgage Fraud Scheme

Richard S. Hartunian, United States Attorney for the Northern District of New York, Rene Febles, Special Agent in Charge of the Office of Inspector General, U.S. Department of Housing and Urban Development in New York, John F. Pikus, Special Agent in Charge of the Albany Division of the Federal Bureau of Investigation, and Lt. John D. Durling of the New York State Police Special Investigations Unit announced that Michael Cassadei was sentenced today by Senior United States District Judge Thomas J. McAvoy in Albany to twenty-seven (27) months in prison, to be followed by three years’ supervised release, for his role as organizer of a local mortgage fraud scheme. Cassadei also was ordered to make full restitution, due immediately, in the total amount of $135,148.45.

Cassadei, age 54, of Schenectady, owned, operated and/or did business in the name of, or using a number of entities, including AAA Allstate Appraisal Services. He pled guilty on February 17, 2010, at which time he admitted that, through the use of fraudulent loan applications, settlement statements, appraisals and other false statements and documents, he and the other participants in the scheme were able to fraudulently cause First Union National Bank of Delaware to finance the sale of Capital Region residential properties in amounts well in excess of their actual value, and that he and other participants then used the proceeds of the loans to purchase the properties in much lower amounts and retained the bulk of the funds. In furtherance of this scheme, Cassadei and the other participants coordinated two closings on the properties – in the first, the financial institution wired proceeds for the purchase of the properties for an amount substantially in excess of their true values. The mortgage amounts were inflated by, among other things, false seller-second mortgages and cash down payments or other payments or credits for the end buyers that did not, in truth and fact, exist. After paying the costs and fees associated with the initial closing, Cassadei then caused the remaining proceeds to be transferred to him or others acting under his direction. Thereafter, the deeds were recorded in reverse chronological order from that in which the sales actually occurred in order to create the appearance that the prior owners of the properties had conveyed them to the defendant and/or his nominees before sale to the end buyers, whereas the opposite was, in fact, what happened. As a result, the defendant was able to cause the bank, without its knowledge, to fund the purchase of the properties with the proceeds from their prior sale, with the bulk of the remaining funds going to the defendant or others at his direction.

United States Attorney Hartunian observed that “it is important that those who engage in mortgage fraud understand that they face significant penalties, and that such fraudulent schemes will be pursued aggressively in this District.”

The investigation in this matter was conducted by the Office of the Inspector General of the United States Department of Housing and Urban Development, the Albany Division of the Federal Bureau of Investigation, the New York State Police Special Investigations Unit, with the assistance of the Internal Revenue Service, Criminal Investigation Division, the United States Postal Inspection Service, and the New York State Banking Commission. It is being prosecuted by the United States Attorney’s Office for the Northern District of New York.

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Filed under: Appraisal Fraud,Bank Fraud,Financial Fraud,Loan Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Mortgage Loan Fraud

December 20, 2010

10 individuals with various offenses related to their alleged participation in a mortgage fraud conspiracy

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.

Posted By: Ralph Roberts @ 1:08 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Loan Fraud,Mortgage Fraud,Mortgage Fraud Scheme,Real Estate Fraud,Straw Purchaser

December 17, 2010

Mortgage Fraud Taking a Bite Out of $2.37 Trillion Dollar Real Estate Market

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:

*
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.
*
Nominee loans/Straw buyers: the identity of the borrower is concealed by using the name and credit history of a willing accomplice.
*
Fake/Stolen identity: stolen identities—along with credit histories—are used on a loan application.
*
Inflated appraisals: an appraiser agrees to inflate the property of the house.
*
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.

Posted By: Ralph Roberts @ 9:37 am | | Comments Off | Trackback |
Filed under: Appraisal Fraud,Equity Skimming,Mortgage Fraud,Mortgage Fraud Scheme,Property Flipping Scheme,Straw Buyer

October 14, 2010

Nine Sentenced in Alaska’s Largest Mortgage Fraud Investigation

ANCHORAGE, AK—United States Attorney Karen L. Loeffler announced that on August 21, 2009, lead defendant Lance Lockard was sentenced to 70 months in prison for his leadership of a large-scale mortgage fraud scheme.
Lockard was the ninth and last defendant to be sentenced for his role in the largest mortgage fraud investigation in Alaska’s history. In total, nine individuals and one corporate defendant were convicted and sentenced for their roles in a widespread, three-year long scheme to defraud some 13 mortgage lenders and banks in 57 different loan transactions netting over $1,700,000 in profits and over $2.5 million in losses to the financial institutions. United States District Court Judge Ralph Beistline, who presided over the case, sentenced the nine defendants to a total of 14 and ½ years of imprisonment, and imposed fines of over $90,000 and restitution of over $2.5 million dollars.
The defendants convicted as a result of the scheme are: Lance Lockard, of Anchorage, age 34, Gary Paterna, of Anchorage, age 62, Charles Carlson, of Anchorage, age 74, Holli Stroud, of Chugiak, age 30, Jonathan Ruf, of Anchorage, age 33, Keith Facer, of Anchorage, age 41, Don Murray, of Anchorage, age 35, Cerise Sanders, of Anchorage, age 31, and Alaska State Mortgage Company, Inc., of Anchorage.
Lockard, a licensed real estate investor and the lead defendant pled to 64 counts and was sentenced to 70 months and ordered to pay 2.5 million in restitution. Lockard also admitted the forfeiture allegation in an additional count, forfeiting his interest in $116,000 held in an investment account under his name. Charles Carlson, a licensed real estate appraiser, was sentenced on July 11, 2009, to 24 months and to pay restitution of $2,360,185. Holli Stroud, a title company loan closer, was sentenced on June 25, 2009, to 18 months and to pay restitution of $403,733.60. Keith Facer, a licensed real estate agent, was sentenced on May 29, 2009, to 16 months and to pay restitution of $221,065.24. Don Murray, a licensed real estate agent, was sentenced on May 19, 2009, to 21 months and pay restitution of $493,868.77. Cerise Sanders, a loan originator, was sentenced on May 19, 2009, to 12 months and one day. Jonathan Ruf, was sentenced on May 28, 2009, to 12 months and one day and to pay restitution of $1,066.390. Gary Paterna. Mr. Lockard’s father-in-law, was sentenced on May 18, 2009, to three days in jail and pay restitution of $1,162,884.86. Alaska State Mortgage, a local mortgage company, was sentenced on May 13, 2009, to a fine of $91,478.53. The defendants pled to a total of 64 counts charging conspiracy, wire fraud, bank fraud, and false statements to a financial institution.
The pleas and sentencing bring to a close the largest mortgage fraud scheme ever prosecuted in the District of Alaska. The fraud was perpetrated by professionals in all areas of the real estate industry. Between on or about December 23, 2003, and May 31, 2006, Lockard and his co-defendants arranged to purchase and sell real estate in Alaska, and to obtain mortgage loans for the purchase and sale of that real estate, through a series of fraudlent schemes that relied upon false and fraudulent statements, inflated appraisals, falsified down payments, nominee borrowers and purchasers, hidden cash-back payments and other improper practices that concealed the true details of the financial transactions from the mortgage lenders involved. The effect and result of this conduct was to transfer the investment risk from Lockard and the other co-conspirators to the mortgage lenders and to provide inflated profit and fraudulently obtained loan funds to Lockard and the other co-conspirators. The charges in the indictment to which the defendants pled guilty outlined a total of five separate schemes, involving properties in numerous Anchorage subdivisions, and two large undeveloped properties in the Talkeetna area.
According to the indictment, in the first scheme, Lockard, Paterna, his father-in-law, Carlson, the appraiser and Stroud, the loan closer, arranged for fraudulent loan documentation on the purchase of 10 properties. The indictment alleges that Lockard arranged for the simultaneous purchase and sale of the properties using Paterna as a nominee purchaser and that Carlson inflated the appraisals of the properties with Stroud falsifying the closing documents to conceal the fact that no down payments had been made.
The second scheme in the indictment charges that Lockard and Ruf with the aid of Carlson, Stroud and Cerise Sanders, and Alaska State Mortgage Company as loan originators arranged for Ruf, acting as a nominee for Lockard, to purchase13 separate properties on the same day, with all purchases fraudulently listed as purchases of his primary residence by Sanders and McCready acting for Alaska State Mortgage. According to the indictment, Carlson and Stroud, as in scheme one, inflated the appraisals and falsified loan closing paperwork. The indictment further alleges that the defendants, acting on behalf of Lockard sold the properties obtained through the fraudulent loans listed in schemes one and two to third-party buyers using further inflated appraisals provided by Carlson and illegal cash-back payments to the buyers aided by real estate agents Keith Facer and Don Murray to induce them to purchase the overpriced properties.
The indictment further alleges that Lockard, Stroud, Carlson, Ruf and Paterna engaged in similar fraud involving two other property purchases. It charges that Stroud and Lockard with the aid of an inflated appraisal provided by Carlson, arranged for Stroud to purchase a property with a falsified down payment. It further charges that Lockard, Paterna, Carlson, Stroud and Ruf again used nominees and falsified loan paperwork in a purchase financed by FNBA. Finally, the indictment alleges that Lockard engaged in a “bust out” scheme by purchasing properties with the aid of Paterna, Ruf and Carlson, at inflated prices with the purpose of taking the loan proceeds and defaulting immediately on the loans.
At Friday’s sentencing hearing, Judge Beistline concluded that Lockard was an organizer and leader of the criminal activity, that he had fraudeulently obtained more than $1 million in gross proceeds from the First National Bank of Alaska, and that his crimes caused total losses of approximately $2.5 million dollars. Judge Beistline commented that Mr. Lockard’s crimes were motivated by greed and had an impact on our community. In addition to the financial institutions that were defrauded, one of the individual victims testified at setencing about his personal financial losses, and his struggles to pay the mortgages on three duplexes he had unwittingly purchased for grossly inflated prices. Judge Besitline admonished that there was “no excuse for lying and deception, and no excuse for breaking the law,” and that Mr. Lockard was going to have to “face the consequences of the very poor choices he made.”
United States Attorney Karen L. Loeffler noted that these convictions and sentences point out the vast harm that can be done to an industry and the public when a handful of dishonest individuals are willing to falsify the documents and information on which the mortgage market relies.
Ms. Loeffler also commended the diligent and extensive investigation by special agents of the Federal Bureau of Investigation for their investigation that lead to this result.

Posted By: Ralph Roberts @ 12:09 am | | Comments Off | Trackback |
Filed under: Alaska,Alaska State Mortgage,Appraisal Fraud,Appraisals,Mortgage Fraud,Mortgage Fraud Scheme

October 13, 2010

FBI investigates and tips to help prevent you from being victimized

Redemption / Strawman / Bond Fraud

Proponents of this scheme claim that the U.S. government or the Treasury Department control bank accounts—often referred to as “U.S. Treasury Direct Accounts”—for all U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and websites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes. Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times.

This scheme predominately uses fraudulent financial documents that appear to be legitimate. These documents are frequently referred to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful. Notaries may be used in an attempt to make the fraud appear legitimate. Often, victims of the scheme are instructed to address their paperwork to the U.S. Secretary of the Treasury.

Tips for Avoiding Redemption/Strawman/Bond Fraud:

* Be wary of individuals or groups selling kits that they claim will inform you on to access secret bank accounts.
* Be wary of individuals or groups proclaiming that paying federal and/or state income tax is not necessary.
* Do not believe that the U.S. Treasury controls bank accounts for all citizens.
* Be skeptical of individuals advocating that speeding tickets, summons, bills, tax notifications, or similar documents can be resolved by writing “acceptance for value” on them.
* If you know of anyone advocating the use of property liens to coerce acceptance of this scheme, contact your local FBI office.

Advance Fee Schemes

An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value—such as a loan, contract, investment, or gift—and then receives little or nothing in return.

The variety of advance fee schemes is limited only by the imagination of the con artists who offer them. They may involve the sale of products or services, the offering of investments, lottery winnings, “found money,” or many other “opportunities.” Clever con artists will offer to find financing arrangements for their clients who pay a “finder’s fee” in advance. They require their clients to sign contracts in which they agree to pay the fee when they are introduced to the financing source. Victims often learn that they are ineligible for financing only after they have paid the “finder” according to the contract. Such agreements may be legal unless it can be shown that the “finder” never had the intention or the ability to provide financing for the victims.

Tips for Avoiding Advanced Fee Schemes:

If the offer of an “opportunity” appears too good to be true, it probably is. Follow common business practice. For example, legitimate business is rarely conducted in cash on a street corner.

* Know who you are dealing with. If you have not heard of a person or company that you intend to do business with, learn more about them. Depending on the amount of money that you plan on spending, you may want to visit the business location, check with the Better Business Bureau, or consult with your bank, an attorney, or the police.
* Make sure you fully understand any business agreement that you enter into. If the terms are complex, have them reviewed by a competent attorney.
* Be wary of businesses that operate out of post office boxes or mail drops and do not have a street address. Also be suspicious when dealing with persons who do not have a direct telephone line and who are never in when you call, but always return your call later.
* Be wary of business deals that require you to sign nondisclosure or non-circumvention agreements that are designed to prevent you from independently verifying the bona fides of the people with whom you intend to do business. Con artists often use non-circumvention agreements to threaten their victims with civil suit if they report their losses to law enforcement.

For more information:
– Work-at-Home Advance Fee Scheme
– Cancer Research Advance Fee Scheme

Identity Theft

Identity theft occurs when someone assumes your identity to perform a fraud or other criminal act. Criminals can get the information they need to assume your identity from a variety of sources, including by stealing your wallet, rifling through your trash, or by compromising your credit or bank information. They may approach you in person, by telephone, or on the Internet and ask you for the information.

The sources of information about you are so numerous that you cannot prevent the theft of your identity. But you can minimize your risk of loss by following a few simple hints.

Tips for Avoiding Identity Theft:

* Never throw away ATM receipts, credit statements, credit cards, or bank statements in a usable form.
* Never give your credit card number over the telephone unless you make the call.
* Reconcile your bank account monthly, and notify your bank of discrepancies immediately.
* Keep a list of telephone numbers to call to report the loss or theft of your wallet, credit cards, etc.
* Report unauthorized financial transactions to your bank, credit card company, and the police as soon as you detect them.
* Review a copy of your credit report at least once each year. Notify the credit bureau in writing of any questionable entries and follow through until they are explained or removed.
* If your identity has been assumed, ask the credit bureau to print a statement to that effect in your credit report.
* If you know of anyone who receives mail from credit card companies or banks in the names of others, report it to local or federal law enforcement authorities.

Investment-Related Scams

Letter of Credit Fraud

Legitimate letters of credit are never sold or offered as investments. They are issued by banks to ensure payment for goods shipped in connection with international trade. Payment on a letter of credit generally requires that the paying bank receive documentation certifying that the goods ordered have been shipped and are en route to their intended destination. Letters of credit frauds are often attempted against banks by providing false documentation to show that goods were shipped when, in fact, no goods or inferior goods were shipped.

Other letter of credit frauds occur when con artists offer a “letter of credit” or “bank guarantee” as an investment wherein the investor is promised huge interest rates on the order of 100 to 300 percent annually. Such investment “opportunities” simply do not exist. (See Prime Bank Notes for additional information.)

Tips for Avoiding Letter of Credit Fraud:

* If an “opportunity” appears too good to be true, it probably is.
* Do not invest in anything unless you understand the deal. Con artists rely on complex transactions and faulty logic to “explain” fraudulent investment schemes.
* Do not invest or attempt to “purchase” a “letter of credit.” Such investments simply do not exist.
* Be wary of any investment that offers the promise of extremely high yields.
* Independently verify the terms of any investment that you intend to make, including the parties involved and the nature of the investment.

Prime Bank Note Fraud

International fraud artists have invented an investment scheme that supposedly offers extremely high yields in a relatively short period of time. In this scheme, they claim to have access to “bank guarantees” that they can buy at a discount and sell at a premium. By reselling the “bank guarantees” several times, they claim to be able to produce exceptional returns on investment. For example, if $10 million worth of “bank guarantees” can be sold at a two percent profit on 10 separate occasions—or “traunches”—the seller would receive a 20 percent profit. Such a scheme is often referred to as a “roll program.”

To make their schemes more enticing, con artists often refer to the “guarantees” as being issued by the world’s “prime banks,” hence the term “prime bank guarantees.” Other official sounding terms are also used, such as “prime bank notes” and “prime bank debentures.” Legal documents associated with such schemes often require the victim to enter into non-disclosure and non-circumvention agreements, offer returns on investment in “a year and a day”, and claim to use forms required by the International Chamber of Commerce (ICC). In fact, the ICC has issued a warning to all potential investors that no such investments exist.

The purpose of these frauds is generally to encourage the victim to send money to a foreign bank, where it is eventually transferred to an off-shore account in the control of the con artist. From there, the victim’s money is used for the perpetrator’s personal expenses or is laundered in an effort to make it disappear.

While foreign banks use instruments called “bank guarantees” in the same manner that U.S. banks use letters of credit to insure payment for goods in international trade, such bank guarantees are never traded or sold on any kind of market.

Tips for Avoiding Prime Bank Note Fraud:

* Think before you invest in anything. Be wary of an investment in any scheme, referred to as a “roll program,” that offers unusually high yields by buying and selling anything issued by “prime banks.”
* As with any investment, perform due diligence. Independently verify the identity of the people involved, the veracity of the deal, and the existence of the security in which you plan to invest.
* Be wary of business deals that require non-disclosure or non-circumvention agreements that are designed to prevent you from independently verifying information about the investment.

“Ponzi’ Schemes

“Ponzi” schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artist pays “dividends” to initial investors using the funds of subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”

This type of fraud is named after its creator—Charles Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme that guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial backers, the scheme dissolved when he was unable to pay later investors.

Tips for Avoiding Ponzi Schemes:

* Be careful of any investment opportunity that makes exaggerated earnings claims.
* Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework.
* Consult an unbiased third party—like an unconnected broker or licensed financial advisor—before investing.

For more information:
– Bernie Madoff Case
– Stanford Case
– Wholesale Grocery Distribution Ponzi Scheme
– ATM Ponzi Scheme
– Victims Turn Tables with Ponzi Scheme

Pyramid Schemes

As in Ponzi schemes, the money collected from newer victims of the fraud is paid to earlier victims to provide a veneer of legitimacy. In pyramid schemes, however, the victims themselves are induced to recruit further victims through the payment of recruitment commissions.

More specifically, pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses. At the heart of each pyramid scheme is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment. Promoters fail to tell prospective participants that this is mathematically impossible for everyone to do, since some participants drop out, while others recoup their original investments and then drop out.

Tips for Avoiding Pyramid Schemes:

* Be wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.
* Independently verify the legitimacy of any franchise or investment before you invest.

Market Manipulation or “Pump and Dump” Fraud

This scheme—commonly referred to as a “pump and dump”—creates artificial buying pressure for a targeted security, generally a low-trading volume issuer in the over-the-counter securities market largely controlled by the fraud perpetrators. This artificially increased trading volume has the effect of artificially increasing the price of the targeted security (i.e., the “pump”), which is rapidly sold off into the inflated market for the security by the fraud perpetrators (i.e., the “dump”); resulting in illicit gains to the perpetrators and losses to innocent third party investors. Typically, the increased trading volume is generated by inducing unwitting investors to purchase shares of the targeted security through false or deceptive sales practices and/or public information releases.

A modern variation on this scheme involves largely foreign-based computer criminals gaining unauthorized access to the online brokerage accounts of unsuspecting victims in the United States. These victim accounts are then utilized to engage in coordinated online purchases of the targeted security to affect the pump portion of a manipulation, while the fraud perpetrators sell their pre-existing holdings in the targeted security into the inflated market to complete the dump.

Tips for Avoiding Market Manipulation Fraud:

* Don’t believe the hype.
* Find out where the stock trades.
* Independently verify claims.
* Research the opportunity.
* Beware of high-pressure pitches.
* Always be skeptical.

For more information:
– Operation Shore Shells investigation

Telemarketing Fraud

When you send money to people you do not know personally or give personal or financial information to unknown callers, you increase your chances of becoming a victim of telemarketing fraud.

Here are some warning signs of telemarketing fraud—what a caller may tell you:

* “You must act ‘now’ or the offer won’t be good.”
* “You’ve won a ‘free’ gift, vacation, or prize.” But you have to pay for “postage and handling” or other charges.
* “You must send money, give a credit card or bank account number, or have a check picked up by courier.” You may hear this before you have had a chance to consider the offer carefully.
* “You don’t need to check out the company with anyone.” The callers say you do not need to speak to anyone including your family, lawyer, accountant, local Better Business Bureau, or consumer protection agency.
* “You don’t need any written information about their company or their references.”
* “You can’t afford to miss this ‘high-profit, no-risk’ offer.”

If you hear these or similar “lines” from a telephone salesperson, just say “no thank you” and hang up the telephone.

Tips for Avoiding Telemarketing Fraud:

It’s very difficult to get your money back if you’ve been cheated over the telephone. Before you buy anything by telephone, remember:

* Don’t buy from an unfamiliar company. Legitimate businesses understand that you want more information about their company and are happy to comply.
* Always ask for and wait until you receive written material about any offer or charity. If you get brochures about costly investments, ask someone whose financial advice you trust to review them. But, unfortunately, beware—not everything written down is true.
* Always check out unfamiliar companies with your local consumer protection agency, Better Business Bureau, state attorney general, the National Fraud Information Center, or other watchdog groups. Unfortunately, not all bad businesses can be identified through these organizations.
* Obtain a salesperson’s name, business identity, telephone number, street address, mailing address, and business license number before you transact business. Some con artists give out false names, telephone numbers, addresses, and business license numbers. Verify the accuracy of these items.
* Before you give money to a charity or make an investment, find out what percentage of the money is paid in commissions and what percentage actually goes to the charity or investment.
* Before you send money, ask yourself a simple question. “What guarantee do I really have that this solicitor will use my money in the manner we agreed upon?”
* Don’t pay in advance for services. Pay services only after they are delivered.
* Be wary of companies that want to send a messenger to your home to pick up money, claiming it is part of their service to you. In reality, they are taking your money without leaving any trace of who they are or where they can be reached.
* Always take your time making a decision. Legitimate companies won’t pressure you to make a snap decision.
* Don’t pay for a “free prize.” If a caller tells you the payment is for taxes, he or she is violating federal law.
* Before you receive your next sales pitch, decide what your limits are—the kinds of financial information you will and won’t give out on the telephone.
* Be sure to talk over big investments offered by telephone salespeople with a trusted friend, family member, or financial advisor. It’s never rude to wait and think about an offer.
* Never respond to an offer you don’t understand thoroughly.
* Never send money or give out personal information such as credit card numbers and expiration dates, bank account numbers, dates of birth, or social security numbers to unfamiliar companies or unknown persons.
* Be aware that your personal information is often brokered to telemarketers through third parties.
* If you have been victimized once, be wary of persons who call offering to help you recover your losses for a fee paid in advance.
* If you have information about a fraud, report it to state, local, or federal law enforcement agencies.

For More information:
– Telemarketing Fraud Targeting Seniors

Nigerian Letter or “419” Fraud

Nigerian letter frauds combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter mailed from Nigeria offers the recipient the “opportunity” to share in a percentage of millions of dollars that the author—a self-proclaimed government official—is trying to transfer illegally out of Nigeria. The recipient is encouraged to send information to the author, such as blank letterhead stationery, bank name and account numbers, and other identifying information using a fax number provided in the letter. Some of these letters have also been received via e-mail through the Internet. The scheme relies on convincing a willing victim, who has demonstrated a “propensity for larceny” by responding to the invitation, to send money to the author of the letter in Nigeria in several installments of increasing amounts for a variety of reasons.

Payment of taxes, bribes to government officials, and legal fees are often described in great detail with the promise that all expenses will be reimbursed as soon as the funds are spirited out of Nigeria. In actuality, the millions of dollars do not exist, and the victim eventually ends up with nothing but loss. Once the victim stops sending money, the perpetrators have been known to use the personal information and checks that they received to impersonate the victim, draining bank accounts and credit card balances. While such an invitation impresses most law-abiding citizens as a laughable hoax, millions of dollars in losses are caused by these schemes annually. Some victims have been lured to Nigeria, where they have been imprisoned against their will along with losing large sums of money. The Nigerian government is not sympathetic to victims of these schemes, since the victim actually conspires to remove funds from Nigeria in a manner that is contrary to Nigerian law. The schemes themselves violate section 419 of the Nigerian criminal code, hence the label “419 fraud.”

Tips for Avoiding Nigerian Letter or “419” Fraud:

* If you receive a letter from Nigeria asking you to send personal or banking information, do not reply in any manner. Send the letter to the U.S. Secret Service, your local FBI office, or the U.S. Postal Inspection Service. You can also register a complaint with the Federal Trade Commission’s Complaint Assistant.
* If you know someone who is corresponding in one of these schemes, encourage that person to contact the FBI or the U.S. Secret Service as soon as possible.
* Be skeptical of individuals representing themselves as Nigerian or foreign government officials asking for your help in placing large sums of money in overseas bank accounts.
* Do not believe the promise of large sums of money for your cooperation.
* Guard your account information carefully.

For More information:
– Related Online Rental Ads Scheme
– Related Spanish Lottery Scam

Health Care Fraud or Health Insurance Fraud

Medical Equipment Fraud:

Equipment manufacturers offer “free” products to individuals. Insurers are then charged for products that were not needed and/or may not have been delivered.

“Rolling Lab” Schemes:

Unnecessary and sometimes fake tests are given to individuals at health clubs, retirement homes, or shopping malls and billed to insurance companies or Medicare.

Services Not Performed:

Customers or providers bill insurers for services never rendered by changing bills or submitting fake ones.

Medicare Fraud:

Medicare fraud can take the form of any of the health insurance frauds described above. Senior citizens are frequent targets of Medicare schemes, especially by medical equipment manufacturers who offer seniors free medical products in exchange for their Medicare numbers. Because a physician has to sign a form certifying that equipment or testing is needed before Medicare pays for it, con artists fake signatures or bribe corrupt doctors to sign the forms. Once a signature is in place, the manufacturers bill Medicare for merchandise or service that was not needed or was not ordered.

Tips for Avoiding Health Care Fraud or Health Insurance Fraud:

* Never sign blank insurance claim forms.
* Never give blanket authorization to a medical provider to bill for services rendered.
* Ask your medical providers what they will charge and what you will be expected to pay out-of-pocket.
* Carefully review your insurer’s explanation of the benefits statement. Call your insurer and provider if you have questions.
* Do not do business with door-to-door or telephone salespeople who tell you that services of medical equipment are free.
* Give your insurance/Medicare identification only to those who have provided you with medical services.
* Keep accurate records of all health care appointments.
* Know if your physician ordered equipment for you.

For more information:
– Heath Care Fraud webpage

October 12, 2010

38 People Indicted by Federal Grand Juries in Arizona This Month

PHOENIX, AZ—United States Attorney Dennis K. Burke joined members of the Arizona Financial Fraud Task Force to announce multiple indictments charging 38 people—among them loan officers, escrow officers, real estate appraisers and agents, and “straw buyers”—in various mortgage fraud schemes, including “cash back” and loan origination scams.

The announcement of the indictments in Arizona followed a press conference in Washington, D.C., where Attorney General Eric Holder announced the results of a nationwide coordinated takedown of mortgage fraudsters, the largest collective enforcement effort ever brought to bear in confronting mortgage fraud. The sweep was organized by President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Starting on March 1, to date Operation Stolen Dreams has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, to date the operation has resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million.

“Mortgage fraud ruins lives, destroys families and devastates whole communities, so attacking the problem from every possible direction is vital,” said Attorney General Holder. “We will use every tool available to investigate, prosecute, and prevent mortgage fraud, and we will not rest until anyone preying on vulnerable American homeowners is brought to justice.”

“These are the most indictments ever in one month for mortgage fraud,” said U.S. Attorney Dennis K. Burke. “It reflects both how pervasive the problem is and how committed we are to investigate, prosecute and convict these scam artists. We have heard many of the stories from the community about how mortgage fraud has affected their lives by undermining the housing industry. Now we are aggressively targeting ‘foreclosure rescue,’ reverse mortgage, and other scams designed to profit from the misery of people desperate to remain in their homes.”

U.S. Attorney Burke also announced the launch of an initiative to educate consumers about the risks of mortgage fraud and other scams. “We want to give the tools to people so they can prevent these disasters before they begin,” he said. To request a presentation on fraud from the U.S. Attorney’s Office, send an e-mail to usaaz.community@usdoj.gov or call 602-514-7629.

Special Agent in Charge Nathan Gray, FBI Phoenix Division, stated “The FBI’s Mortgage Fraud Task Force as a part of the Arizona Financial Fraud Task Force has continued to address mortgage fraud matters since 2008. Operation Stolen Dreams represents a second successful wave of indictments for the task force targeting individuals committing fraud in the housing market. The FBI and our law enforcement partners are committed to working with local, state, and federal prosecutors in combating mortgage fraud.”

In Arizona since the beginning of March 2010, Operation Stolen Dreams has resulted in 51 defendants indicted, convicted or sentenced. In addition to the 38 indicted this month, 13 others have been convicted and sentenced. In March, the U.S. Attorney’s obtained a 17-year prison sentence against Mario Bernadel for mortgage fraud. Bernadel, a Haitian citizen, caused nearly $9 million in losses to the banks, and caused the foreclosure of 36 properties. Also in March, Jeffrey Crandell, a loan officer, was sentenced to five years in prison, and ordered to pay over $1.4 million in restitution, and a co-defendant, escrow officer Erin Michelle Leastman, was ordered to pay $2.4 million. In May, April Lucero, a loan officer, was sentenced to two years in prison.

“The last number of years have seen enormous and damaging developments in the mortgage and housing markets with an urgent reliance on the government to bolster unstable marketplaces and devastated communities, said Kenneth M. Donohue, Inspector General of the Department of Housing and Urban Development. “The HUD OIG, in partnership with other federal agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”

Unlike previous mortgage fraud sweeps, Operation Stolen Dreams focused not only on federal criminal cases, but also on civil enforcement, restitution for victims and increasing cooperation with state and local partners.

“The financial impact on Arizona as a result of these schemes has been severe, which is demonstrated by buyers driven into foreclosure, lenders burdened with bad loans, neighborhoods with abandoned and deteriorating properties, and as with all financial crimes, a significant loss in tax revenue,” said IRS-CI Special Agent in Charge Dawn Mertz. “IRS Criminal Investigation is committed to pursuing those individuals who commit financial fraud.

“Home ownership has been a part of the American dream for decades. Industry insiders and opportunists who commit mortgage fraud erode the infrastructure so that dream becomes less attainable for some,” said Pete Zegarac, Phoenix Division Inspector in Charge of the U.S. Postal Inspection Service. “Operation Stolen Dreams highlights the efforts of law enforcement to bring to justice those who sought to defraud desperate homeowners.”

The President’s Financial Fraud Enforcement 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. For more information on the task force, visit StopFraud.gov.

The Arizona Financial Fraud Task Force represents the efforts of the U.S. Attorney’s Office, FBI, Internal Revenue Service-Criminal Investigation Division, U.S. Immigration and Customs Enforcement, Department of Housing and Urban Development Office of the Inspector General, U.S. Marshals Service, U.S. Postal Inspection Service, U.S. Secret Service, the FDIC-OIG, Arizona Department of Financial Institutions, Arizona Attorney General’s Office , the Phoenix and Mesa police departments, the Maricopa Country Sheriff’s Office, and Maricopa Country Attorney’s Office.

Mortgage Fraud case examples in the District of Arizona:

United States vs. Lawler, et al.

On Tuesday, June 15, 2010, a federal grand jury in Phoenix returned a 30-count indictment against JamieLee Lawler, 41, a former Countrywide loan officer and real estate investor of Phoenix and Brett Matheson, 44, of Scottsdale, for Wire Fraud, Conspiracy, Money Laundering and Conspiracy to Commit Money Laundering related to their leadership roles in a Mortgage Fraud scheme.

The indictment alleges from January 2005 through December 2007, Lawler and Matheson conspired to commit mortgage fraud by holding seminars to recruit straw buyers that did not intend to live in the homes or be responsible for the loan payments. The defendants would obtain financing to purchase homes in the names of the straw buyers by submitting fraudulent applications that misrepresented assets, income, employment status, and other information. Loans would be in excess of the sale price and once the funds were obtained from the lender, the extra proceeds known as “cash-back,” would be directed to bank accounts in the defendants’ control.

During the period of the conspiracy and scheme, the defendants defrauded the banks of over $38 million of which $8.7 million was directed to bank accounts under their control. Lawler and Matheson used the “cash-back” for personal expenses, including luxury vehicles and homes for themselves. Each conviction for Wire Fraud or Conspiracy carries a maximum penalty of 30 years in prison, a $1 million fine or both. Each conviction for Money Laundering or Conspiracy to Commit Money Laundering carries a maximum penalty of 10 years in prison, a fine or both.

United States vs. Jackson , et al.

In one indictment filed in early June, resulting from an ICE investigation, six individuals are alleged to have conspired in a scheme to defraud financial institutions by using straw buyers to purchase luxury homes in Paradise Valley, North Scottsdale, Arcadia, Fountain Hills and other upscale areas in the Phoenix area. One of the primary motivations for the scam was large cash back payments upon the purchase of the houses. However, even larger illicit profits were obtained upon the sale of a house from one controlled straw buyer to another. The scheme resulted in the foreclosure of more than 100 houses and losses of more than $50 million.

One of the six indicted conspirators, Vincent Vendittelli, was a loan officer at Spectrum Financial Group (SFG). Vendittelli handled all of the straw buyers’ loans and presented false information to financial institutions on loan applications which enabled otherwise average people to falsely qualify for multimillion dollar houses. Vendittelli handled more than 100 of these loans.

Another indicted conspirator, Cleothus Jackson, aka Henry Oliver Ford, and four other co-conspirators are alleged to have devised the scheme and recruited the straw buyers. Straw buyers were paid for the purchase of the houses but the lion’s share of illicit profits went to the recruiters, according to the indictment.

All of the properties went into foreclosure and in some cases bank short sales. The resulting decrease in home values caused a ripple effect across the Valley.

“These illicit schemes defrauded financial institutions out of millions of dollars,” said Matt Allen, ICE Special Agent in Charge in Arizona. “This investigation provides real insight into how virtually every aspect of some of these transactions was permeated with fraud and why the real estate market in Arizona is in its current condition. ICE is proud to work with the U.S. Attorney’s Office and our other law enforcement partners to hold these individuals accountable for enriching themselves at the expense of our banks, our communities and ultimately all American taxpayers.”

October 11, 2010

FBI: Top Areas for Mortgage Fraud

* Analysis of available law enforcement and industry resources indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia.
* There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.

Emerging Schemes

* Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance.
* Perpetrators are exploiting the home equity line of credit (HELOC) application process to conduct mortgage fraud, check fraud, and potentially money laundering-related activity.

FBI and Industry Respond to Escalating Mortgage Fraud

* The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. The FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice.

Introduction

The Prieston Group, a risk management solutions provider that administers an insurance product covering losses due to fraud and misrepresentation, calculated that losses attributed to mortgage fraud will most likely reach $4.2 billion for 2006. This figure does not take into account another estimated $1.2 billion spent on fraud prevention tools. – The Prieston Group, 2006 Data, 16 February 2007,and 2 April 2007.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Although no central repository collects all mortgage fraud complaints, statistics from multiple sources indicate that mortgage fraud is on the rise. Some industry explanations for this increase point to recent high mortgage loan origination volumes that strained quality control efforts, the persistent desire of mortgage lenders to hasten the mortgage loan process, the escalation of home prices in recent years, and the introduction of non-traditional loans which contain fewer quality control restraints such as low documentation and no documentation loans1.

Mortgage loan fraud is divided into two categories: fraud for property and fraud for profit. Fraud for property/housing entails minor misrepresentations by the applicant solely for the purpose of purchasing a property for a primary residence. This scheme usually involves a single loan. Although applicants may embellish income and conceal debt, their intent is to repay the loan. Fraud for profit, however, often involves multiple loans and elaborate schemes perpetrated to gain illicit proceeds from property sales. It is this second category that is of most concern to law enforcement and the mortgage industry. Gross misrepresentations concerning appraisals and loan documents are common in fraud for profit schemes and participants are frequently paid for their participation. Recent events likely resulted in an increase in mortgage fraud as higher housing prices tempted borrowers to commit fraud for property in order to qualify for a mortgage loan. Also, mortgage fraud perpetrators likely seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit.

The most common form of mortgage fraud is illegal property flipping which entails false appraisals and other fraudulent loan documents (see figure 1). Combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities. No single regulatory agency is charged with monitoring this crime. The FBI, Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Internal Revenue Service, Postal Inspection Service, and state and local agencies are among those investigating mortgage fraud.

Mortgage fraud is a relatively low-risk, high-yield criminal activity that tempts many. However, according a May 2006 Financial Crimes Enforcement Network (FinCEN) report, finance-related occupations, including accountants, mortgage brokers, and lenders, were the most common suspect occupations associated with reported mortgage fraud2. Perpetrators in these occupations are familiar with the mortgage loan process and therefore know how to exploit vulnerabilities in the system.

Victims of mortgage fraud may include borrowers, mortgage industry entities, and those living in the neighborhoods affected by mortgage fraud. Lenders are plagued with high foreclosure costs, broker commissions, reappraisals, attorney fees, rehabilitation costs, and other related expenses when a mortgage fraud is committed3. As properties affected by mortgage fraud are sold at artificially inflated prices, properties in surrounding neighborhoods also become artificially inflated. When property values increase, property taxes increase as well. Legitimate homeowners also find it difficult to sell their homes as surrounding properties affected by fraud deteriorate.

During boom periods, high mortgage loan volume impacts expedited quality control efforts which often focus on production. Therefore, perpetrators may submit loans based on fraudulent information anticipating that the bogus information will be overlooked. On the other hand, loan officers, brokers, and others in the industry are paid by commission and may be tempted to approve questionable loans when the housing market is down to maintain current levels of income.

Analysis of mortgage originations indicates a decrease in demand. As a result of the declining housing market, mortgage fraud perpetrators may take advantage of eager loan originators attempting to generate loans for commission. Mortgage loan originations, including purchases and refinances declined during 2006 across the United States. The Mortgage Bankers Association (MBA) estimates that mortgage loan originations will reach $2.28 trillion during 2007 (see figure 2)4. According to an MBA December 2006 report, total home sales during 2006 decreased by approximately 10 percent from 2005 sales. New home sales declined by 17 percent and existing home sales dipped by 8 percent. In response to a decrease in demand for housing, builders reduced single-family starts (through November 2006) which were 14 percent lower than during the same time period in 2005. The MBA estimates that the oversupply of housing will continue to affect new home construction, home sales, and home prices until mid-20075.

Top Areas for Mortgage Fraud

Data was compiled and analyzed from law enforcement and industry sources to determine those areas of the country most affected by mortgage fraud during 2006. Information from the FBI, HUD-OIG, FinCEN, Mortgage Asset Research Institute (MARI), Federal National Mortgage Association (Fannie Mae), RealtyTrac Inc. (foreclosure statistics), and Radian Guaranty Inc., indicate that the top ten mortgage fraud areas for 2006 were California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia (see figure 3).

Analysis of available information indicates that mortgage fraud is most concentrated in the north central region of the United States. The north central region is followed by the southeast and west regions.

Regional analysis of FBI pending mortgage fraud-related investigations as of FY 2006 reveals that the north central region of the United States led the nation with the most pending investigations. The north central region was followed by the southeast, west, south central, and northeast, respectively (see figure 4).

The aggregate amount of ARM loans containing fraudulent misrepresentations is unknown. However, since mortgage fraud perpetrators hope to inflate the value of their properties and quickly sell them, they would likely gravitate towards mortgage loans that offered low and short-term interest rates such as those offered by ARMs.

Delinquency, Default, and Foreclosure: Potential Fraud Indicators

Mortgage loans based on fraudulent information usually result in delinquency, default, or foreclosure in a bear market. According to the MBA, both delinquency and foreclosures rates increased during 2006 and were largely concentrated in adjustable rate mortgage (ARM) loans, especially sub-prime ARMs. This is partly attributable to the recent rise in interest rates, placing a strain on ARMs borrowers6.

BasePoint Analytics, a fraud analytics company, analyzed more than 3 million loans and found that between 30 and 70 percent of early payment defaults (EPDs) are linked to significant misrepresentations in the original loan applications7. Radian Guaranty, Inc. is a leading provider of mortgage insurance which protects lenders against loan default. Of the top ten states Radian Guaranty Inc. ranked highest for mortgage fraud, seven of them also ranked in the company’s top ten for EPDs. This suggests that EPDs are a good mortgage fraud indicator.

During 2006 there were more than 1.2 million foreclosure filings nationally, which represents a 42 percent increase from 2005 figures. The foreclosure rate for 2006 was one foreclosure filing for every 92 households8. Foreclosures for 2006 surpassed foreclosures for 2005 during every month of the year9.

Foreclosure Fraud

Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.

While foreclosure scams vary, they may be used in combination with other fraudulent schemes. For instance, perpetrators may view foreclosure-rescue scams as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming.

Home Equity Lines of Credit

According to a DOJ press release, Mi Su Yi and her husband, Paul Amorello, were sentenced in California in July 2006 for operating a $3 million bust-out scheme involving business lines of credit and HELOCs. The couple accessed lines of credit that had been obtained by others and paid the balances with worthless checks. They subsequently withdrew cash from the lines of credit before the checks were returned for insufficient funds. The couple laundered their proceeds through bank accounts opened under three false identities. In an attempt to avoid detection, the couple deposited cash amounts of less than $10,000 into these accounts. -US DOJ, “New Jersey Residents Sentenced to Prison for Running a $3 Million ‘Bust-Out’ Scheme,” Press Release, 25 July 2006, available at http://www.usdoj.gov

Individuals and criminal groups are exploiting the home equity line of credit (HELOC) application process to conduct multiple-funding mortgage fraud schemes, check fraud schemes, and potentially money laundering-related activity. HELOCs differ from standard home equity loans because the homeowner may borrow against the line of credit over a period of time using a checkbook or credit card. HELOCs are aggressively marketed by lenders as an easy, fast, and inexpensive means to obtain funds. HELOC funds are normally withdrawn on an as-needed basis to conduct home repairs or to pay bills, but fraud perpetrators may withdraw the entire amount within a short time period. Lenders typically focus on property equity prior to funding HELOCs. As such, many lenders do not demand a full property appraisal or a full property title search.

Perpetrators apply for multiple HELOCs to different lending institutions for a single property within a short time period. Prior to providing the funding, lenders conduct searches to determine if the property is encumbered by a lien. However, liens on a property may not be recorded for several days or months and thus cannot be immediately verified. Consequently, lenders do not discover that they hold a third, fourth, or fifth lien on a property (rather than the expected second lien) until later. The money obtained from the multiple HELOCs totals more than the original property purchase price, exceeding the out-of-pocket expenses incurred to secure the property.

Perpetrators conducting check fraud schemes may manipulate HELOC accounts and cause lenders to incur losses. For example, a perpetrator secures a HELOC and withdraws the entire allotted amount. A fraudulent check is then used to pay the balance owed on the HELOC. However, the perpetrator quickly withdraws the check amount from the HELOC before the bank realizes the check is worthless. When the check is returned for insufficient funds, the line of credit surpasses its maximum limit and the lender experiences a loss. HELOC accounts have also been used in common check frauds where perpetrators stole HELOC checks, fraudulently completed them, and deposited the funds into their own personal accounts.

HELOCs may also be used as a means of depositing and withdrawing laundered proceeds to further conceal the original funding source. As long as withdrawals from the HELOC do not exceed the line of credit limit, payments deposited into the account may be withdrawn later.

FBI and Industry Respond to Escalating Mortgage Fraud

The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. On March 8, 2007, the FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice. The Notice states that it is illegal to make any false statement regarding income, assets, debt or matters of identification, or to willfully inflate property value to influence the action of a financial institution. Under the agreement, the MBA and the FBI will make the notice available to mortgage lenders to use voluntarily as a means of educating consumers and mortgage professionals of the penalties and consequences of mortgage fraud.10

October 7, 2010

NATIONAL MORTGAGE FRAUD SWEEP TAKES IN TWO BIRMINGHAM FRAUD RINGS

The U.S. Attorney’s Office for the Northern District of Alabama is currently prosecuting two mortgage fraud rings that have affected 125 properties in the Birmingham Metro Area and caused nearly $4 million in losses to banks and lending institutions, U.S. Attorney Joyce White Vance announced.

Working as part of Operation Stolen Dreams, the national mortgage fraud crackdown announced today by Attorney General Eric Holder, Vance said 12 defendants in the two Jefferson County mortgage fraud rings have been charged, sentenced or pleaded guilty since March 1 when the national sweep began.

Operation Stolen Dreams was organized by President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Nationwide, since the sweep began it has involved 1,215 criminal defendants, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, the operation has, to date, resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million.

“Mortgage fraud not only damages our banks and credit unions, this crime can affect the very core of our neighborhoods and communities,” Vance said. “We have seen first-hand that as a property goes into foreclosure, surrounding homes are harmed by lowered property values. Many times the foreclosed properties become abandoned, and these vacant houses then become the source of new criminal offenses such as vandalism, or drug-related activities. We are determined to aggressively seek out these frauds and prosecute their perpetrators,” she said.

The mortgage fraud rings currently being prosecuted in Birmingham involve various schemes of deception. Some schemes involve false statements of income and assets on loan applications. In other schemes, the seller makes an up-front payment to the buyer of rental property and promises to supply tenants eligible for government rent subsidies. Then, when the properties can’t be rented, buyers are stuck with depressed properties they can’t afford.

Of the 12 defendants involved in the two rings, 8face pending charges, two have been convicted and sentenced, and two have pleaded guilty and are awaiting sentencing.

The FBI, the Department of Housing and Urban Development’s Office of Inspector General and the Social Security Administration’s Office of Inspector General investigated these mortgage fraud rings and worked with Assistant U.S. Attorney Patrick Carney to bring them to prosecution, Vance said.

“Those who perpetrate mortgage fraud not only damage lending institutions, real estate professionals and the financial health of our communities – they also victimize a significant number of homeowners in the U.S. every year,” said FBI Special Agent in Charge Patrick J. Maley. “As these cases highlight, the FBI, along with our local, state and federal partners, are addressing this crime on a local level to protect the financial health of our country as well as individual citizens,” Maley said.

“The last number of years have seen enormous and damaging developments in the mortgage and housing markets, with an urgent reliance on the government to bolster unstable marketplaces and devastated communities,” said Kenneth M. Donohue, inspector general of the Department of Housing and Urban Development. “The HUD OIG, in partnership with other federal agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”

The local mortgage fraud ring led by TIMOTHY JOHNSON hit lenders the hardest, causing $2.5 million in failed mortgages on about 45 properties in Fairfield, East Lake, inner-city Birmingham and Bessemer. Loans have been foreclosed on about 75 percent of those homes. Johnson and nine other individuals have been charged in connection with this mortgage fraud ring.

Johnson, 45, of Bessemer, is charged with 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. The nine other defendants connected to the case all face charges that they supplied false information or documents, including letters claiming Social Security disability payments, in their mortgage loan applications.

Johnson, as the center of the fraud, 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 the false claims of disability income or false credit claims, Johnson would realize his profit from the scheme. He would be paid the amount of the liens he placed on the properties.

Among the nine other defendants charged in connection to Johnson’s fraud scheme was a Social Security Administration employee, Pamela Terrell. Terrell was charged with aiding and abetting the fraud. She provided Johnson with several disability award letters that fraudulently purported to be from the Social Security Administration, and which were used to obtain loans for otherwise ineligible loan applicants.

A second ring being prosecuted in this office was led by AL CARSON ROCKETT, 33, of Birmingham, who pleaded guilty in February to mail fraud. Those charges were connected to a mortgage fraud scheme that involved about 80 properties and totaled $1,090,046. Rockett was sentenced June 3 to 15 months in prison.

Rocketts’ frauds took various forms as he adapted to changing banking and funding rules associated with mortgage loans. His initial scheme involved altering documents to make it appear that the home buyer already owned the home and was seeking to refinance the mortgage. He was assisted in this scheme by JERRY EUGENE PARKER, who owned Central Alabama Title Company. Parker, 59, of Hoover, was charged in April with two counts of aiding and abetting mail fraud.

Rockett resold houses he bought at foreclosure auctions. He made minimal improvements on the houses, then obtained artificially high appraisals. He recruited buyers with assurances that the houses could be investments, promising to find tenants through the government’s subsidized rent program and claiming the rent would cover the mortgage and provide some profit. Tenants rarely were found.

Once Rockett had buyers, Parker would change the title of the property into the buyer’s name before the sale was made. This allowed the new buyer to appear as the current owner of the property seeking a refinance, rather than a new mortgage loan. The loan requested would be 20 percent less than the appraised value, giving the appearance that the owner had at least 20 percent equity in the home, and making the loan more likely to be approved.

Rockett made his illicit profit in the difference between the inflated loan amount and his original purchase price. This refinance scheme also allowed him to avoid down-payment or other costs associated with an original mortgage loan.

The President’s Financial Fraud Enforcement 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. For more information on the task force, visit StopFraud.gov.

October 6, 2010

Jury Convicts Decatur Real Estate Broker of Mortgage Loan Fraud

URBANA, IL—A federal jury deliberated approximately five and one-half hours before returning guilty verdicts on all nine counts of fraud charged against Decatur real estate broker Terry Hart for his participation in a real estate “flipping” scheme Hart’s sentencing is scheduled on Jan. 20, 2011. Trial began in Urbana federal court on Sept. 21.

Hart, 58, of the 1400 block of Post Court, Decatur, was a licensed real estate broker who operated Hart Realty in Decatur when he was indicted in March 2008 with two co-defendants, Diane Shelton, 62, of the 1700 block of East Barrington, Decatur, formerly a loan officer at Staley Credit Union in Decatur, and Mark Brown, 45, of Moweaqua, Illinois, a former licensed real estate appraiser who operated a real estate appraisal business in Decatur, Illinois. The three were each charged with nine counts of mail fraud related to their participation in a scheme to defraud Staley Credit Union and various buyers of real estate in Decatur from 2002 to July 2005.

On June 22, 2009, Brown entered pleas of guilty to the nine counts of fraud. Shelton pled guilty to the nine counts on Oct. 1, 2009. Sentencing for both Brown and Shelton is scheduled on Nov. 12, 2010.

Evidence presented at trial showed the three participated in as many as 40 fraudulent real estate sale and financing transactions totaling more than $3 million in gross proceeds which generated profits to Hart of more than $600,000 and a potential loss to Staley Credit Union of more than $1 million. The defendants made false representations, including fraudulent appraisals prepared by Brown and used by Hart and Shelton, to cause buyers to purchase and Staley Credit

Union to finance residential real estate properties, some of which were owned by Hart and were financed at amounts substantially higher than their reasonable value. Hart and Shelton received payment of loan proceeds and paid appraisal fees and kickbacks to Brown. The charges are the result of an investigation by the U.S. Postal Inspection Service, the Federal Bureau of Investigation, and the Illinois State Police. Staley Credit Union cooperated and provided assistance in the investigation. The case is being prosecuted by Assistant U.S. Attorney Timothy A. Bass.

Each offense of mail fraud carries a maximum statutory penalty of up to 30 years’ imprisonment and a fine of $1,000,000. Final sentences are determined by the court. In imposing sentence, the court may consider federal sentencing guidelines, which include a defendant’s criminal history, the amount of loss, and other applicable factors.

October 5, 2010

Mortgage Fraud Alert

With attempted fraud on the rise and fraudsters getting more sophisticated, brokers must ensure they don’t become soft targets by doing robust due diligence on all cases

With a raft of regulations, major funding problems and widespread dual pricing mortgage brokers have a lot on their plate at the moment. But one thing they can’t afford to ignore is the specter of fraud that permanently haunts the industry.

In the good old days between 2005 and 2007 when mortgages were aplenty brokers were probably guilty of being as lax as lenders and regulators when it came to checks.

Those days are gone and the consensus seems to be that as the industry dips and business volumes fall so does fraud, but this is a dangerous complacency.

Experian’s Fraud Index reveals that attempted fraud rose by 37% in the first half of 2010 compared with the second half of 2009 due to a rise in so-called soft fraud which is when borrowers misrepresent incomes to get a deal rather than by organized crime.

Hard fraud is committed by sophisticated criminals to money launder while soft fraud is the ordinary borrower lying to get a mortgage – serious but not in the same league. The best way for brokers to guard themselves against both is simple – due diligence on their clients through rigorous checks and questioning.

“The most important thing brokers can do is to identify applicants, be skeptical of what they are being told and check the facts rigorously,” says Nick Baxter, partner at Baxter Business Consultants.

“If a broker doesn’t have an impressive record it gets around and they can be used as a conduit to fraud, perhaps accidentally,” he adds. “The biggest danger is that brokers who don’t ask the tough questions become targets for money launderers who think they are lax. Brokers must ask tough questions at the right time.”

Alan Cleary, managing director of Precise Mortgages, agrees that brokers face the danger of being used by fraudsters.

“It’s not a good thing for brokers because you can’t plead ignorance if you’ve been targeted,” he says.

“Lenders can identify specific brokers they get bad business from and there are a lot of brokers being kicked off panels at the moment – it’s a growing problem. As lenders become more vigilant brokers are caught up in it and it is damaging to their business. If you get kicked off Lloyds Banking Group’s broker panel you’re out of business because you can’t be a broker without dealing with 30% of the market.”

For money laundering in particular Baxter says it is crucial brokers ask the right questions. Brokers must have proof of their deposit and ask where the money has come from and if it is legal.

“Buy-to-let frauds with no proof of deposit are a key risk,” he says. “There is no reason why a person who wants to buy 10 properties shouldn’t be asked where the deposit has come from. They should be asked whether it comes from legitimate means and how they have produced this money.

“By asking such questions brokers will protect themselves. Genuine customers won’t care about the intrusion and money launderers will go elsewhere.”

Ray Boulger, senior technical manager at John Charcol, agrees that tough questioning is the key to brokers preventing fraud but adds that it is difficult to counteract the sophistication of some documents.

“Brokers must do the obvious checks but also be experienced enough to recognize when something doesn’t sound right,” he says. “One of the biggest problems for brokers is the sophistication of fraudsters. Some copies of passports and identity are so good that you can’t tell they are fake.

“I was at a conference a few years ago where even fraud experts struggled to differentiate the two, so brokers can have difficulties sometimes.”

John Malone, chairman of PMS and the Association of Mortgage Intermediaries’ spokesman at the National Fraud Authority’s mortgage fraud forum, says fraudsters are always years ahead of the businesses they set out to deceive.

“Fraudsters are more sophisticated these days and use technology to their advantage,” he says. “On the internet you can get pay slips, P45s, fake passports and driving licenses that look real. Fraudsters will always be up to five years ahead of businesses.”

And Malone warns some types of fraud such as identity theft are increasing. His role at AMI gives brokers a voice at the National Fraud Authority. Until he took up the role this month brokers were not represented. Malone insists brokers are crucial in the chain as a conduit between clients, solicitors, surveyors and lenders.

“Brokers are right in the middle of it,” he says. “So we are trying to educate them and limit fraud as much as we possibly can.”

Baxter agrees that fraud is still an issue but believes there has been a decrease as volumes have fallen.

“Mortgage fraud has probably reduced because the days of the one minute mortgage don’t exist anymore,” he says.

But Baxter says brokers must be wary of mortgage fraud in the long term. He says many fraudsters are clever and present themselves as plausible customers. In short, if they can deceive people they will. He criticizes the speed of applications and the focus on volume and while praising fraud checks via credit scoring to highlight risks, he does not think it is a silver bullet.

“Credit scoring checks help but it was difficult for underwriters to consider all the information in the time they had,” he says. “I have seen things in credit scoring checks that should have made them ask questions but they didn’t.

“Between 2005 and 2008 I don’t think staff were adequately trained either. That is still the case but the difference is they now have more time. Lenders need to use this to train their staff for the future. Just because the mortgage market is depressed doesn’t mean fraudsters are going to leave. Lenders must do all they can to tackle it.”

Malone believes lenders can do more, such as making sure that brokers’ client information is secure.

“You can go into an intermediary’s office and there are files and computers lying around,” he says. “But what happens when they leave the office at night? Big institutions have to go through a risk education process to try to eliminate or reduce the onset of risk.

“Of course, one of the things lenders are asking everyone to do is to protect client details in a locked safe or filing cabinet. But in brokers’ offices that often isn’t the case. That’s the kind of things lenders should be asking questions about.”

Colin Snowdon, managing director of residential mortgages at Aldermore, says brokers should not be wary if lenders start to ask questions.

“When lenders ask questions that brokers think are strange it isn’t always because they are trying to make things difficult,” he says.

“You can’t be too careful about mortgage fraud these days. Brokers have an important role as it is they who meet the clients. They have to be aware of all the issues and ensure they don’t allow themselves to be used. There is a real danger of that.”

Eddie Goldsmith, senior partner at Goldsmith Williams, has just set up the Conveyancing Association to tackle fraud in conveyancing and says lenders will always use people they are comfortable with.

“In every profession there are good and bad individuals and you can’t avoid criminals who infiltrate the industry,” he says. “What lenders need to do is work with people they know, are comfortable with, and who they trust.

“Firms that are members of our trade body are all reputable and one of the reasons we formed it is to help lenders use good firms. This won’t get rid of fraud overnight but if lenders are going down a restricted panel route we can tell them to look at the Conveyancing Association as a reputable grouping.”

Malone agrees that brokers have a huge responsibility and that the Financial Services Authority is clamping down on them. He says that for years the buzzwords have been ’know your client’ but the emphasis has now changed as the FSA seeks to talk tough on fraud and stresses the need for ’client due diligence’.

“I think the phrase puts far more onus on brokers to understand more about their clients,” he says. “At PMS if we want to take on a new firm we have to do thorough due diligence on it before taking it on board and that is what brokers have to do. ’Know your client’ was good at the time but there is a change of emphasis at the FSA which is demanding due diligence.”

He adds that it is more than just clients who need to be thoroughly checked.

“Brokers also have to look all around the client’s situation such as the property they are buying and the solicitor they are using, and check things such as how long it has been operating and whether it has had any issues with lenders,” he says.

“These are the things that brokers haven’t been doing over the years. They’ve just been accepting the solicitors their clients use but it’s their responsibility now to find out more about them.”

Cleary says due diligence is crucial and if business is coming from an introducer brokers must take appropriate steps to guard against fraud.

“If brokers are accepting business from an introducer they are basically saying that they are so confident about that individual that they will use their FSA license to get the business through,” he says. “If it goes wrong the broker is in trouble, so they have to go through the appropriate checks.”

But Cleary does not believe brokers have to do all the work as lenders have systems and structures to combat fraud.

“Brokers can’t be expected to do everything,” he says. “Lenders have access to national fraud databases and credit referencing tools, which I don’t expect brokers to have because it costs a lot of money.

“The main thing for brokers is to verify the source of introduced business and make sure they don’t get duped into accepting dodgy pay slips. If you smell a rat check it as if it’s too good to be true then it probably is – we’ve all got that sixth sense that tells us when something isn’t right.”

Malone insists brokers have a responsibility to check the client’s situation.

“Brokers have to be aware of who they are dealing with,” he says. “It can be done in a few phone calls. If lenders are reducing the legal firms they use, they are clearly going through their lists to make sure they know those acting on their behalf. Brokers must do the same.”

He says that when individual registration is brought in there will be even more onus on brokers to perform thorough checks.

“Individual registration will reduce the number of brokers in the mortgage industry,” he says. “We don’t know by how many but I think it will further reduce the numbers. We will be left with a strong, hardcore group of intermediaries who will have to protect their position. We’re asking them to protect themselves and their business by having a firmer understanding of their transactions.”

There is a clear sense that brokers are going to have more responsibilities and be subject to more scrutiny when individual registration is introduced. Malone believes brokers should start verification of clients as early as possible.

“Brokers must start to verify potential clients before they become official clients,” he says. “A lot of brokers just get clients from lead generation firms and no-one has verified them. Brokers haven’t verified clients enough in the past because of the volumes they were doing. A lot of fraud is now being uncovered from the boom years when gross lending was £700bn in 2005 and 2006. If even 5% of that was fraudulent that would amount to a massive £35bn. It is these numbers we’re grappling with.”

A spokesman for the Council of Mortgage Lenders says that varying market conditions create opportunities for criminals who always target weaknesses.

“The ground is constantly shifting with fraud and different practices that organizations follow creating different opportunities for criminals to target,” he says. “They will systematically target weaknesses. But changing market conditions have exposed fraudulent practices that may not have been so apparent when property prices were rising.

“One of the problems with fraud is that it is difficult to quantify. Someone can make a fraudulent application which is declined and we have to decide whether it is a failure that the fraud was attempted or is it a success that the fraud didn’t happen.”

He adds that the most important thing is for brokers to report suspicious information to the right authorities. He highlights the FSA’s Information from Lenders programmed as an example of what brokers should be doing.

Even in depressed times and with brokers fighting for their survival, they must remain vigilant against fraud. Lax checking can ruin careers and reputations can be forever tarnished.

Brokers don’t have all the responsibility and clearly lenders have their role to play too but it is brokers’ necks on the line if something goes wrong, so they have to be sure who they’re dealing with.

There will always be fraudsters looking to deceive them so brokers must make sure they are not a soft target. By doing robust due diligence brokers can protect themselves and fulfill their responsibilities to tackle the specter of fraud that could come back to haunt the industry in a big way.

Brokers must be the first defense

It is a well-known fact in the financial services industry that mortgage lenders have tightened their criteria significantly in an effort to protect themselves from escalating mortgage fraud losses. Coupled with this, the Council of Mortgage Lenders has reported that gross mortgage lending has fallen by 6% in August 2010 compared with August 2009.

Applications are being heavily scrutinized by lenders for signs of material misrepresentation or other anomalies.

Mortgage brokers have suffered much bad press in recent months as the unscrupulous practices of a few have led to serious repercussions for the honest majority. In many cases lenders have reduced the number of brokers on their panels and therefore the number of brokers they are prepared to do business with.

So what can brokers do to win back favor with mortgage providers? What are banks looking for from individuals who are introducing business to them?

As part of my role as fraud consultant at CoreLogic Solutions, a company that specializes in fraud detection technology for the financial services sector, I recently undertook analysis that has highlighted the most common types of mortgage fraud.

The top six most common types of mortgage fraud are:

* Income – 35% of fraudulent applications had evidence of significantly over-inflated salaries.
* Employment – around 16% of applicants had tried to hide details relating to their employer, with a large proportion not disclosing they were self-employed.
* Occupancy – 14% were applications for undisclosed buy-to-lets.
* Fake accounts – over 11% of the proven fraud cases were supported by financial accounts that were either fake or bore no resemblance to the true trading performance of the company or trading individuals.
* Valuation fraud – 11% of cases were backed by valuations that were over-inflated by up to 500%.
* Other professionals – around 6% of the sample showed evidence of fraudulent behavior by other mortgage professionals.

In my experience, the best way for brokers to win back the confidence of lenders is to act as a first line of defense. In many cases it is brokers who build rapport with applicants and have access to supporting documentation. By checking documentation relating to income, employment and occupancy and ensuring that the application appears to make sense, brokers will be able to assist lenders and speed up the application process.

Hopefully in time, this will improve the rapport between lenders and brokers and ensure that strong relationships develop and flourish as the mortgage market starts to recover.”
Mortgage broker fraud cases this year

Noel Smith of Andrew Copeland Mortgages
Noel Smith, a director of south London-based Andrew Copeland Mortgages Limited, was fined £17,500 for systems and controls failings and for exposing his business to the risk of being used to further financial crime. Smith also had his Financial Services Authority approval to perform management functions withdrawn.

The FSA concluded that Smith’s poor management controls and compliance monitoring led to 224 clients being exposed to the risk of receiving unsuitable advice and left the firm open to abuse by fraudsters. Smith also failed to oversee remedial actions outlined by the FSA to address potential poor advice given to clients. There was also no evidence that affordability had been assessed.

John Apicella was banned for lack of competency by leaving his business open to the risk of involvement in financial crime. Apicella was a sole trader at Newbury-based Mortgages 4 You.

The FSA found that Apicella failed to meet the minimum standards required of a broker by not always completing a fact-find document for new customers or taking the time to research their attitude to risk. In interviews with the FSA regarding customer’s income Apicella said that “if a lender doesn’t require it I don’t ask for it”. He added that he would accept self-employed customers’ income figures at face value. Also, Apicella did not carry out due diligence on a mortgage introducer from whom he accepted seven mortgage applications.

Neale Morton, Syed Meah and Jonathan Smith of Neale Morton IMS Limited
The individuals banned all worked for one firm, Neale Morton IMS Limited, based in Gateshead, Tyne and Wear. Neale Morton was the principal and director of IMS. The FSA prohibited and fined him £130,192 for his knowing involvement in mortgage fraud and for systems and controls failings at IMS for which he was personally culpable. Part of the fine, £5,192, represented a disgorgement of the profit he made from the fraudulent applications.

Morton not only submitted mortgage applications for himself using false income details, but also allowed his firm to be used for mortgage fraud by its advisers and customers. Advisers Jonathan Smith and Syed Meah produced falsified compliance documents during the FSA investigation. Smith also submitted falsified applications to lenders on behalf of customers and Meah did not notify the FSA that he had been arrested on suspicion of money laundering and been suspended as a mortgage adviser at IMS.

In an interview with the FSA, Smith estimated that around 5% of the mortgage business he submitted at IMS was fraudulent.
Collective action is important

This year is notable for an unwelcome first – it is the year mortgage fraud cases with a collective value of more than £1bn were heard by Crown Courts in England and Wales. But anyone who thinks things will get better soon needs to think again, and quickly. My advice is to revise estimates penciled in for 2011. If £1bn is your benchmark, you’re seriously underestimating the problem.

There are two reasons for this. First, £1bn only relates to the known cases of mortgage fraud heard by the courts during the past 10 months. Second, any fraud professional will tell you that for every case that is uncovered, up to four go undetected.

My view is that the real level of mortgage fraud exposure in the UK could be significantly higher than £1bn – and growing rapidly. And if that is the case, the sooner the industry takes appropriate action the better.

The harsh reality is that fraudsters regard lenders as easy prey where the pickings are rich and the chances of being caught pretty remote. Lax and inconsistent controls in the lending and broking community and an unwillingness to recognize the crime – particularly insider and employee fraud – have enabled con men to run riot in sectors such as buy-to-let, self-cert and commercial.

This is a major reason why we have seen a huge increase in the number of lawyers, accountants, surveyors and intermediaries who are prepared to fleece their way to easy and lucrative property paydays.

Any fraud professional will tell you that for every case that is uncovered, up to four go undetected

The Solicitors Regulatory Authority clearly thinks the problem is growing. Recently, its head of fraud went on the record stating his team was looking into the affairs of dozens of law practices suspected of being run by criminals and involved in committing mortgage fraud.

The SRA is working with several police forces to start a major clean-up. This is welcomed as it’s a break with the legal world’s traditional practice of staying silent until a threat has been eliminated. I also applaud the likes of the Association of Mortgage Intermediaries for setting up a panel to address fraud.

But the time has come for the whole industry to debate the extent of the problem in a meaningful way.

Getting to the heart of the matter will require all parties to put their egos to one side because mortgage fraud afflicts all organizations, regardless of their size, geography and corporate DNA.

It also means the industry must stop sweeping cases of insider fraud under the carpet. Organizations need to realize 60% of all fraud has a significant insider element and staff poses a threat to the well-being of businesses.

If there isn’t the collective desire to get to grips with things, then mortgage fraud will continue to be a major bête noire – and the sector will remain a safe haven for organized crime and opportunistic thieves.

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