DENVER—Shawn R. Tieskotter, age 37, of Greenwood Village, Colorado, and Craig D. Patterson, age 30, of Littleton, Colorado, each pled guilty before U.S. District Court Judge Robert E. Blackburn Wednesday to one count of mail fraud related to a mortgage fraud scheme. Tieskotter and Patterson were indicted by a federal grand jury in Denver on March 10, 2010. On May 20, 2010, a superseding indictment was filed. Both defendants pled guilty on July 7, 2010, and are scheduled to be sentenced by Judge Blackburn on November 12, 2010.

According to the stipulated facts contained in the plea agreements and indictments, between March 26, 2005, and continuing through June 30, 2005, in Colorado and elsewhere, Shawn Tieskotter and Craig Patterson knowingly executed and attempted to execute a scheme to defraud various financial institutions as well as commercial mortgage lenders. The scheme was executed in connection with residential mortgage loan applications relating to 13 properties in the Denver, Colorado metropolitan area. The neighborhoods included Aurora, Centennial, Littleton, Parker, and Castle Rock.

As part of the scheme, Tieskotter and Patterson prepared and submitted applications for two loans, a first mortgage and a second mortgage. Each of these applications contained materially false and fraudulent representations that Tieskotter intended to use the property as his primary residence. Most of the applications also contained materially false and fraudulent representations about the extent of Tieskotter’s liabilities related to other residential mortgage loans, in that they failed to include a complete list of the properties Tieskotter owned or was in the process of purchasing and falsely indicated that one of Tieskotter’s other properties was leased. All of the false information was material to the lenders because it affected their ability to assess Tieskotter’s ability to re-pay the loans for which he was applying and it affected his eligibility for various loan products.

Tieskotter and Patterson also hid from lenders the extent of Tieskotter’s liabilities for other mortgages by preparing, submitting, and causing to be prepared and submitted applications for multiple loans, secured by multiple properties, before such liabilities would appear on Tieskotter’s credit reports. This practice further affected the lenders’ ability to assess Tieskotter’s ability to re-pay the loans for which he was applying.

Tieskotter and Patterson also pulled money from the transactions at the time of closing by causing the disbursement at closing of additional monies to PK Design Group, LLC, an entity controlled by Patterson, or Dream Design, a trade name for an entity controlled by Tieskotter. Tieskotter and Patterson concealed from the lenders and other parties associated with the transactions their control of these entities. Tieskotter and Patterson also misrepresented that these monies would be used entirely for repairs or improvements to the properties, which led the lenders to falsely believe that the value of their collateral would increase as a result of these payments.

“Mortgage fraud remains a top priority of the Department of Justice. Those who perpetrate this fraud face prosecution and incarceration,” said U.S. Attorney David Gaouette.

“Mortgage fraud remains a significant crime problem for the Denver Metropolitan Area,” said FBI Special Agent in Charge James Davis. “Combating mortgage fraud will continue to be a priority for the FBI for the foreseeable future.”

United States Postal Inspector in Charge Antonio Gomez stated, “In an ongoing effort to combat mortgage fraud, federal agents from multiple agencies have joined together to assure offenders are caught and prosecuted. United States Postal Inspectors in the Denver office will continue to work aggressively in this effort to pursue anyone who uses the mail in a fraudulent manner for criminal gain. We appreciate the United States Attorney’s efforts in prosecuting these offenders and are pleased with the outcome in this investigation.”

“IRS Criminal Investigation stands ready to partner with law enforcement agencies to pursue individuals who commit Mortgage Fraud,” said Christopher M. Sigerson, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.

Mail fraud carries a penalty of not more than 20 years’ imprisonment, and up to a $250,000 fine, per count.

This case was investigated by the Internal Revenue Service Criminal Investigation (IRS CI), the Federal Bureau of Investigation (FBI), and the United States Postal Inspection Service (USPIS).

The case is being prosecuted by Assistant U.S. Attorney Matthew Kirsch.

Mortgage fraud is a major part of President Barack Obama’s Financial Fraud Enforcement Task Force, which was established 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.

DENVER—Gary A. Noble, age 31, of Denver, Colorado, was indicted by a federal grand jury in Denver, which on May 20, 2010, returned a 63-count wire fraud indictment related to a mortgage fraud scheme, United States Attorney David Gaouette and Federal Bureau of Investigation (FBI) Special Agent in Charge James Davis announced. Noble was arrested by FBI special agents without incident on June 3, 2010 in California. He will make his initial appearance in U.S. District Court in Denver on June 18, 2010, where he will be advised of the charges pending against him. He was released yesterday on bond.

According to the indictment, beginning on May 1, 2005 and continuing until March 3, 2006, Noble knowingly devised and intended to devise a scheme to defraud lending companies that funded residential mortgage loans and for obtaining money from them and from buyers who paid cash for a residence by means of materially false and fraudulent representations.

Specifically, it was part of the scheme that Noble allegedly orchestrated the purchase of numerous residential properties by his family members, and in most cases, the resale of those properties shortly thereafter to his and his family’s associates. The defendant used companies he controlled to facilitate and conceal his scheme. Through Noble Mortgage Company, he acted as mortgage broker and arranged to have false and fraudulent documents presented to the lenders to enable the buyers to qualify for loans for the properties. Through Noble Title Agency, he acted as a title insurance agent, and caused commitments for title insurance to be issued which made it appear that the buyers would be purchasing the properties free of prior encumbrances and that the lenders would be guaranteed priority leans, when they would not be. Through Noble Title Agency, the defendant acted as settlement agent for the lenders and received all of the loan proceeds and monies associated with the loans, but failed to use them to pay off the prior loans as directed by the lenders. He also misappropriated a portion of the proceeds for his own use and benefit. Through Equity Builders, Noble diverted proceeds of the fraud and concealed payments he made to facilitate the fraud.

“It is important to prosecute mortgage fraud cases to protect the integrity of the financial markets,” said U.S. Attorney David Gaouette.

“Investigating and prosecuting mortgage fraud cases remains a priority for the Denver Division of the FBI,” said FBI Special Agent in Charge James Davis.

If convicted, the defendant faces not more than 20 years’ imprisonment and/or a fine of not more than $250,000 per count for each of the 63 counts. Noble could also be ordered to pay restitution.

This case was investigated by the FBI.

Noble is being prosecuted by Assistant U.S. Attorney Linda Kaufman.

The charges contained in the indictment are allegations, and the defendant is presumed innocent unless and until proven guilty.

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

DENVER—Vicki Dillard Crowe, aka Vicki R. Dillard, age 31, of Denver, was indicted by a federal grand jury on April 5, 2010 on charges of mortgage fraud, United States Attorney David Gaouette, FBI Special Agent in Charge in Denver James Davis, and U.S. Postal Inspector in Charge in Denver Shawn Tiller announced. Crowe was arrested earlier today without incident by FBI agents and U.S. Postal Inspectors. She will appear in U.S. District Court in Denver for her initial appearance, where she will be advised of the charges pending against her.

According to the indictment, beginning in June 2004, and continuing through December 2006, Crowe knowingly devised and intended to devise a scheme to defraud various financial institutions and commercial lenders and to obtain money and property from various financial institutions and commercial lenders by means of materially false and fraudulent pretenses, representations, and promises. The scheme was executed in connection with the residential mortgage loans related to 19 properties in Colorado—seven in Denver, six in Aurora, two in Centennial, and one each in Thornton, Castle Rock, Franktown and Parker. In addition, the defendant executed the scheme related to the refinancing of residential mortgage loans related to two properties—one in Denver and one in Aurora.

As part of the scheme, Crowe worked with at least one mortgage broker to obtain mortgage loans in order to purchase at least 19 residential properties, at least two of which were purchased in the name of Crowe’s husband because Crowe was concerned that she would not qualify for the required mortgage loans. In order to qualify, Crowe made and caused to be made at least one materially false representation, including: 1) inflating or fabricating employment or rental income and/or assets of the defendant or her husband; 2) falsely representing defendant Crowe’s job title; 3) failing to disclose all the properties she had recently purchased; 4) failing to disclose all of her financial liabilities; and 5) falsely stating that the property would be a primary residence for the borrower.

As part of the transactions, Crowe persuaded, and caused someone else to persuade, the property seller to falsely inflate the sale price of the property so that Crowe could receive the inflated portion of the sale price as “up front” money, or shortly after, the closing purchase transaction. Sometimes the “up front” money was falsely characterized on a HUD settlement statement as a payment to the broker, although the broker would then pay Crowe the money. At other times, the “up front” money was falsely characterized as a payment to a remodeling company that was supposed to perform specified remodeling work, although the work was never performed, and Crowe actually received the money that was issued to these remodeling companies.

The indictment further alleges that Crowe used much of the “up front” money to make the mortgage payments on the numerous properties that she had purchased. She also refinanced mortgages on a couple of the properties so that she could obtain additional money as a result of the refinance transaction.

In order to qualify for the refinancing of the mortgages, Crowe made at least one materially false statement, namely that she used some of the money that she obtained during the refinance transactions to make the mortgage payments.

Crowe faces eight counts of mail fraud, which carries a penalty of not more than 20 years’ imprisonment, and up to a $250,000 fine, per count. She also faces eight counts of wire fraud, which also carries a penalty of not more than 20 years’ imprisonment, and up to a $250,000 fine, per count. The indictment also includes an asset forfeiture allegation.

“The prosecution of those who commit mortgage fraud is a top priority of the Department of Justice and this U.S. Attorney’s Office,” said U.S. Attorney David Gaouette. “Those who commit such crimes seriously erode the confidence of financial institutions to lend money which is a key element of the future strength of our economy.”

“Combating mortgage fraud continues to be a priority for the Denver Division of the FBI because of its impact on the well being of our housing markets and national economy,” said FBI Special Agent in Charge James H. Davis. “Law enforcement and the community at large must maintain their vigilance in identifying those who commit these types of fraud.”

“When the mails are used to misrepresent or to send fraudulent information, it is a violation of Federal Law,” said U.S. Postal Inspector in Charge in Denver Shawn Tiller. “United States Postal Inspectors take this offense seriously and investigation of this crime reveals another successful effort to remove criminals involved in this type of activity from society. The Denver office was pleased to partner with our associates in the FBI to bring this investigation to a successful outcome.”

This case was investigated jointly by the Federal Bureau of Investigation (FBI) and the U.S. Postal Inspection Service (USPIS).

Crowe is being prosecuted by Assistant U.S. Attorney Pegeen D. Rhyne. The asset forfeiture is being handled by Assistant U.S. Attorney Tonya Andrews.

The charges contained in the indictment are allegations, and the defendant is presumed innocent unless and until proven guilty.

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

Press

Shawn R. Tieskotter, age 36, of Greenwood Village, Colorado, and Craig D. Patterson, age 30, of Littleton, Colorado, were indicted by a federal grand jury in Denver on March 10, 2010, on charges of money laundering, wire and mail fraud. Patterson was arrested by federal agents without incident. He appeared in U.S. District Court in Denver on March 12, 2010, for an initial appearance where he was advised of the charges pending against him. He was arraigned today, March 17, 2010. Shawn Tieskotter received a summons to appear in U.S. District Court in Denver on March 25, 2010, where he will be advised of the charges pending against him.

According to the indictment, between March 26, 2005, and continuing through June 30, 2005, in Colorado and elsewhere, Shawn Tieskotter and Craig Patterson knowingly executed and attempted to execute a scheme to defraud various financial institutions as well as commercial mortgage lenders. The scheme was executed in connection with residential mortgage loan applications relating to 13 properties in the Denver, Colorado metropolitan area. The neighborhoods included Aurora, Centennial, Littleton, Parker and Castle Rock.

As part of the scheme, Tieskotter and Patterson prepared, submitted and caused to prepare and submit applications for residential mortgage loans and related documents in Tieskotter’s name. The applications included a first mortgage and second mortgage for each of the 13 properties. Each of these applications contained materially false and fraudulent representations that Tieskotter intended to use the property as his primary residence and most of the applications contained materially false and fraudulent representations about the extent of Tieskotter’s liabilities related to the other residential mortgage loans.

It was further part of the scheme for Tieskotter and Patterson to hide from lenders the extent of Tieskotter’s liabilities for the other mortgages, before such liabilities would appear on Tieskotter’s credit reports. At the time of closing, Tieskotter and Patterson caused additional disbursements of monies to PK Design Group, LLC, an entity controlled by Patterson, or Dream Design, a trade name for an entity controlled by Tieskotter. Tieskotter and Patterson concealed from the lenders and other parties associated with the transactions their control of these entities.

Upon conviction of the alleged offenses, Tieskotter and Patterson shall forfeit to the United States all property constituting or derived from proceeds traceable to the commission of the offense, including but not limited to a sum of money equal to $219,566 for money laundering and $4,710,666.86 for wire and mail fraud charges.

“Prosecuting those responsible for mortgage fraud is a priority of the Department of Justice,” said U.S. Attorney David Gaouette. “Those attempting to illegally take advantage of financial institutions will face prosecution.”

“Combating mortgage fraud is a priority because of its impact on the well being of our housing markets and national economy,” said Special Agent in Charge James H. Davis. “Law enforcement and the community at large must maintain their vigilance in identifying those who commit these types of fraud.”

“The use of the Postal system to carry out or further any fraud is a crime which is investigated thoroughly by the United States Postal Inspectors,” said U.S. Postal Inspector in Charge Shawn Tiller. “We were pleased to once again team up with our federal partners in the Denver area to bring these perpetrators to justice.”

“IRS Criminal Investigation will work diligently with our law enforcement counterparts to insure mortgage fraud is vigorously investigated and brought to justice. Mortgage fraud directly threatens the financial health of the communities in which we live, said Christopher M. Sigerson, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.”

Counts one through nine allege wire and mail fraud, which carries a penalty of not more than 20 years imprisonment, and up to a $250,000 fine, per count.

Counts ten through thirteen allege money laundering, which carries a penalty of not more than 10 years imprisonment, and a fine of up to $250,000.

This case was investigated by the Internal Revenue Service Criminal Investigation (IRS CI), the Federal Bureau of Investigation (FBI), and the United States Postal Inspection Service (USPIS).

A Weld District Court judge has ruled in favor of eight Greeley-area Latino residents in their civil rights complaints against owners of a former Greeley real estate agency and its mortgage company for targeting Latino homebuyers with deceptive practices.

The families last year filed civil rights complaints against JS Real Estate and co-owners Mark Strodtman and Dean Juhl, their assistant, Flora Carmona, and mortgage brokers Charles Brandt and Jessica Feliciano-Brandt.

The Colorado Civil Rights Coalition filed two separate lawsuits on behalf of the families, who said the defendants targeted them and tricked them into buying homes they could not afford, or put them in loans with adjustable and ballooning interest rates.

In the case filed by Martin Zozaya and Angelica Quintana, Judge Dan Maus issued a default judgment against all the defendants — except Strodtman and Carmona — ordering they each pay a $10,000 penalty. Damages in the second case, filed on behalf of Gerardo and Delia Bravo, Jesus and Cira Devora and Ramon and Blanca Madrigal, will be argued at a court hearing in May.

Contacted Monday, Juhl said he knew of the penalty, but he declined to comment.

Strodtman was found guilty last fall of 11 counts of felony theft, 11 counts of felony forgery and one count of racketeering under the Colorado Organized Crime Control Act for a mortgage scheme in 2006-07 involving a west Greeley subdivision. He was sentenced to 31 years in prison. Charges against Carmona, Brandt and Feliciano all were dropped in exchange for their testimony against Strodtman.

Strodtman and Carmona’s civil rights cases are still pending, according to the state Department of Regulatory Agencies. Strodtman’s attorney asked that the judge defer the civil case against him while his criminal case was still pending, and Carmona answered the first case, avoiding a default judgment; she did not answer the second case.

DORA director Steven Chavez found in November 2008 that the defendants violated Colorado’s Fair Housing laws by targeting Latino homebuyers in the Greeley area, with the intent to discriminate, which eventually forced the homebuyers into foreclosure.

DORA stated the defendants focused their advertising in traditional Spanish media markets and used affinity marketing techniques, such as using bilingual sales staff to lure buyers to specific properties that they were not financially qualified to buy, according to a prepared release.

Many homebuyers were promised that they would refinance in a few years and make a profit. When they tried to refinance, the complainants were told the homes weren’t worth what they paid for them and that they had no equity, the release stated.

The lawsuit states that Strodtman made discriminatory statements such as, “The whole Hispanic population can be likened to trained pigs coming to a trough; you give them reason to come and they’ll come and give you all their money.”

One of two men indicted for defrauding investors who believed their money was being used to finance home construction in Colorado Springs and a high-tech business campus near Larkspur has been sentenced to five years in prison.

Derek Roy Kent, 64, has also been ordered to pay restitution of $765,477 to his victims.

Indicted in September along with Kent was 36-year-old Adam Kelepolo, who will go on trial May 4.

According to the indictment, Kent and Kelepolo raised more than $458,000 from 32 investors for a variety of projects, including a purported effort to develop homes in the Broadmoor Bluffs area of Colorado Springs.

Kelepolo, described as president and chief executive of Lion Gate Homes, was also allegedly involved in a project known as Larkspur Railyard Land, a proposed high-tech business campus near Larkspur.

Kelepolo is alleged to have used the money for personal expenses, including restaurant bills and gambling at Cripple Creek casinos.

According to the indictment, Kent found several of the investors via SunAmerican Securities and AIG Financial Advisors Inc., where he worked as a licensed stockbroker and financial adviser.

By Howard Pankratz
The Denver Post

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NEW YORK - Manhattan District Attorney Cyrus Vance, Jr., announced the arrest and second indictment of former businessman Adam Hochfelder, 39, of Manhattan, on charges of defrauding investors in two real estate deals, following an investigation by the Manhattan District Attorney’s Office.

Monday’s indictment charges Hochfelder with engaging in schemes to steal approximately $2.5 million from investors in his purported acquisition of the Sagamore Hotel on Lake George, and The Peaks Resort and Spa in Telluride, Colorado. The new charges are in addition to a scheme that already led to a 58-charge indictment against Hochfelder in 2008 for stealing more than $17 million through a series of fraudulent loans from banks, friends, and family, and through a fictitious real estate venture.

“The defendant systematically defrauded his friends, family and business associates out of millions of dollars through phony real estate deals, repeatedly abusing the trust of those who believed he was an upstanding businessman,” said District Attorney Vance. “This type of serial fraud, whether victimizing experienced speculators or novice investors, is a serious crime that can threaten the financial well-being of its victims.”

As charged in the indictment and in court filings, in addition to the Sagamore Hotel, Hochfelder also stole money from investors in a real estate project called The Peaks Resort and Spa in Telluride, CO.

Mark Strodtman, owner of JS Real Estate, LLC in Greeley, Colorado, was sentenced by a Weld County judge January 4 to 31 years in prison.

A jury on Nov. 18 convicted Strodtman of 23 criminal counts including one count of a pattern of racketeering under the Colorado Organized Crime Control Act; 11 counts of theft of $15,000 or more; and 11 counts of forgery of a check or commercial instrument.

In April 2007, more than 20 homeowners alleged that Strodtman and his associates from JS Real Estate LLC tricked them into buying homes out of their price range by falsifying documentation to approve their loans. The homes bought are located in the Gateway Lakes subdivision in southwest Greeley.

He had been indicted in March 2008 in connection with a mortgage fraud scheme. The indictment asserted he induced, or directed others to induce, buyers by agreeing to pay them a kickback from the proceeds of the sale of the homes, under-representing the amount of the monthly mortgage payments, and encouraging them to occupy the home prior to closing the sale.

It also alleged that Strodtman assisted in securing financing for the purchase of JS Real Estate’s homes by providing lenders with false information, including inflated incomes and assets and falsely verified employment and outstanding loans.

Strodtman failed to turn himself in to the sheriff’s department after the charges were filed. After an extensive search by the Federal Bureau of Investigation and the Weld County Sheriff’s Office that reached south to Mexico. He was arrested as a fugitive in Mexico on September 23, 2008. He was transported back to the Weld County Jail the following month.

Strodtman’s business partner in JS Real Estate, Dean Juhl, pleaded guilty on Feb. 13, 2009, to theft of $15,000 or more and to second-degree forgery. He received a four-year deferred sentence, will serve 30 days in jail, complete 100 hours of community service and pay restitution.

The charges against Strodtman could have carried a maximum sentence of 378 years: 48 years for the COCCA count, 24 years for each theft count and six years for each forgery count. Weld District Court Judge Marcelo Kopcow handed down 24 years for the COCCA count, four years for one of the theft counts and three years for one of the forgery counts. Strodtman’s sentences for the theft and forgery counts will run concurrently.

Philip R. Lochmiller, 61, of Mack, Colorado along with two co-conspirators was charged in federal court December 17, 2002 with multiple counts of fraud and conspiracy.

Lochmiller is accused of cheating local investors out of millions of dollars during the past few years. The counts range from conspiracy to commit mail fraud to money laundering. If convicted of the charges he faces decades.

U.S. Magistrate Judge Gudrun Rice advised Lochmiller of the counts he faces before a courtroom packed with former investors. About 60 people attended the one-hour hearing Thursday afternoon.

Lochmiller was later released on a $100,000 personal recognizance bond. He is to return at 2 p.m. Dec. 22 for arraignment in the same court.

The judge attached a number of conditions to his bond including one that prohibits him from opening new lines of credit or making new credit charges.

Lochmiller was also ordered to surrender his passport; restrict his travel to within state limits; and, avoid contact with former investors and employees. That includes his son, Philip Lochmiller II, who was indicted on similar charges.

Other conditions also apply. The younger Lochmiller did not appear with his father on Thursday.

A third person, Shawnee Carver, 33, of Grand Junction was also indicted by the grand jury. Carver, a former employee, is expected to appear in court next week, authorities said.

She worked for the company from 2005 to May 2009.

Lochmiller, clad in blue jeans and a button-down shirt, was largely silent as the judge advised him of the counts he faces. He acknowledged the judge from time to time by saying, “All right” or “Yes, your honor.”

Only once did he utter more than a few words. That came at a point in the hearing at which he was being advised of his rights. He told the judge he had “spent in excess of $120,000 in legal fees so far.”

She later found Lochmiller qualified to be represented by a public defender, which is to be appointed at a later date.

Rice made the determination based on a financial form Lochmiller submitted to the court.

Lochmiller’s alleged woes stem from the failure of Valley Investments.

According to the indictment, Valley Investments, which was originally called Valley Mortgage, was incorporated in 1994 in Colorado. The business initially engaged in originating or brokering home mortgages.

The business was owned and operated by Lochmiller and his son.

In 1999, they entered into the affordable housing real estate development and housing sale business.

The business primarily involved the acquisition of vacant land, or existing mobile home parks and converting them to “mobile or manufactured home subdivisions.”

To finance the properties, they advertised and solicited investments with investors and promised returns as high as 18 percent in some cases.

Between approximately 2000 and 2009, the Lochmillers caused Valley Investments to receive about $31 million from about 400 investors, the indictment sates.

The defendants, among other things, are also accused of engaging in a scheme to commit securities fraud.

As part of the alleged scheme Valley Investments did not own sufficient property or assets to the investments as represented to investors. The defendants allegedly used new investment money to pay previous investors, operate the business and fund personal expenditures of the Lochmillers. They are accused of continuing to solicit investor funds for years even though the business was not making sufficient profit.

Fredric “Rick” Dryer, who was accused of scamming investors out of millions of dollars in a massive real estate fraud scheme, has been sentenced to prison for 132 years by a Denver, Colorado, district court judge.

The Sixty-year-old Dryer was convicted in July of 2008 on 43 felony counts including racketeering, securities fraud and theft. He was indicted in 2006 with two co-defendants–Richard Darrow and Jeffrey Dietz–for using his companies, Mile High Capital Group and Replacement Property Solutions, to cheat scores of investors out of their money.

In addition to the 132-year prison term, Dryer was ordered to pay $3,426,460.08 in restitution.

Denver Chief Deputy District Attorney Joe Morales and Deputy District Attorney Kandace Gerdes took Dryer to trial last summer. Morales argued for a lengthy prison term, asking the Court for justice on behalf of each victim. Dryer’s 132 year sentence ranks among the longest in Colorado for a white collar criminal.

Dryer’s co-defendants pleaded guilty earlier. Richard Darrow, age 43, pleaded guilty to violating the Colorado Organized Crime Control Act and was sentenced to a suspended 20-year prison term that requires 2 years in the Denver County Jail and 10 years of probation. He has also been ordered to pay $1,150,000 in restitution.

Jeffrey Dietz, age 39, pleaded guilty to securities fraud and was sentenced to 2 years of probation and ordered to pay $990,406 in restitution.

For more on this story, please read Bob Mook’s excellent article “Mile High Capital founder Dryer sentenced to 132 years” in the Denver Business Journal.

While members of Congress, President Bush, and the Treasury Department attempt to work out (pun intended) the $700 billion Troubled Asset Relief Program, real estate and mortgage fraud continues to be the fastest-growing white collar crime in American:

WaMu loaned millions to California home flippers convicted in fraud scheme: Records show WaMu, America’s largest savings and loan, financed at least 43 mortgages worth $24.5 million on properties bought and sold by members of the Soni family since 2007. Of the 22 homes sold in that period, at least six have become problems for WaMu: Four were foreclosed, one received a notice of default and another was listed for sale at a $260,000 loss. Total value of WaMu’s mortgages on the troubled properties: $2.7 million.

Weld County’s ‘Most Wanted’ fugitive — a developer — busted in Mexico: Weld County’s “Most Wanted” fugitive sits in a California jail today after a dogged investigation led to his arrest in Mexico. Mark Strodtman, a Greeley developer, was indicted March 25 by Weld County grand jury on 23 felonies, including racketeering. Strodtman, 51, and two others are accused in a mortgage fraud scheme that left many Greeley area families in foreclosure, reduced property values of neighboring homes and defrauded lenders, according to the Weld County District Attorney’s Office.

Brothers admit to million-dollar mortgage fraud: Federal prosecutors say two Virginia brothers have pleaded guilty in a million-dollar mortgage fraud scheme. Twenty-nine-year-old Mohammed Rababeh of Vienna and 31-year-old Ahmed Rababeh of Haymarket pleaded guilty Wednesday to conspiring to commit bank fraud.

Former mortgage loan officer pleads guilty to fraud scheme: A 25-year-old woman pleaded guilty in federal court yesterday to participating in a mortgage fraud scheme and faces up to five years in prison and $250,000 in fines. Paula Galacgac admitted that, while working as a loan officer for Mortgage Ability, LLC she recruited two “straw buyers” for properties on O’ahu and assisted them in fraudulently applying for mortgage loans worth more than $400,000. Other members alleged to be part of the fraud conspiracy were named in a separate criminal indictment returned by a federal grand jury May 30.

Officials say Florida man is part of mortgage scheme: A Seffner man was arrested Wednesday in connection with a multimillion-dollar mortgage fraud scheme that victimized dozens of people since 2004, the Florida Department of Law Enforcement said. Michael Fetterhoff, 37, of 205 Kingsway Road, was charged with grand theft of more than $100,000. Fetterhoff worked in sales for Advanced Mortgage Solutions, a mortgage broker company associated with other home improvement businesses that persuaded mostly minority customers in poor areas of Florida to take out home loans, FDLE spokeswoman Trena Reddick said.

Kansas City mortgage fraud ringleader sentenced to 13 years: A Kansas City businessman was sentenced to 13 years in prison for a $17 million mortgage fraud scheme that included buying a home owned by former Jackson County Executive Katheryn Shields and her husband. Raymond Zwego Jr. will also pay nearly $5.6 million in restitution and serve three of those years in prison for a probation violation.

AARP Calls For Help For Victims of Mortgage Fraud: Florida is one of only three states that doesn’t offer financial protection to victims of fraudulent loans. We’re also first in the nation for mortgage fraud. The Florida Association of Mortgage Brokers and AARP are calling on lawmakers to revive the Mortgage Brokerage Guaranty Fund. The fund was quietly cut in the 90’s. It would pay some victims or mortgage fraud 20,000 dollars for their losses. AARP Spokesman Dave Bruns said if the program hadn’t been canceled, today the state would have 24 (m) million dollars to help victims.

Delray Beach mortgage agent guilty of fraud: A Delray Beach mortgage broker pleaded guilty Friday to participating in a wire fraud scheme to misappropriate more than $1.2 million in client funds supposedly held in escrow for real estate transactions and related expenses. John Mohan, 38, faces up to 20 years in prison when he is sentenced Dec. 19 in federal court. According to the U.S. Attorney’s Office, Mohan worked as a mortgage broker and closing agent. He collected money from buyers and lenders and represented to the parties that the funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. Prosecutors said Mohan used the money for personal use and investments and tried to conceal the fraud and prevent immediate foreclosure of the property by sometimes making payments on the homeowner’s original mortgage.

Virginia mortgage broker sentenced in real estate fraud scheme: A mortgage broker from Norfolk has been sentenced to four years in federal prison in a mortgage fraud case involving a home in northern Virginia. Fifty-year-old David A. Freelander was sentenced last Friday in Alexandria federal court. He has to pay more than $5.4 million in restitution.

Florida AG suing 10 companies, 15 individuals for mortgage fraud: Florida Attorney General Bill McCollum announced last Friday that his state’s Mortgage Fraud Task Force is suing 10 companies and 15 individuals for their alleged roles in a Central Florida mortgage fraud scheme. The suit alleges that the group obtained more than $37 million in mortgage loans for at least 60 homes and siphoned off more than $6 million of the loan proceeds for their personal use.

12 indicted in Atlanta mortgage fraud scheme: Local authorities said last Monday they charged 12 men with an elaborate mortgage fraud scheme in Atlanta’s West End neighborhood and seized more than $200,000 of assets. In indictments filed last week, Fulton County District Attorney Paul Howard Jr. accused the men of buying and selling nine homes using false appraisals that were more than double the homes’ actual value. Seven of the houses were in the 30310 zip code in the West End, where 26 homes were put up for foreclosure auction in late June.

The last seven day have proved to be quite fruitful in Colorado’s attempt to curb real estate and mortgage fraud. Around the same time Fredric “Rick” Dryer was found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC, another Denver, Colorado-based real estate con man was found guilty of ripping off the very people he once swore to help.

A jury in U.S. District Court in Denver has found Arvin Weiss, age 58, of Englewood, Colorado, guilty of mortgage fraud and witness tampering in a case involving Hispanic homebuyers (specifically, Weiss was found guilty of 16 counts, including eight [8] counts of mail fraud, five [5] counts of wire fraud, and three [3] counts of witness tampering).

The guilty verdict came after a 13-day trial before a Senior U.S. District Court Judge, where the jury deliberated for less than one day.

Arvin Weiss, who is currently is free on bond, faces five years in federal prison and/or a $250,000 fine per count of mail fraud and wire fraud. In addition, he faces 10 years in federal prison, and/or a $250,000 fine per count for witness tampering. A status conference is scheduled for October 22, 2008, at which time the judge will set a sentencing date.

Arvin Weiss was originally indicted by a federal grand jury in Denver on April 20, 2005. The indictment was superseded on September 27, 2007. The trial began on June 23, 2008.

According to the indictment, as well as facts presented during the government’s trial, from June 1998 through January 2002, Weiss ran a scheme that fraudulently obtained money and property from mortgage companies which funded federally insured loans. Weiss, a licensed real estate broker, bought and sold properties as Reserve Capital Funds, Inc.

Reserve Capital Funds acquired numerous single-family residences in the Denver area at low prices. Within a few months, and after some improvements had been made, Weiss resold the properties at substantially higher prices to unsophisticated low-income buyers. The buyers Weiss targeted were Hispanics who knew little or no English, many of whom were living in the United States illegally.

Many of Weiss’ Hispanic buyers did not understand the mortgage loan process, but wanted to purchase their own homes even though they could not legitimately qualify for mortgages. Weiss arranged for buyers to acquire mortgages insured by the Federal Housing Administration (FHA), so they could purchase homes his company owned. Knowing that the buyers he targeted could not afford to buy houses or legitimately qualify for home loans, Weiss allegedly arranged for false information about the buyers’ qualifications and the sources of their down payments to be provided to various mortgage companies and HUD, making it appear that the buyers were qualified to receive FHA insured loans when they were not.

Operating under the name of Fairfax Homes, Ltd., Fairfax Express Corporation, or just Fairfax (all of which Weiss controlled), Weiss would represent to prospective buyers that he had houses or could find houses the buyers could purchase, and that he and an assistant would take care of all the necessary paperwork. He also told buyers they would not have to make down payments using their own funds, despite a requirement by HUD to do so.

The buyers would provide their personal information directly to Weiss or an assistant. Weiss would then provide information about the borrowers, some of which was true, but material portions of which were false, to the mortgage companies and HUD, injecting false information about the borrowers’ qualifications when necessary to enable them to qualify for the loans.

Weiss would secretly provide the funds for the down payments for the borrowers to be presented by the borrowers at closing. Weiss signed numerous false certifications that he had not and would not pay or reimburse the borrowers for any part of their cash down payments.

Weiss usually sold his properties for two or three times what Reserve Capital Funds had recently paid for them. The buyers typically did not have the option of competitive pricing and did not contest his asking price, because they could not legitimately qualify for the loans. In some cases, Weiss did not disclose the true purchase price to the buyers until closing. In many cases, by encouraging the buyers to move into the properties rent free prior to closing, Weiss minimized the possibility that they would back out of their purchase agreements when they were informed of the properties’ true cost.

Updated: 9:05 P.M. ET, July 17, 2008

According to reports out of Denver, Colorado, Fredric “Rick” Dryer has been found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC. From Bob Mook at the well-respected Denver Business Journal:

Dryer– the self-described multimillionaire, real estate guru and founder of Mile High — was found guilty on counts of violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud and theft. He was found not guilty of 14 counts of securities fraud and two counts of theft.

Dryer sat expressionless as the verdicts were read. He faces a maximum sentence of 24 years for each criminal count.

Dryer was convicted of 44 felony counts including violating the Colorado Organized Crime Control Act (racketeering), securities fraud, and theft. The jury found him not guilty on 15 additional counts.

Dryer and two co-defendants were indicted in 2006, accused of duping hundreds of investors who invested in his companies, Mile High Capital Group and Replacement Property Solutions. Denver’s Chief Deputy District Attorney Joe Morales and Deputy District Attorney Kandace Gerdes prosecuted the case, which spanned 12 days of testimony and three days of jury deliberations. According to Morales, after the jury was discharged, Dryer, who had been out on bond, was led from the courtroom in handcuffs to be held in custody pending sentencing on September 12, 2008 at 1:30 P.M Mountain Time in Denver District Courtroom 10.

Dryer now faces from between eight to 528 years in prison under the watchful eye of the Colorado Department of Corrections.

Dryer’s two co-defendants pleaded guilty earlier. Richard Darrow, 43, pleaded guilty to violating the Colorado Organized Crime Control Act and was sentenced to a suspended 20-year prison term that requires two years in the Denver County Jail and 10 years on probation. He was also ordered to pay $1,150,048.00 in restitution. Jeffrey Dietz, 38, pleaded guilty to securities fraud and was sentenced to two years probation and ordered to pay $990,406.00 in restitution.

In 2000, Rick Dryer launched Mile High Capital Group, LLC (MHCG)–a builder and developer of single-family homes, at the time specializing in mountain building. It was in late 2002, when Dryer was approached by out of state investment clubs looking for a reputable Colorado builder/developer, that the business model changed. Dryer didn’t think mountain properties were suitable for income property, so he began to research what would work.

Over the next two years, MHCG evolved into a builder of just such properties. Its reputation grew. Infinity Broadcasting sent its program directors to ask MHCG to sponsor its Rich Dad Poor Dad Real Estate Workshops, with Dryer as the main speaker with Robert Kiyosaki. Dryer’s research and experience evolved into what was to become his Right Place Right Time Real Estate Investment Strategies syllabus.

MHCG grew with Dryer’s reputation. The company planned to develop subdivisions around the country on the edges of high-growth areas where demand for rental properties was expected to be high. MHCG would then sell the rental properties to investors. The plan was to make it easy for real estate investors to purchase revenue-generating properties.

As far as real estate investment gurus go, Dryer had a track record and reputation that was good and getting better. Typical real estate investment gurus charge thousands of dollars for information that’s worth no more than about $50. They pitch risk-free, get-rich-quick schemes. They encourage people who are in no position to invest in real estate to become full-time investors. Most of these gurus are not successful real estate investors themselves–if they could make millions in real estate, they would not be spending their time pushing seminars.

Dryer was different. His Right Place Right Time Real Estate Investment Strategies were well known in the industry, and he had a solid public record of accurate predictions about emerging markets and trends. He became a popular and frequent speaker at Robert Kiyosaki’s Rich Dad Poor Dad real estate investor workshops around the country before starting his own workshops. He seemed to know his stuff and was said to careful remind people that investing in real estate carries risk. Dryer seemed like the real thing, and MHCG seemed like a legitimate company offering genuine real estate investment opportunities.

Through his seminars, Dryer promoted MHCG to attendees, and they were eager to buy these rental properties. The risk seemed negligible. After all, Dryer had a proven system in place for identifying areas where rental properties would soon be in high demand. His system was so successful, in fact, that many celebrities had bought into the program, including:

• Gary Eldred, PhD, author of Investing in Real Estate and professor of Trump University
• Richard Florida, PhD author of The Rise of the Creative Class and professor in the School of Public Policy at George Mason University
• Richard Karlgaard Publisher of Forbes magazine and author of Life 2.0
• Dan McCabe, Esq., CES of the Investment Exchange Group
• David Bach, New York Times and Wall Street Journal best-selling author of The Automatic Millionaire; Start Late, Finish Rich; and the entire Finish Rich series
• Mark Victor Hansen, New York Times and Wall Street Journal best-selling co-author of the Chicken Soup series

Having these big names involved added to Dryer’s and his company’s credibility, and the list of customers began to grow as investors spread the word to their friends and relatives of Dryer’s Right Place seminars. Money was pouring in. Under the direction of founder and CEO Rick Dryer, MHCG had risen from its humble beginnings to become a $150 million real estate business in just five years. According to court documents, MHCG had over a quarter billion dollars in sales by 2005.

Unfortunately, the product being sold was never delivered, and today Dryer was found guilty of committing some pretty serious real estate fraud-related acts.

Regular Flipping Frenzy readers may recall back around the end of last year and the beginning of this year when I posted several blog entries under the header of “Mile High Monday.” For background information or if you’re new to the blog or just forgot, click on any of the following links:

• December 10, 2007: Rocky Mountain Monday Continued — Said Differently: Mile High Monday
• December 17, 2007: Mile High Monday, Second Installment
• December 24, 2007: Mile High Monday, Fourth Installment: The Indictment
• December 31, 2007: Mile High Monday — the Fifth Installment: Introducing the Key Players
• January 7, 2008: Mile High Monday — the Sixth Installment: Introducing the Key Players
• June 2, 2008: Mile High Capital Group’s Richard Darrow Sentenced

Word today out of Colorado is that Dryer’s trial is nearly over. From Bob Mook at the Denver Business Journal:

Closing arguments in the criminal securities fraud trial of Mile High Capital Group founder Fredric “Rick “ Dryer were made Monday and the case sent to the jury.

Dryer, a flamboyant, self-described real estate “guru” who pitched investments in duplex projects at lavish sales promotions around the country, is charged with 60 felony counts — including violations of Colorado’s organized crime control act, securities fraud, conspiracy to commit securities fraud and theft.

Dryer pleaded “not guilty” to all charges. If convicted, he faces up to 24 years for each felony count.

Prosecutors alleged in a month-long trial that Mile High and its affiliated companies collected more than $44 million from about 1,200 investors from across the United States but completed just over 40 rental duplex units promised to investors between August 2003 and October 2005.

“It takes a lifetime for some people to make the kind of money he took. And that’s why we’re here,” Denver Deputy District Attorney Joe Morales said. “He knew he was a failure and he knew he was a convicted failure … but he took the money anyway.”

Dryer and other Mile High executives booked luxury hotels and convention centers to put on heavily advertised seminars promoting the value of investing in the company’s alleged real estate projects in high-growth areas of the country.

Dryer promised solid financial returns for each $16,500 initial payment on…

For more on this developing story, read the rest of Mook’s article, Mile High case goes to jury.

The FBI just released a comprehensive new report on real estate and mortgage fraud, and, as you might expect given everything we talk about here on Flipping Frenzy, it isn’t a pretty picture. The information contained in the report can get quite technical, with plenty of charts, graphs, and hard numbers. Regardless, it’s worth the read–see “The 2007 Mortgage Fraud Report.” Among the Report’s key findings:

1. Real Estate and Mortgage Fraud is clearly on the rise. Although there is no central way to track the total extent of the problem, the FBI received 46,717 Suspicious Activity Reports related to real estate and mortgage fraud last year—compared to 35,617 in 2006 and just 6,936 in 2003. Only 7% of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7% was $813 million. The FBI’s caseload has also escalated. By the end of fiscal year 2007, the Bureau was handling just over 1,200 real estate and mortgage fraud investigations—a 47% increase from 2006 and a whopping 176% increase from 2003.
2. The downward trend in the housing market will continue (see forecasts provided by the Mortgage Bankers Association in the report), providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.
3. The subprime lending crisis is a contributing factor to real estate mortgage fraud, both directly and indirectly. Subprime loans, designed for people with poor or limited credit histories, now represent more than 13% of all outstanding loans–double the percentage of five years ago. These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75% from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by industry insiders and borrowers under their charge anxious to qualify for loans, both of which contributed to fraud.
4. The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were:
   
   1. Florida
   2. Georgia
   3. Michigan
   4. California
   5. Illinois
   6. Ohio
   7. Texas
   8. New York
   9. Colorado
   10. Minnesota

   Other states significantly affected include: Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey, and Connecticut. The north-central region of the United States had the largest share of fraud, followed by the west and southeast regions.



5. The latest mortgage scams run the gamut: from builder-bailout schemes where developers unload excess inventory through financial trickery, to foreclosure rescue schemes that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes, to identity theft that leads to home equity credit lines being opened and drained.

The FBI’s report also briefly recounts the agency’s own response to the problem, including the Bureau’s participation in the Department of Justice’s Mortgage Fraud Working Group, through which the agency says it is helping to identify large-scale real estate industry insiders and criminal enterprises conducting systemic real estate fraud

The purpose of the The 2007 Mortgage Fraud Report is to provide insight into the breadth and depth of real estate and mortgage fraud crimes in the United States. The report updates the 2006 Mortgage Fraud Report and addresses current fraud projections, issues, and hot spots (as noted above). The objective of the report, according to the FBI, is to provide FBI program managers with relative data to justify real estate and mortgage fraud investigative and preventive resources and for investigators to identify real estate and mortgage fraud activity.

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

25 Indicted in Chicago mortgage fraud scheme: Federal authorities have charged 25 people in what is considered one of the largest mortgage fraud schemes in Chicago area history. Following a four-year investigation, the FBI and U.S. Attorney’s office alleged in three indictments that more than 150 homes were involved in fraudulent mortgage transactions worth $25 million.

Colorado real estate agents get lesson in fraud: Summit County, Colorado, real estate agents got a lesson in identity theft prevention this week at a workshop detailing a nationwide problem quickly seeping into the industry. Janet Elkins, a fraud specialist at Alpine Bank, gave a quick tutorial on how individuals can prevent against identity theft, as well as how business can make smarter choices to prevent thieves from getting their foot in the door.

Ogden, Utah, businessman charged with real-estate fraud: The Utah Attorney General’s Office has filed criminal charges against an Ogden businessman accused of bilking hundreds of investors out of more than $140 million. Val Edmund Southwick, 62, was charged in Salt Lake City’s 3rd District Court today with nine counts of securities fraud, a second-degree felony. Prosecutors accuse him of bilking 817 investors out of millions in a commercial real-estate investment scheme. The federal Securities and Exchange Commission filed a separate civil action against Southwick over his Ogden-based business, VesCor Capital, which it alleges was a “massive Ponzi scheme.”

State cracks down on mortgage brokers: Colorado regulators Friday announced their first actions against mortgage brokers under a new set of state laws aimed at curbing unscrupulous lending practices. In one case, the state’s Division of Real Estate issued a cease-and-desist order against Cade Emerson Lee, who it accused of acting as an unregistered mortgage broker in Colorado despite having been convicted of felony securities fraud.

Mortgage fraud spiraling out of control in London, England: “Endemic” mortgage fraud on new homes has triggered a wave of repossessions and forced a widespread crackdown by regulatory authorities. Initiatives to address lenders’ concerns that residential mortgage fraud is on the rise are either under way or will be launched by the Council of Mortgage Lenders, Financial Services Authority–the City watchdog–the Royal Institution of Chartered Surveyors and police forces around the country.

Michigan tax accountant sentenced in $21 million mortgage fraud case: A Dearborn Heights, Michigan, tax accountant, convicted of stealing $21 million in a mortgage fraud scheme, was sentenced in federal court Thursday to five years in prison. U.S. District Judge David Lawson sentenced tax accountant Kalil Khalil, 36, to 60 months in prison for wire fraud based on a two-and-a-half-year scheme to defraud mortgage lenders.

Kingpin of $30M mortgage fraud scam in Canada jailed: The kingpin of a $30-million mortgage fraud believed to be the largest in Alberta (Canada) history was sentenced Thursday to six years in prison. Gohar (Carmen) Ahmed Pervez, 45, pleaded guilty to 54 counts of fraud that netted him more than $1.8 million in profit in less than five years. He received two-for-one credit for the two years he has served in the remand centre and is now slated to spend two more years behind bars.

Texas couple indicted for $3 million real estate fraud: A Navarro County, Texas, grand jury handed down indictments against three individuals Thursday, in connection with what prosecutors are calling “an organized mortgage fraud scheme.” Lynn Marriott, 54, and Kandace Y. Marriott, 51, both of Gun Barrel City, along with Karen Hayes, 56, of Kemp, were indicted for the first degree felony. Cpl. Mark Nanny of the Corsicana Police Department uncovered the operation, subsequently bringing in the Housing and Urban Development department (HUD) to the investigation. The defendants were doing business as One Way Home & Land, dealing with manufactured housing. Prosecutors allege the company falsified residential loan applications in order to assure the buyers’ loans were approved by mortgage lenders.

A Denver, Colorado Grand Jury returned a 62-count indictment late last week against a man accused of scamming scores of investors who bought troubled properties and were later forced into foreclosure. Kenneth Germain, born December 12, 1943, is charged with one count of violating the Colorado Organized Crime Control Act, one count of theft, and 60 counts of securities fraud.

From Shawn Patrick at 9News.com:

Prosecutors say Germain scammed dozens of people into buying foreclosed properties from the U.S. Department of Housing and Urban Development and then kept the money for his own benefit. An arrest warrant has been issued for Germain and the Denver District Attorney’s Office says he has made arrangements to turn himself in to authorities in the next few days.

The indictment lists 60 victims with 167 properties involved in the alleged scam. Among the victims is Lisa Downing, owner of Vision Quest Entertainment, a local talent agency. Downing says her life savings and her son’s college savings are now gone, while her credit is ruined.

“I can’t get a loan. I may never be able to get a loan as long as I live,” said Downing. Downing figures she owes more than $2.5 million in loans for nine properties she bought across the metro area. Downing is not only experiencing financial heartache, but emotional stress since the investigation began 15 months ago.

“I was suicidal. My life was over,” said Downing.

Investigators say Germain acted as a property manager for a company he ran known as EQ Invest. The indictment alleges Germain promised investors he would fix up the foreclosed homes, and eventually rent them to suitable tenants, after investors put down 5 percent. Prosecutors say Germain also pledged to make the mortgage payments until selling the properties. Instead, investigators say Germain left his co-investors with the bills.

Downing claims the homes were overvalued in appraisals by anywhere between $40,000 and $90,000.

According to the indictment, Germain pocketed the money to pay for taxes, his personal mortgage payments and to spend at liquor stores.

Downing shakes her head in disgust when talking about Germain profiting from her life’s savings. “I worked so hard, raised my son as a single mom, built a savings to put him through college, and it was over. I don’t have the energy to rebuild it again,” said Downing. Still, Downing says she is lucky to be able to pay part of what she owes to try and save her credit, knowing other victims have lost their retirement savings and more. Many have defaulted with foreclosures on their records, and their credit, like Downing is now ruined.

“People have been divorced, they’ve become sick during this, it’s just unbelievable ruin,” said Downing.

Germain’s business affairs were run through other companies as well, including:

While promoting the real estate sales to the investors, he made the following material misrepresentations:

1. That he had never been sued: He had!
2. That he had never declared bankruptcy: He did!
3. That he had never taken money from the company: He did!
4. That he would repair the properties: He didn’t!
5. That he would make the mortgage payments, regardless of whether the properties were generating rent: He stopped making payments in August of 2006!
6. That he would enroll rental tenants in a program that would make them credit worthy so that they could buy the properties they were renting: This never happened!

Click here to read the entire indictment against Germain.

A leading online marketplace for foreclosure properties, yesterday released its August 2007 U.S. Foreclosure Market Report, which shows that a total of 243,947 foreclosure filings–default notices, auction sale notices and bank repossessions–were reported during the month, up 36 percent from the previous month and up 115 percent from August of last year. This is the highest number of foreclosure filings in a single month that RealtyTrac has reported since it began issuing the monthly report in January 2005.

The national foreclosure rate of one foreclosure filing for every 510 households for the month is also the highest figure ever issued in the report.

The jump in foreclosure filings may just be the beginning of the next wave of increased activity for house flippers, as a large number of subprime adjustable rate loans are now beginning to reset. A significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks.

Nevada, California, Florida post top state foreclosure rates

Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average. The state reported 6,197 foreclosure filings during the month, a 21 percent increase from the previous month and more than triple the number reported in August 2006.

California’s foreclosure rate jumped to second highest among the states thanks to a 48 percent month-over-month spike in foreclosure activity. The state reported 57,875 foreclosure filings during the month, a foreclosure rate of one foreclosure filing for every 224 households–more than twice the national average.

Florida foreclosure activity jumped 77 percent from the previous month, boosting the state’s foreclosure rate from seventh highest to third highest among the states. The state reported 33,932 foreclosure filings, a foreclosure rate of one foreclosure filing for every 243 households.

Other states with foreclosure rates ranking among the nation’s 10 highest were Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana.

Sun Belt, Rust Belt states dominate top foreclosure totals

Seven of the top 10 states in terms of total foreclosure filings in August were located in the Sun Belt, and three of the top 10 states were in the Rust Belt. After California and Florida, Ohio registered the third highest state total, with 17,793 foreclosure filings during the month. The state documented a foreclosure rate of one foreclosure filing for every 281 households, fifth highest in the nation.

Texas, Michigan and Georgia all reported more than 10,000 foreclosure filings for the month, documenting the fourth, fifth and sixth highest state foreclosure totals respectively, followed by Arizona, Colorado, Illinois and Nevada.

Top Metro foreclosure rates in California, Michigan, Florida, Nevada and Ohio

California cities once again accounted for six of the top 10 metro foreclosure rates in August, with the top three spots all taken by California cities. Modesto documented the nation’s highest metro foreclosure rate, one foreclosure filing for every 79 households, followed by Stockton and Merced. Other California cities in the top 10 included Vallejo-Fairfield at No. 5, Riverside-San Bernardino at No. 6 and Sacramento at No. 7.

Detroit posted a foreclosure rate of one foreclosure filing for every 87 households, the nation’s fourth highest metro foreclosure rate and more than five times the national average. Fort Lauderdale, Las Vegas and Cleveland, ranked Nos. 8, 9 and 10.