Struggling homeowners on the verge of foreclosure are being warned by the state Attorney General’s Office of the latest mortgage-relief scam known as “forensic loan audits.”

Forensic loan audits are what state Attorney General Jerry Brown calls “phony mortgage relief services” that charge upfront fees for a forensic review of loans but will never lead to lowered monthly payments or loan principle.

California is a minefield for scams, because it accounted for 22 percent of the nation’s 632,573 foreclosures in 2009. The metropolitan Stockton area has ranked at or near the top of the nation in foreclosure filings since the housing bubble burst in 2007.

To get help

• Nonprofit housing counselors certified by the U.S. Department of Housing and Urban Development provide help free. Call (800) 569-4287.

• Attorney General Jerry Brown’s office will take complaints of mortgage relief fraud at (800) 952-5225.

• For complaints against a lawyer, contact the State Bar complaint hot line at (800) 843-9053.

The most recent scam is in a mortgage consultant’s claim that a forensic audit could find whether a homeowner’s lender is violating state and federal laws, and a sales pitch that locating a violation in a mortgage agreement could offer an opportunity for them to void the loan and force a modification.

“Forensic loan audits are yet another phony foreclosure-relief service hawked by loan modification consultants trying to cash in on the desperation of homeowners facing foreclosure,” Brown said this week. “The foreclosure relief industry continues to be long on promises but short on results.”

Evan Westrup, a spokesman for the attorney general, said Brown’s office has received about 3,500 complaints against mortgage modification professionals in the past six months. The Department of Real Estate has investigated more than 2,000 cases in 2009, with more than 350 companies have been delivered desist and refrain order to stop all illegal activity.

“The DRE has aggressively pursued loan modification scammers who prey on vulnerable and financially stressed homeowners and those peddling false hope by promising mortgage relief with a forensic audit will be scrutinized,” Department of Real Estate Commissioner Jeff Davi said in a statement.

Brown offered the following tips to struggling homeowners:

» Don’t pay fees up front. Foreclosure consultants are prohibited by law from collecting money before services are performed.

» Respond to all letters from lenders and loan services. Working with your lender is the best opportunity to modify your loan.

» Don’t transfer title or sell your house to a “foreclosure rescuer.” The attorney general says this is a scam to convince homeowners they can stay in their house as renters and buy it back later, only to be evicted.

» Don’t make a mortgage payment to anybody but your lender or bank. A mortgage consultant will keep the money.

» Don’t sign any documents without reading them thoroughly. Scammers often convince victims to sign their house over to them in a sea of paperwork that has not been properly vetted.

- Keith Reid

A Placer County man who hosted hotel seminars promising his audience certain wealth has been charged with fraud by the Securities and Exchange Commission.

The civil complaint, filed Tuesday in Sacramento federal court, charges Lawrence “Lee” Loomis and his father-in-law, John Hagener, with taking at least $10 million from more than 100 investors by promising them a 12 percent return with no risk.  SEC investigators said the money was instead used to prop up Loomis’ failing businesses.

News10 obtained videotape of one of the “Loomis Wealth Solutions” seminars hosted at a Sacramento hotel in December 2007.  On the tape, Loomis promised investors they would become rich.  “At a minimum, this is my vision for you. To have a net worth of at least ten million dollars. At least ten million. And many of you will have more, but at a minimum have a net worth of ten million,” Loomis told his audience.

In addition to the civil complaint, sources told News10 Loomis still faces a criminal probe in a $100 million multi-state real estate Ponzi scheme.  Three former associates have already been charged and two are in custody.

In 2008, FBI agents raided Loomis’ Roseville offices and his Granite Bay home, and later seized his bank accounts.  Placer County tax records show that Loomis’ home, valued at $1.6 million, was taken by the bank last summer.

by George Warren,

In the fourth quarter of 2009, California had the highest mortgage fraud risk, according the quarterly Mortgage Fraud Risk Report released Friday by Agoura Hills, California-based Interthinx, a provider of risk mitigation and regulatory compliance tools for the financial services industry.With an index value of 222, California took the No.1 spot from Nevada, which had topped the rankings over the last five consecutive quarters.

Nevada dropped to second place with an index of 220 and was closely followed by Arizona with an index of 211. Florida remained in fourth place with an index of 179, and Colorado was ranked fifth with an index of 153. With indices between 55 and 71, West Virginia, Maine, Kansas, South Dakota, and Montana were named as the five states with the lowest mortgage fraud risk.

According to Interthinx, its fraud risk indices have proven to be a leading indicator of foreclosure activity. As a result, the company said regions that currently have high fraud risk indices are likely to have high foreclosure rates going forward, particularly if housing prices continue on their downward trajectory and if there is no significant improvement in general economic conditions.

The Mortgage Fraud Risk Report also included an analysis of national mortgage fraud and indices for the four most common types of mortgage fraud, including property valuation fraud, occupancy fraud, employment/income fraud, and identify fraud. The findings showed that most fraud types are on the rise.

Despite a 4 percent quarter-to-quarter decrease, the property valuation fraud risk index was up 40 percent over the fourth quarter in 2008 and jumped more than

100 percent from the same period in 2007. Interthinx said this index will continue to be driven by schemes involving short sales, REO inventories, wholesale flipping, and refinancing by borrowers whose equity has been impaired by falling real estate values.

The occupancy fraud risk in the fourth quarter of 2009 rose 16 percent from the third quarter, marking the first significant increase in the index since the fourth quarter of 2006. The magnitude of the quarter-to-quarter increase suggests that occupancy fraud risk will be a serious issue going forward, Interthinx said. The company explained that this will be especially true as continuing price declines and “get-rich-quick” schemes lure investors back into the market and as builders face continuing difficulty in moving unsold inventory.

While employment/income fraud was down 29 percent over the previous year, it increased 3.4 percent from the third quarter — the first increase since the index peaked in the third quarter of 2007. Interthinx said it is too soon to tell whether this uptick signifies a rebound in employment/income fraud risk or whether it reflects a temporary “blip” associated with schemes involving the federal homebuyer tax credit.

Identity fraud, which is frequently used in mortgage fraud schemes in order to hide the identity of the perpetrators and/or to obtain a credit profile that will meet lender guidelines, was the only type of mortgage fraud that showed no increase in the quarterly report. According to Interthinx, the identity fraud risk index has remained relatively constant over the last two years, declining 2 percent from the previous quarter and 4 percent from a year ago.

Going Forward, Interthinx projects that if interest rates remain low, the predominant fraud type will continue to be related to property valuation, as speculative investors and “flipping” return to the market and as consumers attempt to refinance their mortgages despite reduced equity in their properties. Interthinx also expects a rebound in occupancy fraud, particularly in light of investor demand, fueled by ample inventories and the expected release of shadow inventory. In addition, the company said it is likely that the fraud risk index will continue to rise through 2011, as a wave of adjustable-rate mortgages recast for the first time.

Two Sacramento-area men were charged today by securities regulators with running a massive Ponzi scheme that might be the largest mortgage fraud case in the history of the region.

The Securities and Exchange Commission said it charged Lawrence Leland “Lee” Loomis and his father-in-law, John Hagener, in a civil complaint, “with misappropriating approximately $10 million from more than 100 investors who were falsely promised that their money would be loaned to homebuyers and secured by real estate deeds of trust.”

Investors were promised 12 percent rates of return, the SEC said, but federal officials say Loomis actually used the money to prop up other failing businesses.

The SEC says Loomis paid himself hundreds of thousands of dollars with investor funds and that Hagener received more than $190,000 for managing the funds.

The SEC complaint charges Loomis and Hagener with violating antifraud provisions of federal securities laws and seeks “injunctive relief, disgorgement of ill-gotten gains, and monetary penalties.”

Loomis’ attorney has said he is not guilty.

The probe began in 2009 after officials received tips from investors and former Loomis workers, and in August FBI agents raided Loomis Wealth Solutions offices in Roseville.

Three men charged in the case earlier fled the country. One was captured in Barcelona, Spain. Another was arrested as he entered the United States from Canada with $70,000 stuffed in his shoe. A third remains at large.

Sam Stanton

So-called “forensic audits” are often nothing more than con games bilking distressed homeowners out of money they certainly can’t afford to just toss away. One high-ranking California law enforcement official is trying to steer people away from them.

Former California governor, turned current California attorney general, and soon expected to announce he wants again to be California governor, Jerry Brown, is pointing out to all who will listen that some of the home modification firms that charge upfront fees to, among other things, verify that lenders are in compliance with all sorts of regulations, actually never end up giving you any information that could be used by you as leverage to get a mortgage modification.

Brown’s warning comes despite the fact that this past October, the practice of prepaying for mortgage loan modification was banned in California. But that doesn’t seem to have stopped the practice in that state and certainly has no impact on other states.

According to EIN News,quoting a consulting group called Mortgage Fraud Examiners, mortgage loan audits are nothing more than ” snake oil to peddle,” and refers dismissively to those who sell the product as “hucksters.”

The CEO of Mortgage Fraud Examiners, Storm Bradford, is quoted as saying, ” Although ‘loan audits’ can be of substantial value to a homeowner, regrettably, most companies providing “audits” are not qualified to do so.”

Of course, MFE does have a vested interest: it does its own forensic analysis of mortgage transactions. On its Web site, it describes such an analysis as reviewing mortgage documents, looking for fraud, other tortuous conduct and common violations of federal and state statutes. The idea is to then march into your lender’s office, “armed with this information” and then be better able to negotiate.

On his own Web site, California Attorney General Brown just posted Monday his warning to avoid forensic loan audits saying, “Forensic loan audits are yet another phony foreclosure-relief service hawked by loan-modification consultants trying to cash in on the desperation of homeowners facing foreclosure. The foreclosure-relief industry continues to be long on promises, but short on results.”

In fact, says Brown in his statement, “there is no evidence or statistical data to support claims that forensic loan-audits — even if performed by a licensed, legitimate and trained auditor, mortgage professional or lawyer — will help homeowners obtain loan modifications or provide any other foreclosure relief.”

Charles Feldman

At 5 p.m. Friday, federal regulators filed into the 10 branches of La Jolla Bank FSB and closed it down.

A victim of the exploded commercial real estate bubble and possibly the perpetrator of loan fraud, the bank had 5,000 percent more capital in its outstanding commercial building and development loans than it had on hand to cover the debt, officials from the Federal Deposit Insurance Corp. said.

“To put it mildly, that’s overextended,” said Greg Hernandez, a spokesman for the FDIC in Washington, D.C.

On Friday, OneWest Bank FSB entered into a deal with the FDIC to manage the loans and share the losses. It also took over La Jolla Bank’s $2.8 billion in deposits and its 10 branches in Southern California and Texas. On Monday, La Jolla Bank’s branches will open as OneWest, and depositors should see no difference in service, said Edith Gray, a spokeswoman for the FDIC, who was in Rancho Santa Fe Friday.

Founded in 1985 as La Jolla Village Bank, La Jolla Bank grew aggressively during the construction boom of the 2000s. From 2004 to 2007, the company doubled its assets by investing heavily in land, development and apartment construction.

But as the housing market fell precipitously starting in 2006, the bank began to have problems, the Office of Thrift Supervision said in a prepared statement. Of the $3.6 billion it lent, 21.6 percent was considered “non-performing” by the agency.

Gray said the bank may also have also been making fraudulent loans, but she said she couldn’t elaborate further. A spokesman for the Office of Thrift Supervision, which would oversee a fraud investigation, declined to comment.

The closure itself went smoothly, Gray said. Many of the bank’s employees have stayed on to work with regulators through the weekend. Officials have to wrap up any outstanding transactions in all branches to ensure an easy transition to OneWest. Even at the start, employees took the entrance of regulators calmly.

“There was no drama,” Gray said. “It’s been a very smooth transition.”

Orange County Man Gets 15 Years for Fraud, Refusal to Account for Off-Shore Money

A Downey woman who orchestrated a real estate fraud scheme that caused nearly $13 million in losses after falsely promising to help homeowners in default on their mortgages has been sentenced to 10 years in federal prison. A second person involved in the scheme was sentenced yesterday to 15 years in prison after a federal judge determined that he had refused to account for proceeds of the scheme in an off-shore bank account that he had agreed in his plea agreement to repatriate.

Martha Rodriguez, 38, who pleaded guilty to mail fraud and money laundering charges in relation to the scheme that ran from May 2003 until November 2005, was sentenced yesterday morning to 120 months in prison by United States District Judge George H. King. In issuing the decade-long sentence, Judge King noted that Rodriguez perpetrated the mortgage fraud scheme while she was free on bond after being charged in another real estate fraud scheme. Edward Seung Ok, 44, of Huntington Beach, who pleaded guilty to mail fraud, was sentenced yesterday afternoon to 15 years in prison. Before issuing the sentence, Judge King ruled that Ok violated his plea agreement by failing to provide investigators with access to an account in the Bank of Nevis on the Caribbean island of St. Kitts into which Ok had transferred more than $1.6 million during the course of the fraudulent scheme. In his plea agreement, Ok had agreed to repatriate and transfer to the government all of the funds in that account. In addition to continuing to conceal the money, Ok transferred more than $1 million of the off-shore money into a secret account in the United States, where he could access the funds for his personal expenses, which included golf club memberships, illegal drugs and a $235,000 Lamborghini Gallardo, prosecutors told Judge King during yesterday’s hearing. Addressing the court during yesterday’s hearing, Ok admitted that he spent more than $1 million of the money he had hidden in the off-shore account during a two-year period when he was free on bond in this case.

The prison sentences stem from a fraud case in which Rodriguez, Ok and three others used computerized databases that list homes going into foreclosure to locate victims, who were promised refinancing services. The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach. Instead of obtaining refinancing, Rodriguez and her co-schemers submitted loan applications in the names of “straw buyers” who were purportedly buying the properties. In some cases, the defendants paid the straw buyers for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge. The loan applications for the straw buyers – which always contained false information – caused a series of lenders to fund more than 100 mortgages worth more than $40 million. The loan proceeds were used to pay off the loans in default, sometimes to make a few mortgage payments on the new loans, and to provide some instant cash to homeowners. However, the remaining proceeds, typically representing the bulk of the homeowner’s equity, were skimmed off by Rodriguez and her co-schemers.

Even though they were promised that they would be able to keep their homes, the victim homeowners usually lost title to their homes. The lenders suffered losses when the straw buyers then failed to make loan payments and the new loans went into default. Lenders were often unable to foreclose because the straw buyers did not know the properties were in their names. The scheme targeted commercial lenders and more than 100 homeowners across the Southland.

Three other defendants in this case were sentenced late yesterday by Judge King. They are:

Cynthia Valenzuela, a 27-year-old Orange resident who pleaded guilty to mail fraud, was sentenced to one year and one day in prison;

Vladimir Stefanovic, 38, of Huntington Beach, was sentenced to 18 months in prison; and Maria G. Juarez, 39, of Canoga Park, was sentenced to three years in prison, in part because, after she was arrested on the case, she continued to perpetrate loan fraud while she was free on bond.

This case is the result of an investigation by the Federal Bureau of Investigation and IRS – Criminal Investigation. The Los Angeles County Department of Consumer Affairs, Real Estate Fraud Section, provided substantial assistance during the investigation.

A 33-year-old Long Beach man who operated a number of ventures that he used to solicit money with false claims of profitable investments in real estate has pleaded guilty to a federal wire fraud charge.

Jon Weldon James pleaded guilty yesterday afternoon to the federal offense related to his Ponzi scheme that collected more than $33 million from his El Segundo-based venture that operated under a series of names, including J.W. James and Associates, Inc., and The Cloaking Device, Inc.

Appearing before United States District Judge R. Gary Klausner, James pleaded guilty and admitted that he defrauded more than 50 individuals who invested in his real estate-related investments from late 2003 through August 2006. James offered his investments through face-to-face meetings that included hosting presentations at restaurants, where he encouraged victims to invest their savings or money from their Individual Retirement Accounts.

While James told victims that he was using their money to invest in real estate and sent account statements that purported to show profits to some investors, James invested in only a few properties and made absolutely no profit from any real estate-related investments. However, in the hallmark of a Ponzi scheme, James used investors’ money to repay other investors who requested withdrawals of their funds. James also used investor money to pay for personal expenses, which included his wedding and an investment in a recording studio and production company called “On the Ball Entertainment.”

After taking in approximately $33 million from investors, repaying some investors and spending millions on personal and business expenses, James’s illegal conduct caused losses of approximately $11 million.

James is scheduled to be sentenced by Judge Klausner on May 24, at which time he faces a statutory maximum sentence of 20 years in federal prison.

The State Bar of California, alarmed by the number of lawyers preying on vulnerable homeowners, today identified 16 attorneys who are under investigation for misconduct related to loan modification.

“In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented,” said Interim Chief Trial Counsel Russell Weiner, who is waiving investigation confidentiality in favor of public protection. The waiver, allowed by law, is used only occasionally, but Weiner said the seriousness of the problem demanded a strong reaction by the bar in order to protect consumers. This is the first time the names of more than a few lawyers being investigated have been made public.

“The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding,” Weiner added. “There are literally thousands of victims who have lost money they could not afford to lose. Under the circumstances, the need for public information and protection is paramount.”

Those attorneys being named by the State Bar have allegedly taken fees for promised services and then failed to perform those services, communicate with their clients or return the unearned fees, Weiner said. Some attorneys misrepresented the services they could provide. “It appears these attorneys may have significantly harmed their clients who were already facing great financial pressure and the possible loss of their homes.”

About one-quarter  – almost 800 cases –  of the active investigations in the Office of Chief Trial Counsel (OTC) are related to foreclosure complaints. The office has experienced a 58 percent increase in active investigations over 2008 due in large part to the huge increase in complaints against attorneys offering loan modification services. “Our office is aggressively investigating these cases and is working proactively with law enforcement,” said Weiner.

In March of 2009, the State Bar created a special team of investigators and lawyers to handle the growing number of complaints received about attorneys offering loan modification services. OTC found that many of the offending attorneys are associated with firms that use telemarketers or phone banks to sign up clients without regard to the facts of the individual case or whether or not the client can be helped, Weiner said.
In many cases, the attorneys work with untrained non-attorney staff engaging in the unlawful practice of law by offering legal advice to prospective clients. OTC also is investigating the non-attorney staff for possible referral to law enforcement.

In recent months, OTC has obtained the resignation of three attorneys who were offering loan modification services. Those attorneys chose to give up their licenses to practice law rather than face disciplinary charges and possible disbarment. In addition, OTC lawyers are preparing to put some attorneys on inactive status pending the filing of formal disciplinary charges

Weiner warned consumers to take special caution when seeking legal representation related to loan modification. “Consumers should not be comforted by advertisements that claim the attorney is a member of the State Bar of California,” he said, noting that all attorneys practicing in California on a regular basis are members. “Such membership does not mean the attorney has any special knowledge, experience or expertise in the area of loan modification. In fact, it appears that many of the attorneys offering these services have little or no prior experience in the area of loan modification.”

The following attorneys have received a significant number of complaints related to the loan modification services they were hired to perform. They are entitled to a full and fair hearing on any charges that may be filed in the future. No discipline may be imposed unless and until the State Bar proves allegations of misconduct by clear and convincing evidence.

• David Arase, Bar No. 233705, Costa Mesa, Arase Law Firm and National Housing Assistance
• Stephen Burns, Bar No. 113371, Los Angeles, Legal Group Network
• Robert Buscho, Bar No. 122556, Fullerton, United Law Group
• Nicholas Chavarela, Bar No. 251632, Santa Ana, Rodis Law Group and America’s Law Group
• Steven Feldman, Bar No. 103676, Mission Viejo, Feldman Law Center
• Eric Johnson, Bar No. 224065, Culver City, Avantgarde Group
• Paul Lucas, Bar No. 163076, Aliso Viejo, Lucas Law Center
• Brandon Moreno, Bar No. 233750, Santa Ana, U.S. Foreclosure Relief Corp.
• Jeffrey Nemerofsky, Bar No. 213014, Laguna Niguel, U.S. Advocacy Law Group and U.S. Financial Products
• Gregory Paiva, Bar No. 207218,Ontario, Law Offices of Gregory Paiva
• Adrian Pomery, Bar No. 249664, Orange, U.S. Foreclosure Relief Corp.
• Ronald Rodis, Bar No. 181873, Newport Beach, Rodis Law Group and America’s Law Group
• Mark Shoemaker, Bar No. 134828, Long Beach, Advocates for Fair Lending
• Marc Tow, Bar No. 78429, Newport Beach, Marc Tow and Associates
• Michael Yellin, Bar No. 255050, Los Angeles, A Fresh Start Loan Modification
• Sean Rutledge, Bar No. 255938, Irvine, United Law Group

The State Bar suggests that consumers be wary of attorneys offering loan modification services under any of the following circumstances:

• Advertisements of the office do not expressly identify by name the attorney who is responsible for the business.
• Office staff will not readily identify by name the attorney responsible for oversight of the business.
• The attorney in charge of the office is too busy or not willing to meet personally with prospective clients.
• The firm advises a consumer to stop paying the existing mortgage.
• The business, through its advertisements or claims of its representatives, makes  claims that sound too good to be true, such as claims of a 90 or 100 percent rate of success in obtaining loan modifications, or claims that a reduction in the mortgage principal is likely to be achieved.
• The business demands payment of a large fee, even before obtaining a prospective client’s basic income and expense information, and information about the existing mortgage and present home value.
• The attorney responsible for the business is not licensed to practice law in the state where the consumer resides.

There are legitimate loan modification services and ethical attorneys that are providing the promised services for their clients. Two places to start in the search for loan modification assistance are: HUD Housing Counselors, 800-569-4287, http://www.hud.gov/counseling; and HOPE NOW, 888-995-HOPE, http://www.hopenow.com.

Consumers can also find qualified attorneys through a State Bar-certified lawyer referral service that can be found on the State Bar’s Web site (www.calbar.ca.gov), or by calling the State Bar’s Lawyer Referral Services Directory at 1-866-442-2529 (toll free in California) or 415-538-2250 (from outside California).

Consumers having a problem with the attorney handling their loan modification may contact the State Bar at 1-800-843-9053 or visit the State Bar’s Web site at www.calbar.ca.gov to find a complaint form.

Amidst the mortgage meltdown, a stunning number of lawyers reportedly may be taking advantage of desperate homeowners by accepting thousands of dollars in fees from individuals while doing little or no work to save their homes.

The California Bar is probing more than 400 lawyers in such cases, and is fielding 30 new complaints daily, reports the Associated Press. The state has more than 250,000 lawyers on its attorney roster.

A total of 15 attorneys have either been suspended or resigned in the face of pending disciplinary charges, and many more are expected to lose their licenses, according to state bar authorities. The complaints are still going through the roof,” says Suzan Anderson, who serves as lead mortgage fraud prosecutor for the bar and says she is deluged with more than 30 new complaints a day.

Among those suspended–although he denies wrongdoing and is fighting the case–is Sean Rutledge. He is accused in of charging up-front fees of as much as $3,500 but doing little or nothing to help homeowners in California and Ohio. His pending bar discipline case in California also alleges that he called clients “losers” on the rare occasions when he returned their phone calls, the news agency reports.

The United Law Group firm Rutledge founded but no longer works for calls the California Bar’s probe a “witch hunt,” and a spokeswoman for the firm contends that mortgage lenders–eager to prevent homeowners from being properly represented–are behind the attorney disciplinary crackdown. The law firm has sued major banks alleging unfair business practices, which the banks deny.

Meanwhile, many homeowners need skilled representation but aren’t sure where to find it. Warren Jacobs says he paid Rutledge’s firm $2,000 last year to help him save his Dallas, Texas, home, but had to turn to another lawyer elsewhere to file an emergency bankruptcy for him when United Law Group failed to contest the foreclosure of his home, according to the AP.

The Ohio attorney general sued Rutledge and United Law Group earlier this year, contending that they defrauded homeowners.

According to the indictment, Michael Ohayon, 41, and David Papera, 47, allegedly recruited thirteen straw buyers who used their good credit scores to nab $19.6 million in fraudulent mortgage loans from Washington Mutual Bank, with no intention of making either down payments or mortgage payments on the properties.

A mortgage broker and real estate developer on Friday were charged in San Francisco, California with conspiracy to commit a $19.6 million bank fraud, fraud, and money laundering, prosecutors said.

The indictment further alleges that Ohayon, with Papera’s knowledge, told the straw buyers that an entity controlled by Ohayon and Papera would use the loan proceeds to make the down payments and mortgage payments. Ohayon and Papera created and submitted to Washington Mutual Bank loan applications with numerous misstatements as to the straw buyers’ income and assets.

The maximum penalty for each count of conspiracy to commit bank fraud and bank fraud is 30 years in prison, a $1,000,000.00 fine, and restitution. The maximum penalty for each count of money laundering is 10 years in prison, a $250,000 fine, and restitution.

This case is the result of an investigation by the Federal Bureau of Investigation.

SAN FRANCISCO—Yesterday a federal grand jury in San Francisco indicted Michael Ohayon and David Papera with conspiracy to commit bank fraud, bank fraud, and money laundering, United States Attorney Joseph P. Russoniello announced.

According to the indictment, Ohayon, 41, and Papera, 47, are alleged to have recruited thirteen straw buyers who used their good credit scores to obtain more than $19.6 million in fraudulent residential mortgage loans from Washington Mutual Bank, with no intention of making either down payments or mortgage payments on the properties. The indictment further alleges that Ohayon, with Papera’s knowledge, told the straw buyers that an entity controlled by Ohayon and Papera would use the loan proceeds to make the down payments and mortgage payments. Ohayon and Papera created and submitted to Washington Mutual Bank loan applications with numerous misstatements as to the straw buyers’ income and assets.

Ohayon and Papera are currently out of custody. They are scheduled to make their initial appearances on the indictment at 9:30 a.m. on Feb. 16, and Feb. 22, respectively, before the Honorable Maria-Elena James.

The maximum statutory penalty for each count of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1349, and bank fraud, in violation of 18 U.S.C. § 1344, is 30 years’ imprisonment, a fine of $1,000,000, and restitution. The maximum statutory penalty for each count of money laundering, in violation of 18 U.S.C. § 1957, is 10 years’ imprisonment, a fine of $250,000, and restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Tracie L. Brown is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Rayneisha Booth. The prosecution is the result of a three-year investigation by IRS-CI and the Federal Bureau of Investigation.

Please note, an indictment contains only allegations against an individual and, as with all defendants, Messrs. Ohayon and Papera must be presumed innocent unless and until proven guilty.

At the heart of a mortgage fraud trial that opened Monday in San Francisco Superior Court are millions of dollars in loans that never should have been made, the lawyer for a family estate told the jury in opening statements.

U.S. Bank sued on behalf of a mortgage pool to try to recover $1 million from the estate following its sale of a property. The estate, in turn, has countersued the mortgage pool and others, claiming it shouldn’t have to pay because the loan was allegedly given under fraudulent circumstances that it wasn’t aware of.

The case is one high-stakes example of fallout from allegedly seductive lending practices.

When the case of the Elizabeth Jamerson estate first came to his firm, said Kurt Peterson of San Francisco’s Peterson, Martin & Reynolds, it was about a lawsuit over one $1 million loan.

But as they looked further, he said, they found more loans to the estate that appeared suspect. “We thought things looked kind of fishy,” Peterson told jurors, “and we found out there were 18 loans that had been fraudulently procured.”

To make these loans more attractive to banks, Peterson argued, a mortgage lender called First City Funding used two sets of documents, fraudulent loan applications, and shady appraisals “to make this scheme work.”

Representing the bank, Charles Coleman III of San Francisco’s Holland & Knight told jurors that the case, while complicated, comes down to a simple point: That the Jamerson estate always believed it had a loan, and that the loan should have been paid off when the property sold.

For example, he acknowledged that, when the deed of trust was recorded, it carried an incorrect lot number. But he argued that the estate was well-aware what property was intended, and that since that property was sold, the loan should be repaid.

Peterson represents relatives of Elizabeth Jamerson, a San Francisco matriarch who died last September after an earlier stroke had left her incapacitated. The cross-complaint filed by Jamerson’s co-conservators focuses on aggressive marketing techniques by subprime loan originators, and Peterson carried that theme in his opening statements.

He said, for example, that an appraiser of the estate’s properties never actually visited them in San Francisco but looked at a map and addresses and “came up with numbers.” Peterson added: “He more than doubled the value of this property to slip the loan past the underwriters. That was the course these people took knowingly, deliberately to make these loans.”

Rather than a case against Jamerson’s heirs, Peterson told the jury, the lender has a case against First City Funding.

Peterson also told jurors one of his witnesses, a forensic accountant, would testify that his clients’ damages are around $5 million.

BEL AIR—On January 29, a former state-licensed real estate appraiser was sentenced to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks, according to the Federal Bureau of Investigation.

Rancho Santa Margarita resident, Lila Rizk, received the sentencing after her conviction the previous summer on conspiracy, bank fraud and multiple loan fraud charges.

United States District Judge Dean D. Pregerson ruled Rizk’s sentencing, and warned that other professional real estate appraisers needed to know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison,” according to the Department of Justice press release.

Evidence presented during Rizk’s trial last summer indicates that the 43-year-old was involved in a conspiracy that acquired inflated mortgage loans on homes in some of California’s most expensive neighborhoods, such as Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla, according to the release.  Those involved in the scheme sent false documentation, including artificial purchase contracts and appraisals, to the affected banks in order to mislead them into funding mortgage loans that cost hundreds of dollars more than what the homes actually valued.  Lehman Brothers Bank, one of the victim banks, was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.

Rizk was found to have profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scam.  Rizk’s appraisals often placed the homes at values exceeding three times more than what they were actually worth.  Rizk referred to “comps” or comparable homes, that were far larger, more luxurious and in better areas than the ones she appraised in an apparent effort to justify the inflated appraisals.  At one point, Rizk had inflated a few dozen homes, and then used them as “comps” to allegedly justify inflated values for homes later in the conspiracy.

The release lists the following 10 real estate professionals as those who were found to be involved in the scheme, and who have been convicted of federal charges:

1)   Scheme leader Charles Elliot Fitzgerald, a developer of Newbury Park and Beverly Hills, who had formerly been sentenced to 14 years in prison.

2)    Mark Alan Abrams, of Los Angeles, a mortgage broker, who along with Fitzgerald orchestrated the scheme, who is scheduled to be sentenced on April 12.

3)    Nicole LaViolette, of Palm Springs, a loan processor, who is scheduled to be sentenced on June 14.

4)    Jamieson Matykowski, of Laguna Niguel, who found houses for the scheme, is scheduled to be sentenced on March 29.

5)    Timothy Holland, of Santa Ana, an escrow officer, who is scheduled to be sentenced on June 28.

6)    Richard Maize, of Beverly Hills, a mortgage banker, who is scheduled to be sentenced on June 28.

7)    Thomas R. Schiff, of Brentwood, a mortgage banker, who was previously sentenced to 6 months in prison.

8)    L. Scott Robinson, of Dana Point, an appraiser, who is scheduled to be sentenced on April 2.

9)  Kyle Gras, formerly of Santa Monica, a real estate agent, who is scheduled to be sentenced on February 19.

10) Joseph Babajian, of Los Angeles, a real estate agent, who is scheduled to be sentenced on February 22.

The case results from an investigation by the F.B.I. and IRS-Criminal Investigation, according to the release.

James Merritt Eaton, 60, his son Brian Chandler Eaton, 28, both of Laguna Beach, and real estate appraisal firm executive Michael John Bell, 32, of Corona del Mar, were charged January 6, 2010 with one felony count of conspiracy to defraud another of property.

As the principles of Landmark Equities Group, the father and son team allegedly conspired to inflate property appraisal values and get more business from lenders.

The Laguna Beach father and son, who operated a realty appraisal service, were arrested on suspicion of conspiring to artificially inflate real estate values in order to secure more business with lending institutions. “A Corona del Mar man has turned himself in on similar charges related to the case,” said Farrah Emami, spokeswoman for the Orange County District Attorney’s office.

All three defendants face 17 felony counts of grand theft by false pretense, two felony counts of identity theft, two felony counts of false personation, and sentencing enhancement allegations for aggravated white collar crime of more than $100,000 and property damage exceeding $50,000.

If convicted, each defendant faces a maximum sentence of 18 years in state prison. The three are scheduled for a continued arraignment on Feb. 22, Emami said

Federal Authorities Announce Significant Regional Federal Mortgage Fraud Investigations and Prosecutions Coinciding with Nationwide “Operation Malicious Mortgage” Takedown

SACRAMENTO, Calif.—United States Attorney McGregor W. Scott, FBI Special Agent-in-Charge Drew Parenti; and Internal Revenue Service–Criminal Investigation Special Agent-in-Charge Scott O’Briant announced today a number of significant events that have occurred here in the Eastern District of California as part of the United States Department of Justice’s nationwide takedown, “Operation Malicious Mortgage.”

These cases have arisen out of the efforts of the Eastern District of California Mortgage Fraud Task Force, which was created as a result of a significant increase in reported mortgage fraud. Members of the task force include representatives from the United States Attorney’s Office, the Federal Bureau of Investigation, the Internal Revenue Service- Criminal Investigations, the Department of Housing and Urban Development, the United States Bankruptcy Trustee’s Office, and the California Department of Real Estate. The task force allows for a more targeted, coordinated approach in prioritizing the massive volume of referrals being made to federal and state agencies.

Mortgage fraud cases in the Eastern District of California include:

United States v. Joy Johnson et al.

Nine defendants were charged by complaint Tuesday with mail fraud, money laundering, and related offenses in connection with a “cash back to buyer” mortgage fraud scheme that occurred between May 2006 and September 2006. The defendants charged are JOY JOHNSON, 33; ELIZABETH CARRION, 38; husband and wife LENIN and CARMEN GALEANO, 32 and 30; ANGELITO EVANGELISTA, 40; husband and wife CLARISA and CRIS ANG, 43 and 46; CRIS’ mother LYDIA ANG, 71; and CORY WHALEN, 31. All defendants are from Solano County. The defendants purchased 12 houses in Solano County. In all but one of the transactions, the real estate agent was JOHNSON. The real estate transactions were designed to allow the sellers to credit defendants “money for repairs” at the close of escrow. The purchase prices were substantially inflated from the list prices, and the increases were then credited at the close of escrow to fictitious businesses controlled by the defendants. The defendants by and large did not use the funds they received for repairs on the properties. Instead, the funds were used to pay the mortgage payments on the properties and for living expenses. In addition, the loan applications contained false information about employment, income, assets, real estate owned, and/or occupancy status. Eleven of the homes have either been foreclosed upon or have had notice of defaults recorded against them. The
amount of loss attributed to these defaults has not been determined, but it is anticipated the
lenders will sustain losses in excess of one million dollars. This case was investigated by the FBI
and IRS-Criminal Investigation. The case is being prosecuted by Assistant United States
Attorney Courtney Linn.

United States v. Villegas

MELISSA VILLEGAS, 29, of Natomas, was arrested Monday in Sacramento, charged with lying to federal agents. According to the complaint, she had been involved in transactions that were the subject of a mortgage fraud investigation, including paying money to a suspected straw buyer. During the course of the investigation, VILLEGAS falsely stated that she had not paid any money to this other person whom investigators believed to be a straw buyer in a mortgage fraud scheme. This case is being investigated by the FBI and IRS-Criminal Investigation. The case is being prosecuted by Assistant United States Attorney Russell Carlberg.

United States v. Ahmad et al.; United States v. Bridge; United States v. Blanford;
and United States v. Ngo

Seven defendants are facing charges or have been sentenced arising out of a “straw buyer” mortgage fraud scheme. IFTIKHAR AHMAD, 36; MANPREET SINGH, 24; and JOSE SERRANO, 44, each from Stockton, California, were indicted on October 25, 2007, for mail fraud. AHMAD and SERRANO were also charged with money laundering. Between 2003 and 2005, the defendants engaged in a scheme to defraud in connection with residential real property purchases primarily in the Stockton area. AHMAD, through I & R Investment Properties, fraudulently sold 10 houses to straw buyers, obtaining in excess of $1.5 million. AHMAD pleaded guilty on April 28, 2008 to mail fraud and money laundering. SERRANO pleaded guilty on April 17, 2008, to mail fraud. SINGH pleaded guilty on March 31, 2008, to mail fraud. All three are scheduled to be sentenced on August 25, 2008. Also arising out of the AHMAD investigation, four other defendants have been charged in separate cases, discussed below.

WILLIAM T. BRIDGE, 41, of San Francisco, California entered a guilty plea Monday to one count of filing a false tax return and three counts of paying illegal kickbacks to a loan coordinator at Long Beach Mortgage between 2003 and 2006. BRIDGE, a loan broker, admitted that in each of those tax years, he derived more than $10,000 from criminal activity involving fraudulent loans funded by Long Beach Mortgage on houses purchased in Sacramento and Stockton. The total tax loss to the United States for those tax years exceeded $1,000,000. BRIDGE also pleaded guilty to paying illegal kickbacks to a loan coordinator at Long Beach Mortgage in violation of the Real Estate Settlement Procedures Act of 1974 (RESPA). BRIDGE paid a loan coordinator working for Long Beach Mortgage more than $120,000 between July 2003 and March 2007, in exchange for the loan coordinator using his position at Long Beach Mortgage to process fraudulent loan applications submitted by BRIDGE. He is scheduled to be sentenced on September 2, 2008.

PAUL BRIDGE, William’s brother, who is also a loan broker, was charged Tuesday with paying kickbacks in violation of RESPA.

JOEL BLANFORD, 40, of San Ramon, Calif., was indicted on June 12, 2008, on six counts of mail fraud and one count of conspiring to engage in money laundering. From April 2003 through October 2005, BLANFORD, while working as a sales representative for Long Beach Mortgage, participated in a scheme to defraud that company. BLANFORD allegedly paid a Long Beach Mortgage loan coordinator in cash and checks to falsify documents, provide false verification of borrowers’ employment or professional licensing status, and to turn a blind eye to fraudulent representations contained in loan applications and other documents submitted to Long Beach Mortgage. In each of the years 2003, 2004, and 2005, the indictment alleges that BLANFORD received, before taxes and payroll deductions, more than $1,000,000 in commissions and other compensation from Long Beach Mortgage. The indictment further charges that between April 2003 and October 2005, he conspired with others to engage in money laundering in order to conduct financial transactions to promote the carrying on of the fraud scheme and to conceal and disguise the nature and source of the payments to the loan coordinator.

JOHN NGO, 27, of Dublin, California, was charged with lying under oath before a federal grand jury. He pleaded guilty on December 17, 2007, and is scheduled to be sentenced on July 14, 2008. NGO admitted that between September 2001 and May 2006, he worked as a Senior Loan Coordinator at Long Beach Mortgage, a subprime lender of residential real property that is now a subsidiary of Washington Mutual. NGO was responsible for validating and verifying loan application information, including employment information, submitted by loan applicants. In September 2007, NGO testified under oath before a federal grand jury investigating a mortgage fraud scheme in the San Joaquin County area. He was asked whether a mortgage broker had given NGO any money. NGO falsely testified that the broker had not given him any money. In fact, records later obtained from Bank of America showed that between July 2003 and March 2007, NGO received in excess of $100,000 in checks and bank transfers from the mortgage broker. NGO admitted in his plea agreement that most of the payments were to ensure that fraudulent loan applications were processed and funded. NGO also admitted he received payments from Long Beach Mortgage sales representatives to push applications through the funding process. He knew many of these applications were fraudulent, and he and others took steps to “fix” applications by creating false documents or adding false information to the applications or the loan file.

These cases were investigated by the FBI and IRS-Criminal Investigation, and are being prosecuted by Assistant United States Attorneys Benjamin Wagner and Courtney Linn.

United States v. Charles Head

CHARLES HEAD, 33, of Los Angeles, California, was the leader of a nationwide “foreclosure rescue” scam, netting approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all of whom were located in California. On February 28, 2008, a federal grand jury indicted Head and 15 other defendants with violations of mail fraud, conspiracy to commit money laundering and related offenses. The defendants are alleged to have used straw buyers to replace victim homeowners on the titles of properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants then shared the proceeds of the ill-gotten equity and the “rent” that the victim homeowners paid them. Ultimately, the victim homeowners were left without their home, equity, and with damaged credit ratings.

On March 13, 2008, the grand jury returned a second indictment in the HEAD case against seven defendants, including four not charged in the first indictment. “Head Two” involved an “equity stripping” scheme, netting approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. This time CHARLES HEAD allegedly altered the scheme by recruiting strangers via the Internet to act as straw buyers. Under this new scheme, he would receive approximately 97% of the stolen equity. His “sales agents” and employees, and the other defendants, would receive the remaining 3% of equity.

The following defendants were charged in the “Head One” indictment: CHARLES HEAD; JEREMY MICHAEL HEAD, 30, of Huntington Beach, California; ELHAM ASSADI, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California; LEONARD BERNOT, 51, of Laguna Hills, California; AKEMI BOTTARI, 28, of Los Angeles; JOSHUA COFFMAN, 29, of North Hollywood; JOHN CORCORAN, aka Jack Corcoran, 52, of Anaheim; SARAH MATTSON, 27, of Phoenix, Arizona; DOMONIC McCARNS, 33, of Brea, California; ANH NGUYEN, 36, of Los Angeles; OMAR SANDOVAL, 32, of Rancho Cucamonga, California; XOCHITL SANDOVAL, 29, of Rancho Cucamonga; EDUARDO VANEGAS, 28, of Phoenix; ANDREW VU, 39, of Santa Ana; JUSTIN WILEY, 28, of Irvine; and KOU YANG, 32, of Corona, California. The following defendants were charged in the “Head Two” indictment: CHARLES HEAD, JOHN CORCORAN, KOU YANG, each also charged in “Head One,” as well as KEITH BROTEMARKLE, 42, of Johnstown, Pennsylvania; BENJAMIN BUDOFF, 41,
of Colorado Springs, Colorado; DOMONIC McCARNS, 33, of Brea; and LISA VANG, 24, of
Westminster.

This case was investigated by the FBI and IRS-Criminal Investigation, and is being prosecuted by Assistant United States Attorneys Laura Ferris, Rob Tice-Raskin, and Ellen Endrizzi.

United States v. Santa et al.

MARIA SANTA, 33; VIRGIL SANTA, 35; and CANDIT SAVA, JR., 26, all of Sacramento, were charged by complaint on March 17, 2008. The complaint alleged that beginning in November 2006, MARIA SANTA and SAVA prepared and submitted loan applications containing false statements as to employment and monthly income, and other false information, of a straw purchaser in order to purchase houses in the name of the straw purchaser. The complaint further alleged that MARIA SANTA and SAVA committed identity theft by using a victim’s identity to purchase property. The case was investigated by the Internal Revenue Service-Criminal Investigation and the California Department of Real Estate, and is being prosecuted by Assistant United States Attorney Matthew Stegman.

SENNETT H. SWIFT, 25, of Sacramento, was sentenced on April 29, 2008, to 15 months in prison on charges of bank fraud and money laundering. He pleaded guilty on January 15, 2008. SWIFT, who was not a licensed loan broker, defrauded two homeowners and the corresponding lenders by fraudulently refinancing two homes, the goal of which was to receive substantial loan broker commissions. To accomplish this fraud, the defendant solicited the two homeowners and falsely told them that they would receive loans with favorable terms, such as a low adjustable rate that would not increase above a certain rate cap. He also falsely led homeowners to believe that their prepayment penalties on their existing mortgages would be rebated by the defendant. Actually, SWIFT knew that the rate caps were much higher than promised, and never intended to rebate the prepayment penalties. Additionally, in one of the cases, SWIFT submitted a forged loan application and forged documents to the lender. Further, the loan application contained false information such as inflated wages. The case was investigated by the Federal Bureau of Investigation and the Internal Revenue Service–Criminal Investigation and was prosecuted by Assistant United States Attorney Matthew Stegman.

The above charges, except those to which defendants have already pleaded guilty, are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt. The maximum statutory penalties for mail fraud is 20 years in prison and a fine. The maximum statutory penalty for money laundering is 10 or 20 years in prison and a fine. The maximum statutory penalty for bank fraud is 30 years in prison and a fine. The maximum statutory penalty for identity theft is 15 years in prison and a fine. The maximum statutory penalty for lying to a federal agent is five years in prison and a fine. The maximum statutory penalty for perjury before a grand jury is five years in prison and a fine. The maximum statutory penalty for filing a false tax return is three years in prison and a fine. The maximum statutory penalty for a RESPA violation is one year in prison and a fine. The actual sentence, however, will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables and any applicable statutory sentencing factors.

Over one hundred California Lawyers were charged with loan modification fraud in 2009.

“More than 1,200 complaints against California lawyers were filed by the beginning of November regarding loan modification activity,” said Suzan Anderson, supervising trial counsel for the California State Bar loan modification task force. That is up from four filed in December 2008.

In April, California became the first state to form a “Bar Task Force” to investigate attorneys who deceive homeowners, collect advance fees, and even forge a judge’s signature while delivering little to distressed mortgage holders.

Officials announced Nov. 10, that five more California attorneys have disciplinary charges pending against them alleging that they engaged in loan modification scams.  This brings to 14 the number of lawyers the state bar’s loan modification task force has charged, forced to resign, or put on inactive status.

“That’s all we do. I have four other attorneys and eight investigators,” said Anderson. The task force is currently looking at 250 attorneys. (More than 220,000 attorneys are licensed by the California Bar Association.)  Each loan task force investigator oversees about 135 cases. 

In 2009, almost 20,000 client files have been removed from the offices of lawyers whose loan modification practices have been shut down or abandoned, the bar said. Investigations are up 69 percent over 2008.

Patricia Morgen, 62, of Oakland, California pleaded guilty in federal court in San Francisco yesterday to wire fraud, mail fraud and money laundering, United States Attorney Joseph P. Russoniello announced December 17, 2009.

In his announcement, U.S. Attorney Russoniello restated the Department of Justice’s top priority to vigorously prosecute individuals who commit mortgage fraud and other financial crimes.

In pleading guilty, Morgen admitted that the company she founded and controlled, Chicago Development and Planning (CDP) engaged in two fraudulent schemes: (1) a Ponzi scheme that defrauded more than 400 individual investors by falsely promising that their investment funds would be used to acquire, renovate, and re-sell real estate; and (2) a mortgage fraud scheme that defrauded a mortgage broker and various mortgage lenders by use of loan applications with fraudulent income and asset statements. Morgen admitted that the loss for the two schemes exceeded $8 million. In the plea agreement, Morgen agreed to make restitution in the amount of no less than $8,439,086.

The Securities and Exchange Commission (SEC) began investigating Chicago Development and Planning in 2004, and ultimately obtained a default judgment against Morgen when she failed to appear in any of the civil proceedings. In pleading guilty, Morgen admitted that when she learned of the SEC’s investigation, she instructed employees to destroy documents and then fled to Mexico to avoid federal authorities. Morgen also admitted that she instructed an employee to contact a mortgage broker who had worked on CDP real estate acquisitions in an attempt to convince the mortgage broker not to provide documents to the SEC.

On Sept. 2, 2009, Morgen’s co-defendant, Michael Ware, pled guilty to similar charges involving Chicago Development and Planning’s mortgage fraud scheme.

“This case shows that the appearance of success can be a mask for a tangled financial web of lies,” said Scott O’Brian, Special Agent in Charge, IRS-Criminal Investigation, and Oakland Field office. “Ponzi schemes can thrive for a time on false claims about how the money is being invested and where the returns are coming from. But that time is gone, and as this case shows, it’s time for those responsible to face judgment.”

Morgen was indicted by a federal Grand Jury on Nov. 20, 2008. She was charged with 11 counts of mail and wire fraud, as well as a single count of money laundering. Under the plea agreement, Morgen pled guilty to two counts of mail fraud, two counts of wire fraud, and one count of money laundering.

Morgen is currently in the custody of the Bureau of Prisons. Her sentencing is scheduled for April 7, 2010, before Judge Charles R. Breyer in San Francisco. The maximum statutory penalty for mail and wire fraud is 30 years. The maximum statutory penalty for money laundering is 10 years.

The trendy Hard Rock Hotel of San Diego, the first ever condo for that city, was sued for fraud last month by a group of investors who claim that they were lured with a “bait and switch” scheme.

Investors bought suites and had the right to occupy them for a maximum of 28 days a year. For the rest of the year, they would be occupied by their clients, time-share owners.

Plaintiffs, Tamer Salameh and Real Estate 4 Hospitality LLC claim they have lost a bundle of money on their investments. The suit will attempt to become a class action. Defendants include Irvine’s Tarsadia Hotel, officials Tushar and B.U. Patel, and 5th Rock LLC.

The suit charges that the investments were not registered with either the Securities and Exchange Commission or the California Department of Corporations.

The promoters allegedly used bait and switch techniques in selling the investments. Plaintiff’s attorney Mia Severson says that investors were told the rental program was not mandatory, but it was. It was not feasible for investors to operate their own rental management system, as they were promised, the suit says.

According to a January 4, 2010 Bloomberg Report, Bradley Birkenfeld, was a key informant in a U.S. investigation of offshore tax evasion aided by US Bancorp (UBS). On Jan. 8, Birkenfeld reported to prison for a 40-month prison term as ordered by U.S. District Judge William Zloch in federal court in Fort Lauderdale, Florida.

“I gave them the biggest tax fraud case in the world,” said the 44-year old Birkenfeld. “I exposed 19,000 international criminals. And I’m going to jail for that?”

Birkenfeld, a former banker with USB AG, pleaded guilty in 2008 to helping California billionaire Igor Olenicoff and hundreds of others evade taxes. Before his sentencing, Birkenfeld cooperated with the Justice Department, a U.S. Senate investigation and the Internal Revenue Service probe of the Zurich-based financial giant, detailing how UBS helped Olenicoff and other rich Americans evade taxes.

Birkenfeld, a former UBS banker, sought a postponement of the term imposed Aug. 21 by, and a new hearing to seek a shorter sentence. He promised to continue cooperating with prosecutors. Zloch denied the request in a one-page order.

“It’s a setback for whistleblowers everywhere,” said Birkenfeld attorney Stephen Kohn, executive director of the National Whistleblowers Center in Washington. “It just undermines the public interest that thousands of major tax cheats all escape any prosecution, and the one person who turned it in gets the longest sentence.”

In February 2009 the court ordered USB to pay $780 million in fines and to hand over data on 250 accounts to avoid prosecution. It agreed in August to turn over data on another 4,450 clients sought by the IRS.

At Birkenfeld’s sentencing on Aug. 21, 2009 the DOJ prosecutor, Kevin Downing stated that the U.S. couldn’t have unraveled the bank’s “massive tax fraud scheme” without his help. Prosecutor Downing recommended a minimum sentence of 30-months for Birkenfeld, since he wasn’t initially truthful about his dealings with Olenicoff.

In an interview on CBS’s “60 Minutes,” Birkenfeld said he didn’t deserve to go to jail when other bankers and clients haven’t. Birkenfeld also seeks a reward from the IRS of up to 30 percent of the taxes collected based on his information.

Olenicoff, who pleaded guilty in 2007 to filing a false tax return, got two years probation and paid $52 million in back taxes, fines and penalties. Last year, six former UBS clients pleaded guilty. While one got 12 months house arrest, none was sentenced to more than three months in prison.

Birkenfeld, who is under house arrest with electronic monitoring in Massachusetts, filed a motion Dec. 26 seeking a delay in his prison term and a hearing on a reduced sentence.

In that motion, Birkenfeld’s lawyers said he has been “ready, willing and able” to provide continued assistance to the government, and prosecutors had not taken him up on the offer.

In the four months after his sentencing, “the government has neither met with Mr. Birkenfeld nor asked him a single question about UBS, Swiss private banking, or any of Mr. Birkenfeld’s former U.S. clients.” His lawyer also spoke once to U.S. authorities on Dec. 14 about Birkenfeld’s former UBS clients, according to the filing.

In a Dec. 7 letter to U.S. Attorney General Eric Holder, Kohn also said that his client told the Senate, the IRS and the Securities and Exchange Commission in 2007 about Olenicoff. “There clearly was a breakdown in communication between DOJ and Mr. Birkenfeld,” Kohn wrote. “There also appears to have been a breakdown in the cooperation and information sharing between various government entities.”

Birkenfeld was indicted with a Liechtenstein investment adviser, Mario Staggl, who was declared a fugitive. Two former UBS bankers, Raoul Weil and Hansreudi Schumacher, and a Swiss lawyer, Matthias Rickenbach, also were indicted in the U.S. and declared fugitives.