Failed Stockbridge Bank Allegedly Fleeced Before Being Seized By Feds

ATLANTA—An indictment unsealed today charges two former top officers of FirstCity Bank of Stockbridge, Georgia—MARK A. CONNER, 44, formerly of Canton, Georgia, and CLAYTON A. COE, 44, of McDonough, Georgia—with a variety of offenses, including conspiracy to commit bank fraud and bank fraud in connection with misconduct at FirstCity Bank in the years before the bank’s seizure by state and federal authorities on March 20, 2009. In addition to the conspiracy and bank fraud charges, the indictment charges CONNER with conducting a continuing financial crimes enterprise at the bank between February 2006 and February 2008, during which CONNER’s and his co-conspirators’ crimes allegedly generated over $5 million in unlawful gross proceeds.

A federal grand jury in Atlanta returned the sealed indictment against CONNER and COE on March 16, 2011. CONNER was arrested on the charges and taken into custody by federal agents at Miami International Airport yesterday morning, the two-year anniversary of FirstCity Bank’s failure, upon his arrival in Miami from the Turks and Caicos Islands in the West Indies. CONNER made his initial appearance today before a federal magistrate judge in Miami, who preliminarily ordered CONNER to be detained as a flight risk pending his transfer by Deputy U.S. Marshals from Miami to Atlanta for trial. A formal detention hearing will take place in Miami on Thursday, March 24, 2011, at 1:30 p.m. COE’s initial appearance on the indictment in the Northern District of Georgia has not yet been scheduled.

United States Attorney Sally Quillian Yates said, “The entire country has felt the deep economic impact of failed banks. At the heart of this indictment is an abuse of power by key insiders, who are charged with tricking their own colleagues into approving millions of dollars in commercial loans to fund the defendants’ own personal business activities, and to enrich themselves at the bank’s expense. Along the way, these defendants also allegedly defrauded state and federal bank regulators and examiners, and at least 10 other federally insured banks in Florida and Georgia that invested in the fraudulent multi-million-dollar loans.”

FDIC Inspector General Jon Rymer said, “The Federal Deposit Insurance Corporation (FDIC) Office of Inspector General (OIG) is pleased to join the United States Attorney’s Office for the Northern District of Georgia and our law enforcement colleagues in announcing this indictment. We are particularly concerned when former senior bank officials, who have held positions of trust within their institutions, are alleged to have been involved in criminal activity. We will continue to aggressively pursue bank officials and others who victimize financial institutions.”

Neil Barofsky, SIGTARP Special Inspector General for the Troubled Asset Relief Program said, “Today’s indictment marks yet another occasion where bank executives are alleged to have turned to criminal fraud in the midst of the financial crisis, including an attempt to obtain millions of dollars from the American taxpayer through the Troubled Asset Relief Program. SIGTARP will continue to work with our law enforcement partners to bring those who engage in such crimes to justice.”

IRS-Criminal Investigation Special Agent in Charge Reginael McDaniel said of the case, “Honest and law abiding citizens are fed up with the likes of those who use deceit and fraud to line their pockets with other people’s money. Those individuals who engage in this type of financial fraud should know they will not go undetected and will be held accountable.”

According to United States Attorney Yates, the charges, and other information presented in court: CONNER served in a variety of top positions at FirstCity Bank between 2004 and 2009, including as vice-chairman of the board of directors, as a member of the banks’ loan committee, as president, and later as acting chairman and chief executive officer. COE served as a vice-president and as FirstCity Bank’s senior commercial loan officer. While serving in these positions, CONNER, COE, and their co-conspirators allegedly conspired to defraud FirstCity Bank’s loan committee and board of directors into approving multiple multi-million-dollar commercial loans to borrowers who, unbeknownst to FirstCity Bank, were actually purchasing property owned by CONNER or COE personally.

The indictment charges that CONNER, COE, and their co-conspirators misrepresented the essential nature, terms, and underlying purpose of the loans and falsified documents and information presented to the loan committee and the Board of Directors. CONNER, COE, and their co-conspirators then allegedly caused at least 10 other federally insured banks to invest in, or “participate in” the fraudulent loans based on these and other fraudulent misrepresentations, shifting all or part of the risk of default to the other banks. COE’s bonus compensation was tied to the origination of FirstCity Bank loans, including the fraudulent loans with which he and CONNER allegedly assisted each other.

In the process of defrauding FirstCity Bank and the “participating” banks, CONNER, COE, and their co-conspirators allegedly routinely misled federal and state bank regulators and examiners to conceal their unlawful scheme. They also unsuccessfully sought federal government assistance through the U.S. Treasury Department’s Troubled Asset Relief Program (“TARP”) and engaged in other misconduct in an attempt to avoid seizure by regulators and prevent the discovery of their fraud.

The charge against CONNER for conducting a continuing financial crimes enterprise carries a mandatory minimum sentence of 10 years in federal prison, a maximum sentence of life in prison, and a potential fine of up to $10 million. The conspiracy and bank fraud charges against CONNER and COE, and a remaining charge against COE for fraudulently influencing the actions of a federally insured bank, carry a maximum sentence of 30 years in prison and a potential fine of up to $1 million on each count. In determining the actual sentences for each defendant, the court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.

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

This case is being investigated by special agents of the FDIC, Office of Inspector General; the Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), the Federal Bureau of Investigation, and Internal Revenue Service-Criminal Investigation.

Assistant United States Attorneys Douglas W. Gilfillan and David M. Chaiken are prosecuting the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

The final rule implementing the federal registration provisions of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act) takes effect on October 1, 2010. Institutions will be expected to implement appropriate policies, procedures and management systems to ensure compliance.

The final rule will be codified as a new subpart B to Part 365 of the FDIC’s Rules and Regulations (12 C.F.R. Part 365), available at: http://www.fdic.gov/news/news/press/2010/pr10170a.pdf.

Final Rule Supplementary Information Footnote Correction by the Federal Register (August 23, 2010): http://edocket.access.gpo.gov/2010/pdf/C1-2010-18148.pdf.

Applicable mortgage loan originators (MLOs) must register with the Nationwide Mortgage Licensing System & Registry (NMLS) within 180 days of the date the NMLS can begin accepting registrations, which could be as soon as January 28, 2011. The FDIC will provide advance notice of the exact date.

At this time there is no action required in the NMLS of any mortgage loan originator who is an employee of a federally insured depository institution or a subsidiary that is owned and controlled by such an institution and regulated by a Federal banking agency.

At this time registration is not yet possible in the NMLS for any mortgage loan originator who is an employee of a federally insured depository institution or a subsidiary that is owned and controlled by such an institution and regulated by a Federal banking agency. Watch for announcements from FDIC and NMLS and frequently monitor the NMLS website, Federal Registration section, for specific and useful technical information on how to accomplish registration. http://mortgage.nationwidelicensingsystem.org/fedreg/Pages/default.aspx

Suspects may find themselves behind bars living rent free thanks to nationwide mortgage fraud arrests.

Members of the Financial Fraud Enforcement Task Force released the results of a nationwide dragnet, “Operation Stolen Dreams,” which targeted mortgage fraudsters throughout the country and is the largest collective enforcement effort ever brought to bear in confronting mortgage fraud. The White Collar Crime Committee of the National Association of Chiefs of Police obtained relevant documents describing this enormous operation.

The sweep was organized by President Barack Obama’s interagency Financial Fraud Enforcement Task Force, which was established “to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.”

Starting on March 1 through June 17, Operation Stolen Dreams has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, to date the operation has resulted in 191 civil enforcement actions, which have resulted in the recovery of more than $147 million, according to the Federal Bureau of Investigation.

“From home buyers to lenders, mortgage fraud has had a resounding impact on the nation’s economy,” said FBI Director Robert S. Mueller, III. “Those who prey on the housing market should know that hundreds of FBI agents on task forces and their law enforcement partners are tracking down your schemes and you will be brought to justice.”

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

The operation was conducted in conjunction with the Department of Justice — including the FBI, U.S. Attorneys Offices, the U.S. Trustee Program, and other components — as well as the Department of Housing and Urban Development, the Department of the Treasury, the Federal Trade Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the U.S. Secret Service, the National Association of Attorneys General, and the National District Attorneys Association.

The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources, according to officials.

MORTGAGE FRAUD REPORT

According to the Federal Bureau of Investigation’s 2009 Mortgage Fraud Report, released today, mortgage fraud suspicious activity reports referred to law enforcement increased 5 percent to 67,190 during fiscal year 2009.

It’s estimated that $14 billion in fraudulent loans originated in 2009. The total dollar loss attributed to mortgage fraud is unknown.

Other key findings presented in the report include:

There are more than 2.8 million properties with foreclosure filings, a 120 percent increase from 2007 to 2009. The Las Vegas area reported the most significant rate of foreclosures, with more than 12 percent of housing units there receiving a foreclosure notice.

The top 10 states ranked by the number of foreclosure filings per housing unit were California, Florida, Arizona, Michigan, Nevada, Georgia, Ohio, Texas, and New Jersey. In April 2010, one in every 386 housing units received a foreclosure filing.

Prevalent mortgage fraud schemes in fiscal year 2009 include loan origination, foreclosure rescue, builder bailout, equity skimming, short sale, illegal property flipping, reverse mortgage fraud and loan modifications. Emerging trends include fraud involving economic stimulus plans/programs, property theft/fraudulent leasing of foreclosed properties and tax-related fraud.

Michael Fiorito, 41, was convicted in May, by a federal jury on seven counts of mortgage fraud in connection with an equity-skimming scheme that targeted vulnerable homeowners.

Fiorito had been a mortgage broker at three different Minnesota mortgage companies from 2003 through early 2007. Working with an assistant, he devised a scheme to defraud homeowners who were in foreclosure or behind on their payments.

This sounds all to familiar.  So what’s so different about this episode of mortgage fraud? Homeowners in distress were looking to save money in tough times.  So they refinanced their homes — only to discover they’d been taken in by fraud.

Now they are fighting the government in foreclosure and the loss of their home.

What you probably haven’t heard before is that these victims are being foreclosed on by the Federal Deposit Insurance Corp., a federal agency that generally pushes to keep people in their homes by reworking loans rather than foreclosing them.

So Glenn and Brenda Clark of Golden Valley are taking another unusual step — they are fighting their foreclosure in federal court.

The Clarks have filed suit in U.S. District Court in Minneapolis, saying their foreclosure is improper. They have asked for a temporary restraining order to allow them to come up with a way to stay in the home where they raised two daughters since 1993.

“It’s been a nightmare,” Brenda Clark said of their three-year battle.  Said the Clarks’ attorney, Jacqueline Williams: “We went through the proper channels, and it didn’t work. No one was listening.”

There is no doubt the Clarks are victims. He and the assistant convinced homeowners to refinance their homes — often after inflated appraisals — and then stole some or all of the equity checks the homeowners were to receive.

In all, Fiorito stripped more than $400,000 in equity from at least 17 victims. He is scheduled to be sentenced in federal court on Dec. 30.

In June of 2006, Fiorito called Glenn Clark after the Clarks’ application to refinance their mortgage through another lender was denied. The Clarks were hoping to cash in some of their equity to cover bills. After all, times were — and still are — not easy. In May 2005, Glenn Clark, a drywall installer, fell out of the back of a pickup truck and suffered a brain injury. Work has been sporadic ever since. Brenda Clark cuts and styles hair. Like many families, they needed the money.

“He promised we could get cash out with basically the same payment I had at the time,” Glenn Clark said.

So they went with Fiorito. They owed $201,000 on their home when Fiorito contacted them. But, using an inflated appraisal that Glenn Clark said he never saw, Fiorito promised the Clarks $23,500 in home equity.

Instead, he handed Glenn Clark a check for $16,000, which the Clarks never cashed. Fiorito pocketed the rest. When they saw they had been victimized, the Clarks contacted their banks and moved to cancel the mortgages.

But the clock never stopped ticking.

Now, the Clarks owe $240,000 for a house worth less than $200,000.  When the bank that held the Clarks’ mortgage went under in July 2008, the FDIC took over, Williams said. But, rather than renegotiating the mortgage, the FDIC continued the foreclosure process.

A real estate agent even showed up to change the locks. Others have offered the Clarks cash to leave before the eviction process is complete, Brenda Clark said.

The Clarks say all they want is to work out lower payments so they can keep their home.

FDIC chairwoman Sheila Bair has championed restructuring mortgages rather than foreclosing. She has even suggested providing financial incentives to banks to rework home loans to help people keep their houses.

Andrew Pizor, a staff attorney with the National Consumer Law Center (NCLC), said that has been the FDIC’s track record — restructuring loans rather than foreclosing.

So why not in the Clark’s case?

A recent report by the NCLC says that programs designed to encourage loan modifications have failed to slow the nation’s foreclosure crisis — in part because mortgage servicers find it cheaper to foreclose than to restructure.

A Jan. 7 hearing has been scheduled to consider the Clarks’ request for a temporary restraining order, as well as a motion by the FDIC to dismiss the case.

Williams, the Clarks’ attorney, said the only thing her clients did wrong was to trust a fraud.

“They were victimized by Fiorito,” she said. “They shouldn’t have to lose their home as well.”