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

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

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

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

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

NEWARK, NJ—A former New Jersey loan officer was sentenced today to 70 months in prison in connection with a mortgage fraud and property-flipping scheme involving rental properties in Paterson, NJ ., United States Attorney Paul J Fishman announced. Amer Mir, 42, of Jersey City, NJ ., was previously convicted in December 2009 after a five-week jury trial of wire fraud and conspiracy to commit wire fraud before United States District Judge Jose L Linares. Judge Linares also imposed the sentence today in Newark federal court. According to documents filed in this case and statements made in court: While a loan officer at Jersey City-based United Home Mortgage Co ., Mir conspired to originate fraudulent mortgage loans that were used to finance and refinance the purchase of two- and three-family rental properties in Paterson, NJ. by borrowers who could not afford those loans.

During late 2003 through early 2005, Mir routinely overstated borrowers’ assets when taking their loan applications. In addition, he directed the creation of false letters concerning the borrowers’ credit histories. He received $200,000 in commissions once the fraudulent loans closed, as well as substantial cash payments from one of the ringleaders of the scheme.

And Judge Linares found that Mir lied to law enforcement prior to being charged and then perjured himself repeatedly while testifying at trial. In addition to the prison term, Mir was sentenced to three years of supervised release, ordered to pay $2,341,937.82 in restitution, and required to forfeit $210,000 in proceeds of the scheme. Mir’s case is part of an ongoing investigation by the United States Department of Housing and Urban Development Office of Inspector General (HUD-OIG), the FBI, the United States Postal Inspection Service and IRS-Criminal Investigation into fraudulent Federal Housing Administration-insured and conventional mortgage loans originated by various New Jersey mortgage companies.

The investigation has resulted in more than a dozen convictions of current or former New Jersey residents, including: Michael Eliasof, a former real estate agent who helped orchestrate the scheme; Gerald Carti, a former loan officer and shareholder of United States Mortgage Corp. who originated fraudulent mortgage loans during the scheme; Frederick Ugwu, a real estate investor who sold many Paterson properties during the scheme; Norman Barna, who like Ugwu sold many Paterson properties through the scheme; William Ottaviano, an appraiser who misstated the condition of many of the Paterson properties involved in the scheme; Renford Davis and Hopeton Bradley (now deceased), who jointly managed many of the Paterson properties involved in the scheme; Claribel Morrobel, a recruiter for the scheme; and Melanie Gebbia, the former legal assistant of William Colacino (now deceased), a former Garfield attorney and municipal court judge. Ugwu was convicted at the 2009 trial for his role in the scheme, and Judge Linares recently sentenced him to 50 months in prison and ordered him to pay more than $1.6 million in restitution and forfeit more than $1.75 million in proceeds from the scheme.

In addition, Judge Linares recently sentenced Corallo, Eliasof, Carti and Ottaviano to 51 months, 40 months, 27 months, 15 months, and six months in prison, respectively, for their roles in the scheme, while Barna, Gebbia, and Morrobel each received probation. United States Attorney Fishman credited special agents of HUD-OIG, under the direction of Special Agent in Charge Joseph W Clarke for the Mid-Atlantic region; special agents of the FBI, under the direction of Special Agent in Charge Michael B Ward in Newark; inspectors of the United States Postal Inspection Service, under the direction of Acting Postal Inspector In Charge Thomas E Boyle; and special agents of IRS-Criminal Investigation, under the direction of Special Agent in Charge Victor W Lessoff, for the investigation leading to today’s sentence.

The government is represented by Assistant United States Attorney Mark E Coyne, Chief of the United States Attorney’s Appeals Division, and Assistant United States Attorney Matthew E Beck of the United States Attorney’s Economic Crimes Unit. Defense counsel: Gerald M Saluti, Esq ., Newark, NJ.

Reported by: FBI

Earlier today in federal court in Minneapolis, a 46-year-old Cottage Grove man pleaded guilty to defrauding investors out of more than $5 million in a multi-state house-flipping scheme. Appearing before United States District Court Chief Judge Michael J. Davis, Robert W. Dufresne pleaded guilty to one count of mail fraud and one count of money laundering in relation to his crime. He was charged on February 7, 2011.

In his plea agreement, Dufresne admitted that between October of 2005 and October of 2008, he sought investors to supply funds purportedly for the purchase, rebuilding, and resale of residential properties in Minnesota and other states. Investors expected the sale proceeds to be divided among them. However, Dufresne used the initial investment funds for his personal benefit and relied on subsequent investment funds to pay off the initial investors.

For his crimes, Dufresne faces a potential maximum penalty of 20 years in federal prison on the mail fraud charge and 10 years for money laundering. Judge Davis will determine his sentence at a future hearing, yet to be scheduled.

This case is the result of an investigation by the U.S. Postal Inspection Service, the Federal Bureau of Investigation, and the Internal Revenue Service-Criminal Investigation Division. It is being prosecuted by Assistant U.S. Attorney Robert M. Lewis.

BOSTON—United States Attorney Carmen M. Ortiz; William P. Offord, Special Agent in Charge of the Internal Revenue Service Criminal Investigations, Boston Field Division; and Richard DesLauries, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division, announced today that EDGAR CORONA pleaded guilty before U.S. District Judge Michael A. Ponsor to wire fraud and money laundering.
At today’s plea hearing, the prosecutor told the court that had the case proceeded to trial, the government’s evidence would have proven that from 1998 through 2002, Corona, 32, participated in a multi-million-dollar mortgage fraud scheme involving the sale of distressed properties at inflated prices. Corona served as a “runner,” who recruited prospective buyers for the land flippers. Twelve other individuals were previously convicted in the same scheme.
Judge Ponsor sentenced the defendant today to time served and three years of supervised release and advised the defendant that it was likely that he would be deported.
The case was investigated by the Internal Revenue Service, Criminal Investigation and the Federal Bureau of Investigation. It was being prosecuted by Assistant U.S. Attorney Karen Goodwin of Ortiz’s Springfield Branch Office.
Mortgage fraud is a key focus of the Department of Justice. The Department of Justice alongside its federal, state, and local partners is committed to investigating and prosecuting significant financial crimes. The Department is committed to combating discrimination and fraud in the lending and financial markets, and recovering proceeds for victims of financial crimes.

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

“Mortgage fraud is an insidious crime that has devastating economic effects on families, communities and the nation,” said FBI Director Robert S. Mueller, III. “The FBI remains committed to working with our law enforcement, regulatory, and industry partners to unravel these complicated fraud schemes driven by greed and bring their perpetrators to justice.”

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.

The entire report is available on the FBI’s website. While there, sign up for e-mail alerts to ensure you receive the latest information about the FBI.

***

Frank S. Guzik Jr., 41, of Derry owned and operated investment and housing companies in Monroeville. He received more than $14 million from 105 investors before disappearing, federal court filings say. He promised annual returns of 8 percent to 14 percent from the practice of “flipping” properties — buying distressed houses cheaply, fixing them up and quickly selling for a profit.

Prosecutors say that in reality, Guzik provided multiple investors with mortgages on the same properties and assigned them higher values than they were worth. For one property on McNeilly Avenue in Dormont, he took money from different investors and provided them with mortgages ranging from $25,000 to $100,000, the federal indictment states.

One of Guzik’s last acts before vanishing was to purchase $200,000 worth of untraceable gold coins, according to information unsealed recently. He hasn’t been seen here since about March 2008. He is charged with mail and wire fraud and faces up to 20 years in prison if convicted.

Bernardo Katz, 50, of Mt. Lebanon was charged with two co-defendants a year ago for trying to sell properties for more than they were worth from 2005 to 2007, and for lying about their values and the amount of rent they generated. Federal prosecutors linked Katz and the others to wire transfers from two banks totaling $1.7 million.

Katz, a cellist-turned-investor, developed commercial properties in Mt. Lebanon and bought several Beechview buildings. He fled to Brazil in 2007 with three of his four children, authorities say.

Charged with wire and bank fraud, Katz faces up to 30 years in prison if convicted.

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Filed in Oklahoma City by two banks and a title insurance company, the suits claim that Kevin and Deborah Flessner bought three apartment complexes in Oklahoma and one in South Carolina at the height of the real estate boom for $9.1 million and sold the complexes — within five days or less — to companies they controlled for $13.5 million.

The couple then used the higher valuations to get $10.3 million in loans, or $1.2 million more than they first paid for the properties.

The Flessners’ intent was to “deceive federally insured mortgage lenders into overvaluing apartment properties to the tune of $900,000 or more per transaction,” says the suit filed by Imperial Capital Bank, a Glendale, Calif.-based lender that was shuttered in January by regulators. “The excess loan proceeds would then be pocketed by the defendants or invested as equity in further transactions under the scheme.”

The Flessners have denied the charges, saying in court documents that they did not conspire to defraud any bank.

The kind of flipping described in the lawsuits — in which buyers sell properties to themselves at inflated values to get more loan money than they would have otherwise have entitled to receive — is the same kind the Herald-Tribune wrote about in a series of stories published in July.

Filed in Oklahoma City by two banks and a title insurance company, the suits claim that Kevin and Deborah Flessner bought three apartment complexes in Oklahoma and one in South Carolina at the height of the real estate boom for $9.1 million and sold the complexes — within five days or less — to companies they controlled for $13.5 million.

The couple then used the higher valuations to get $10.3 million in loans, or $1.2 million more than they first paid for the properties.

The Flessners’ intent was to “deceive federally insured mortgage lenders into overvaluing apartment properties to the tune of $900,000 or more per transaction,” says the suit filed by Imperial Capital Bank, a Glendale, Calif.-based lender that was shuttered in January by regulators. “The excess loan proceeds would then be pocketed by the defendants or invested as equity in further transactions under the scheme.”

The Flessners have denied the charges, saying in court documents that they did not conspire to defraud any bank.

The kind of flipping described in the lawsuits — in which buyers sell properties to themselves at inflated values to get more loan money than they would have otherwise have entitled to receive — is the same kind the Herald-Tribune wrote about in a series of stories published in July.

In that series, the Herald-Tribune showed that groups of flippers in Southwest Florida and across the state contributed to defaults on more than $500 million in loans in Sarasota and Manatee counties and $10 billion or more statewide.

What makes the lawsuits involving the Flessners significant is that they go into detail about the couple’s alleged orchestration of the flips and the real estate professionals who are said to have helped them. Outside of criminal cases, detailed information is hard to find.

Only one of the lawsuits — the Imperial Capital Bank lawsuit — was filed directly against the Flessners.

The other two — one filed by Wells Fargo and another by First American Title — take the alleged fraud on the part of the Flessners as a given and blame bankers and real estate professionals for allowing the fraud to occur.

Though the Flessners have denied the charges, the documents they filed do not explain why they needed to sell the properties to themselves at higher values.

The Flessners did not return three calls from the Herald-Tribune for comment, and Kenneth Jones, a lawyer representing the couple in Oklahoma City, did not return four phone calls.

But Harry Haskins, an attorney who represents the Flessners in Sarasota, said his clients have been hit with allegations that are not true.

Haskins said he was told that Imperial Bank knew that there were two purchase contracts at two different prices when it made its loan on the Archway Apartments in Oklahoma City.

“Banks do their own appraisals and there was nothing wrong with that appraisal,” Haskins said. “They okayed that loan. This is not a situation in which the property was over-mortgaged or over-collateralized.”

Tampa, FL – Craig Adams, orchestrator of one of the largest real estate fraud rings in Florida history, has secretly spent more than a year and a half as an FBI informant, helping build cases against the people he once recruited into his schemes, the Herald-Tribune has learned.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

“We did not discuss it because of the ongoing nature of the investigation,” said Steve Cole, spokesman for the U.S. Attorney’s Office for the Middle District of Florida. “I cannot comment further.”

Sarasota County Sheriff’s Detective Jeffrey Harris is also involved in the criminal investigation, but a spokeswoman for his agency referred questions to the U.S. Attorney’s Office.

The newspaper’s investigation revealed how Adams recruited friends, family members and business associates to trade houses back and forth for phony prices. With each sale, the price of the house was artificially increased, allowing buyers to qualify for oversized mortgages.

Sources familiar with the deals told the Herald-Tribune “profits” generated from the mortgages were split among those who participated in the sales.

The Herald-Tribune also revealed that Adams or his associates forged his aunt’s signature to obtain a loan, hid outstanding loans from banks in order to borrow more money and sold properties without repaying attached mortgages.

The criminal complaint against Rotolo describes similar schemes. It lays out how Rotolo and the confidential defendant worked together to artificially inflate home values and help buyers qualify for fraudulent mortgages.

Instead of selling houses on the open market, they used “friendly sellers” so they could inflate values and hide false statements.

When a friendly seller could not be found, Rotolo, Adams and others involved in the scheme would create a fake set of closing documents. One set would go to the seller and another would go to the bank in order to hide how money was manipulated, the complaint states.

In at least one case, Rotolo took loan money that was supposed to be used to repay previous mortgages and funneled it to Adams, the complaint states.

The documents list 37 addresses and related mortgages that Adams told the FBI were fraudulent. Using mortgage records filed with the clerk of court, the Herald-Tribune determined the names of those involved.

About half of those implicated by Adams were previously named in the Herald-Tribune’s flipping series this summer. The rest were additional Adams associates, meaning Adams’ group is nearly twice as large as the Herald-Tribune originally reported.

A review of all of those names shows that the people Adams regularly used for real estate deals have defaulted on more than $123 million in mortgage loans in recent years.

Rotolo’s arrest documents describe in detail the real estate transactions on the house at 1636 Baywood Way in Sarasota.

Using his 80-year-old mother, Jocelyn Adams, as a straw buyer, Adams bought the house in March 2005 and began borrowing more money than his mother’s income could justify, the criminal complaint states.

Although Jocelyn Adams’ name is on the deed, Craig Adams and an unnamed investor retained ownership, the complaint says.

They inflated the original purchase price from $1.65 million to $1.85 million and kept the excess proceeds from the mortgages obtained in Jocelyn Adams’ name.

Federal court records show Adams has agreed to plead guilty to conspiracy charges at a later date and has pledged his help in an attempt to earn leniency. In at least one instance, Adams wore a wire to record a conversation with a key business associate.

So far he has laid bare at least $200 million in fraudulent property deals, incriminated more than 30 of his former business partners and given the FBI enough evidence to arrest his longtime title agent, Lisa Rotolo, the court records show.

Adams’ role as informant is described in a federal criminal complaint related to Rotolo’s April arrest. Those documents, filed in U.S. District Court in Tampa, do not name Adams as the informant, referring to him only as the “confidential defendant” or “CD.”

Using descriptions of the defendant, particularly the mention of a relative in the court documents, the Herald-Tribune concluded that Adams was the informant. Lisa Rotolo’s husband, Jay, and others familiar with the investigation confirmed Adams’ identity this week.

David Oriente, a Sarasota investor who reported Adams to the FBI in March 2008, said he became irate when he learned two months ago that Adams might get a deal.

He said he complained to FBI officials who told him Adams had jeopardized his deal by not being completely honest.

“He didn’t say he was the ringleader,” Oriente said. “He blew the lid on the whole thing and underplayed his role. Now the FBI is finding out he is the man.”

Rotolo, contacted at the Target store where she now works, would not comment. Adams did not respond to phone calls and e-mails.

Jay Rotolo told the Herald-Tribune his wife is also cooperating with what U.S. Attorney Brian Albritton’s office calls an ongoing investigation.

“My wife has been working with the FBI for a year now,” Jay Rotolo said. “Do you know what kind of a position this story puts her in? Yes, she got her finger in a mess, but we have never profited from any of this.”

The Rotolo complaint and supporting affidavit provide a glimpse into what could become the FBI’s largest mortgage fraud case in Florida.

Ultimately, dozens of Sarasota real estate investors could be caught up in the investigation. Adams’ list of associates includes mortgage brokers, Realtors, real estate appraisers, attorneys and developers.

During a conversation Adams allowed the FBI to secretly record, Rotolo predicted a wave of legal trouble for Adams’ business associates and for others who flipped property in Sarasota, the criminal complaint shows.

“I think that, you know, you’re gonna see 90 percent of the people in this town have a problem,” Rotolo said. “I don’t think there’s gonna be very many people that are gonna be unscathed by it.”

FAKE SET OF DOCUMENTS

The Herald-Tribune first exposed Adams and his network of property flippers in July as part of a yearlong investigation into real estate fraud. FBI officials would not confirm at the time that they were investigating Adams or his associates. In fact, federal agents and the U.S. Attorney’s Office suppressed information about Rotolo’s arrest and the investigation during interviews throughout 2009.

“We did not discuss it because of the ongoing nature of the investigation,” said Steve Cole, spokesman for the U.S. Attorney’s Office for the Middle District of Florida. “I cannot comment further.”

Sarasota County Sheriff’s Detective Jeffrey Harris is also involved in the criminal investigation, but a spokeswoman for his agency referred questions to the U.S. Attorney’s Office.

The newspaper’s investigation revealed how Adams recruited friends, family members and business associates to trade houses back and forth for phony prices. With each sale, the price of the house was artificially increased, allowing buyers to qualify for oversized mortgages.

Sources familiar with the deals told the Herald-Tribune “profits” generated from the mortgages were split among those who participated in the sales.

The Herald-Tribune also revealed that Adams or his associates forged his aunt’s signature to obtain a loan, hid outstanding loans from banks in order to borrow more money and sold properties without repaying attached mortgages.

The criminal complaint against Rotolo describes similar schemes. It lays out how Rotolo and the confidential defendant worked together to artificially inflate home values and help buyers qualify for fraudulent mortgages.

Instead of selling houses on the open market, they used “friendly sellers” so they could inflate values and hide false statements.

When a friendly seller could not be found, Rotolo, Adams and others involved in the scheme would create a fake set of closing documents. One set would go to the seller and another would go to the bank in order to hide how money was manipulated, the complaint states.

In at least one case, Rotolo took loan money that was supposed to be used to repay previous mortgages and funneled it to Adams, the complaint states.

MANY MORE INVOLVED

Several of Adams’ business associates, contacted by the Herald-Tribune this week, were shocked to learn that Adams was cooperating with federal investigators.

When informed by phone, Adams’ associate Heather Kabobel began crying. “I feel sick to my stomach,” she said.

Kabobel, a Sarasota real estate appraiser, is one of more than 30 people Adams implicated as a participant in real estate fraud, the Rotolo criminal complaint shows. Her husband, Jonathan Glucker, a mortgage broker with Prospect Mortgage, also appears on loan documents that Adams said were fraudulent, the complaint shows. Glucker did not return phone calls.

The documents list 37 addresses and related mortgages that Adams told the FBI were fraudulent. Using mortgage records filed with the clerk of court, the Herald-Tribune determined the names of those involved.

About half of those implicated by Adams were previously named in the Herald-Tribune’s flipping series this summer. The rest were additional Adams associates, meaning Adams’ group is nearly twice as large as the Herald-Tribune originally reported.

A review of all of those names shows that the people Adams regularly used for real estate deals have defaulted on more than $123 million in mortgage loans in recent years.

Rotolo’s arrest documents describe in detail the real estate transactions on the house at 1636 Baywood Way in Sarasota.

Using his 80-year-old mother, Jocelyn Adams, as a straw buyer, Adams bought the house in March 2005 and began borrowing more money than his mother’s income could justify, the criminal complaint states.

Although Jocelyn Adams’ name is on the deed, Craig Adams and an unnamed investor retained ownership, the complaint says.

They inflated the original purchase price from $1.65 million to $1.85 million and kept the excess proceeds from the mortgages obtained in Jocelyn Adams’ name.

Rotolo played a key role in the fraud, according to the criminal complaint against her. It says she prepared two sets of closing documents — one for the unwitting sellers and another for the bank that provided a loan on the inflated value.

Rotolo prepared the legal documents for several more loans on the property over the years, the complaint says. In most of the paperwork, Adams forged his mother’s signature and Rotolo notarized it, the complaint shows.

APPROACHING THE FBI

The criminal complaint filed by investigators against Rotolo does not explain what led Adams to turn FBI informant.

The documents show that in May 2008, a Tampa attorney contacted the FBI’s Sarasota office and expressed “his client’s desire to provide information to law enforcement about his and other individuals’ involvement in wide spread (sic) mortgage fraud in Sarasota, Florida.”

The informant agreed in principle to plead guilty to criminal conspiracy on condition that prosecutors not pursue any additional charges. Federal sentencing guidelines show criminal conspiracy carries a sentence of up to five years.

At the time Adams approached the FBI in 2008, his real estate career had come crashing down, with at least six of his multimillion-dollar properties falling into foreclosure. In April that year, Oriente, a business associate who had lent Adams $700,000, sued Adams and went to police and FBI agents, hoping to spark a mortgage fraud investigation.

Oriente said he thought the case had stalled until two months ago, when he learned about Rotolo’s arrest and read the court documents mentioning a confidential defendant.

Rita Gosselin, 58, was arrested and charged with one count of continuing criminal enterprise (racketeering) at her Grosse Ile house early Thursday morning by investigators from the Michigan Attorney General’s Office and the Southgate Police Department.

Gosselin is accused of orchestrating a real estate investment Ponzi scheme in the Detroit metropolitan area between April 2007 and September 2008.  The allegations include defrauding up to 20 people of $500,000.

Gosselin was arraigned Thursday, December 3, 2009 in 33rd District Court in Woodhaven, Michigan on charges related to an alleged real estate Ponzi scheme.

If convicted, she faces a 20-year sentence for the racketeering felony, and 10 years each for three counts of false pretenses over $20,000.

Gosselin allegedly enticed investors with claims that she could purchase foreclosed and distressed properties in bulk, renovate them and sell them for a profit. Gosselin allegedly promised investors regular monthly payments.  As security for these investments, Gosselin allegedly provided investors with promissory notes.

A preliminary examination of the evidence against Gosselin is set for 9 a.m. Dec. 15 in 33rd District Court.

Judge Michael McNally set bond at $300,000.

The Continuing Criminal Enterprise statute defines a criminal enterprise as any group of six or more people, where one of the six occupies a position of organizer, a supervisory position, or any other position of management with respect to the other five, and which generates substantial income or resources, and is engaged in a continuing series of violations of Title 21 of the United States Code.

We have all heard that if an offer sounds too good to be true, it probably is too good to be true. But what if the offer comes from a high profile member of your own community… say it comes from a professional athlete who spent years helping the local NBA team make it to the playoffs and into championship games. Surely, someone as well known as a National Basketball Association player wouldn’t involve himself as a ringleader in real estate fraud scam, would he?

This is the question I encountered recently when Bruce McClellan and his attorney Mike J. Smith contacted my office for information on where to turn for help in an alleged mortgage fraud scam perpetrated by veteran Detroit Pistons basketball player Lindsey Hunter.

Here is what happened, in Bruce McClellan’s own words (provided as an exclusive to FlippingFrenzy.com):

My name is Bruce McClellan (picture left) and this is my account of what happened between myself and NBA player Lindsey Hunter, and Hunter’s real estate investment firm, L&I Enterprises, LLC, and L&I’s other business personnel—Ivan “Iron” Johnson and Denna P. Tansil. I met Lindsey Hunter through his business associate, Ivan “Iron” Johnson, who I originally met years earlier at the Pontiac School system where I work as a boiler engineer.

In February of 2007, Ivan Johnson approached me to see if I would be interested in investing in real estate. According to Ivan, he had just opened a real estate investment firm with Detroit Pistons’ basketball player Lindsey Hunter, and if Lindsey felt they had a deal that I just had to look at, he wanted to know if I’d be interested.

When I asked him to tell me more about this business he was involved in with Lindsey Hunter, Ivan said they had formed a company called L&I Enterprises, LLC, for the purpose of buying and selling homes for a profit. After he swore to me that his business with Lindsey Hunter was 100% legit, I said yes to learning more about real estate investment opportunities.

A few weeks later, Ivan Johnson told me that he and Lindsay Hunter (picture right) had a real estate opportunity that would make me a lot of money. Ivan asked me to meet with himself and Lindsay at L&I Enterprises’ office for the purpose of checking my credit and running a background check on me to ensure that I’d qualify for a loan. When I arrived at their office, Lindsey he had left already, so Ivan handled the request for my credit report all on his own. Once he saw the results, Ivan said I had a great credit score (it was in the neighborhood of 790), and I was told I’d soon be a millionaire from investing in real estate.

At about the end of February, I heard from Ivan Johnson again. This time he said that he and Lindsey Hunter found the perfect property for me to invest in, and that once the deal was finalized, I’d earn $300,000 for my participation. According to Lindsay Hunter and Ivan Johnson, the deal involved buying a $1.2 Million home and selling it for $2.1 Million to a buyer Lindsey and Ivan had already identified and received a commitment from to buy the house. All I needed to do, Ivan and Lindsey told me, was apply for the home loan for the $1.2 Million purchase, and they’d handle the rest.

When I expressed doubt about my ability to qualify for a $1.2 Million loan, both men told me not to worry, that they would handle everything. Once again, as I did when Ivan first told me about Lindsey Hunter and L&I Enterprises, I expressed my concern for only working on legitimate deals and keeping my good credit in good standing. Again, both men told me I had nothing to be concerned about.

For a man making less than $45,000 a year, what Lindsay Hunter was telling me was quite appealing, as was the star treatment I was receiving from a well-known veteran NBA player.

On March 30, 2007, Ivan Johnson called to tell me that he needed me to meet him at LaSalle Bank in Farmington Hills, MI, where it was necessary for me to add my name to Lindsey and Ivy (wife) Hunter’s bank account. When I asked why my name was being added to Lindsey’s account, Ivan told me that this was necessary so it appeared to the bank that I had more money than I really did, which would help me qualify for the loan. When I asked Ivan why Lindsey wasn’t worried about adding me to his personal account, Ivan told me that Lindsey knew that I was an honest person and that I would never attempt to steal from him (which of course was true—I would never steal money from anyone).

Ivan Johnson and I went to the bank together where Ivan called Lindsay Hunter on his phone. Lindsey spoke to LaSalle Bank employee Shatha Atcho-Salmu, and from what I could hear of the conversation, it was obvious that they knew each other. Anyway, with the assistance of LaSalle Bank’s Shatha Atchoo-Salmu, and without Lindsey Hunter or his wife Ivy Hunter present, I signed my name onto Lindsey and Ivy’s account, which I was told Lindsey had authorized.

On April 30, 2007, Ivan Johnson called to tell me that we got the house (1718 Morningside Way, Bloomfield Hills, MI 48302 — pictured below) and that I needed to meet him to sign all the necessary paperwork. We met at Prudential Cranbrook Real Estate office on Franklin Road in Franklin, MI, to sign the papers. When I arrived I asked if Lindsey would be there and Ivan told me no, Lindsey had a game. I told Ivan that I would be taking his lead because I did not understand the paperwork and Ivan said that was fine. There were about four or five other people there including the sellers of the property.

Luckily, Denna P. Tansil—a realtor from L&I Enterprises, LLC—was there to guide us through the paperwork, which did not include any reference to me receiving $300,000 once the other sale had gone through. When I pointed this out to Denna, she wrote the following into the contract: “Seller will receive no less than $300,000.00 at the sale of the property.” I showed Ivan what Denna wrote, and after he checked over, he said everything was fine and Denna signed the paper and gave me a copy.

After about two months had passed, I asked Ivan Johnson if he could give me a full tour of the house and property. At first, he agreed but on the day we were to meet, Ivan was too busy. So I didn’t try again until much later because I really was not concerned since both Ivan and Lindsey Hunter had told me that they had a buyer for the house and it was basically on its way to being sold.

Later, I told Ivan that I needed to talk to Lindsay Hunter myself because the house had not sold like he said it would and I did not like the way things were going. Ivan called Lindsey while I was there and Lindsey told Ivan to tell me that for sure nothing was wrong. Regardless, I said that I needed to talk to him.

A few days later, Ivan called and told me that Lindsey had invited me to a Detriot Pistons home basketball game for the day of October 24, 2007. After being treated like a VIP in a private suite during the game, Lindsey, Ivan and I went to an upscale restaurant in Bloomfield Hills (MI), where Lindsey proceeded to tell me that everything for the real estate investment deal was in great shape—he reconfirmed that they had a buyer lined up and ready to buy the house from us for $2.1 Million—and that he wasn’t going to do me wrong or get me involved in any illegal activities. Lindsey even went as far as to tell me that he was financially set for the rest of his life, he wanted to make me and Ivan millionaires within the next one to two years, and that he wanted to make me a partner in L&I Enterprises, LLC.

When more time passed by without the house selling, I again became anxious and decided to visit the house myself. When I arrived at the house, I was surprised to find Lindsay Hunter’s truck parked in the driveway. Not knowing why his truck was there, and not seeing a way to gain access to the house, I called Ivan to get a feel for what was going on. It was then that I learned from Ivan that Lindsey and his wife Ivy were going through a rough patch—Ivan said they had separated—and that Lindsey was actually living in the house. Basically, Ivan told me that I shouldn’t go into the house right now because it might be “awkward.”

Understanding that this happens to some people, and keeping in mind Lindsey and Ivan’s previous statements about there already being a buyer for the house—which would yield $300,000 for my part of the investment—I was okay with the situation as explained to me by Ivan, and I went home. From my way of thinking, it was really Lindsey Hunter’s house anyway, and since he already had a buyer lined up and the mortgage was being paid on time—or so I assumed—there really wasn’t anything for me to worry about.

Eventually, in February of 2008, I did end up gaining access to the house, at which time I called Ivan Johnson and told him that I did not think the house was worth $1.2 Million.

In April 2008, I received a phone call from Countrywide inquiring about the mortgage payments. Apparently, the mortgage on the house had not been paid in quite some time, and Countrywide was calling me to demand payment.

Immediately after I got off the phone with Countrywide, I called Ivan Johnson to see just what in the heck was going on. Ivan informed me at that time—and for the first time ever—that Lindsey Hunter had shut down L&I Enterprises, and that in doing so, he had left a lot of people “holdin’ the bag” and that we were on our own. Lindsey, it seems, had gone home to his wife.

I asked Ivan how I was supposed to pay an $8,700 monthly note on my salary, to which he told that what Lindsey Hunter did was wrong and that he would talk with Lindsey to see if Lindsey would make things right for me. Rather than wait for Lindsey to call Ivan, Ivan tried calling Lindsey several times but discovered that Lindsey had changed his phone numbers; he was impossible to reach.

Finally, around the end of May of 2008, Ivan Johnson and Lindsey Hunter called me on a three-way call and asked: “What do you think you deserve to get you out of this house?” I told them that since my credit was ruined from the lack of mortgage payments, I wanted $50,000 and for them to get caught up on all of the outstanding monies owed to Countrywide. At this point, Lindsey became very angry and started cursing at me over and over. I told Lindsey that I was not cursing at him and I did not understand why he was cursing at me. I told Ivan that I didn’t want to talk under these conditions any more and I hung up. Ivan called me back about twenty minutes later and he said that what Lindsey had done was wrong.

About another week passed and Ivan and Lindsey called me again for a three-way conversation. “Bruce, this is Ivan and Lindsey is on the phone,” Ivan said. I said ok and Lindsey said hello and then proceeded to tell me that he was going to do whatever it took to get me out of the deal. He would restore my credit, get me off the house, and give me $25,000.

Since I just wanted my name off the deal, I agreed. The $25,000 was much less than the $300,000 I was originally told I would receive for investing in the house, but like I said, I just wanted to get free of the whole mess.

I never heard from Lindsay Hunter again.

Long story short, Lindsay Hunter never paid the $25,000 he promised me, my credit is ruined, and come to find out that back in April—when I signed all those closing documents Ivan Johnson and Denna Tansil told me to sign—I unknowingly signed for two loans, not just one!

Now I have legal representation and am hoping that because of this story on FlippingFrenzy.com and Lindsey Hunter’s profile, someone with judicial authority will listen and Hunter, Ivan Johnson, and Denna Tansil will be held accountable for what they’ve done.

~ Bruce McClellan

Thank you, Bruce, for sharing your account of what happened between yourself and Lindsey Hunter and Hunter’s business partners, Ivan Johnson and Denna Tansil. This story involves many of the trademark signatures of real estate and mortgage fraud:

• Bruce was a naïve borrower with nearly perfect credit. He had no idea a scam was taking place right under his nose, which ultimately made him the perfect straw buyer.
• This particular case features a long-term relationship—between Bruce and Ivan— making it easy for Bruce to be conned. Ivan knew that Bruce would jump at the chance to make serious money, and he knew that Bruce was a trusting soul with nearly perfect credit.
• What scam wouldn’t be complete without a glamour player (i.e., a ring leader). In this case, it is a professional basketball player claiming to want to take a common man under his wing and make him a millionaire. In other cases it is the smooth talking, good looking, get the deal done, likeable person. In either case, Lindsay Hunter seems to fit the bill.
• This scam involves fabricating income and/or assets, which is one of the oldest tricks in the book. Lindsay Hunter added Bruce McClellan to his million dollar bank account to boost Bruce’s ability to qualify for a loan.
• Bruce was promised easy money and no risk for his involvement in what he was told was a legitimate real estate deal. How many times have we heard that one!

A common thread running through most real estate fraud schemes is an offer that is to good to be true. When prominent public figures like Lindsay Hunter make offers that seem too good to be true, especially in harsh economic times, consumers tend to lose their judgment and make poor decisions

As a result of Bruce coming forward, I was able to put his case in front of serious law enforcement officials who are now attempting to sort through this mess. From Crain’s Detroit Business:

Is Lindsey Hunter, the veteran guard of the Detroit Pistons, a victim of mortgage fraud? Or is he a perpetrator?

That’s what two investigations, one by the Wayne County Register of Deeds’ mortgage-fraud task force, the other by the FBI, want to determine.

So far, Wayne County investigators consider him a victim, with someone else serving as what they describe as “a mastermind.” The FBI, on the other hand, according to sources close to its investigation, has him as its main focus and as a leading participant in at least two possibly fraudulent deals that went awry.

Stay turned to FlippingFrenzy.com for more information and developments on this story. In the meantime, read “Pistons guard: Duplicitous or dupe in mortgage fraud?” for more information.

A 45-year-old Wilton, Connecticut, real estate attorney has pleaded guilty to one count of conspiracy to commit bank fraud, one count of fraud in loan and credit applications, and one count of mail fraud in connection with an $8 million real estate fraud scam through which he and others defrauded federally insured financial institutions, property owners, and others who sought to refinance their mortgages. Joseph Kriz, who recently forfeited his license to practice law, is now free on bond pending a sentencing hearing on Thursday, October 23.

According to documents filed with the U.S. District Court in Bridgeport, Connecticut, and statements made in court, Joseph Kriz was both a practicing real estate attorney in Westport, Connecticut, and a licensed mortgage broker, as well as a principal of Aspetuck Building & Development, LLC. In pleading guilty, Kriz admitted that, between January 2005 and March 2008, he and his co-conspirators altered and created false documents to obtain financing for properties which far exceeded the real value underlying their mortgages. In one instance, Kriz and his co-conspirators commissioned a false appraisal of a property that boosted a home’s square footage, thereby inappropriately increaing the value of a property and the loan.

Joseph Kriz also admitted that he converted funds from the sale and refinancing of his clients’ homes for his own personal use rather than pay off the mortgages on the properties as he had promised his clients.

During many of the property refinancings he handled, Kriz mailed to a title insurance company–First American Title Insurance Co.–a title policy representing that a new mortgage was the primary lien on a property. However, Kriz converted those new mortgages to fund his and his co-conspirators’ development projects, and the existing mortgages remained the primary lien on the properties.

As a result of this fraudulent conduct, Kriz defrauded banks and his clients of more than $8 million. He now faces a up to 65 years in federal prison and fines totaling nearly $16 million.

The former mayor of Newark, New Jersey–Sharpe James (pictured to the left)–has been sentenced to serve two years and three months in federal prison, and fined $100,000, for his corruption convictions related to a scheme that enabled his girlfriend–Tamika Riley–to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits. At the same hearing, Riley was sentenced to one year and three months in prison, and ordered to pay $27,000 in restitution, for convictions related to the same fraud, as well as fraudulent receipt of rental assistance she was not qualified to receive, tax fraud and tax evasion.

U.S. District Judge William J. Martini ordered James and Riley to surrender to the federal Bureau of Prisons on Sept. 15 to begin serving their prison terms. There is no parole in the federal system.

Following yesterday’s sentencings, the U.S. Attorney for the District of New Jersey–Christopher J. Christie–announced his intention to appeal the lenient sentences to the Third Circuit Court of Appeals. Christie had argued before Judge Martini and in a sentencing brief to the Court that, under the advisory U.S. Sentencing Guidelines, former Mayor Sharpe James faced a sentencing range as high as between 15.5 years to 19.5 years in prison. That range took into account James’ leadership role in the scheme to defraud Newark and its citizens, as well as other sentencing enhancements available in the Sentencing Guidelines.

For Tamika Riley (pctured above and to the right), the sentencing guidelines resulted in an advisory range of 8.8 years to 10.8 years in prison.

The U.S. Probation Department determined in its presentencing report and recommendations to the judge that Sharpe James faced a prison sentence of between 12.5 years and 15.5 years in prison, in accordance with the federal sentencing Guidelines, and that Tamika Riley faced 97 to 121 months in prison.

Given the disparity between the guidelines recommendations and the sentences imposed by Judge Martini, the U.S. Attorney’s Office intends to appeal the sentence. The sentencing guidelines, while advisory only, must be consulted by a sentencing judge and considered in formulating a sentence.

A jury convicted Sharpe James earlier this year on all counts against him, which included:

• Three counts of mail fraud related to the sale of the city lots to Riley
• One count of fraud involving a local government receiving federal funds
• One count of conspiracy to defraud the public of James’ honest services

For her part, Tamika Riley was convicted on:

• Three counts of mail fraud for her fraudulent receipt of housing rental assistance for which she was not qualified
• Two counts of tax fraud for failing to report the income she received from her sale of the Newark properties
• one count of corporate tax fraud; and one count of tax evasion.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark. The properties, according to evidence and testimony, were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly flipped the properties for more than $600,000.

Evidence at trial revealed that Sharpe James used his influence and power as both mayor and as a state senator to manipulate and control a city program designed to redevelop run-down properties in the city. The program was intended to enable experienced, financially sound and qualified developers to buy blighted lots and houses at substantially less than market rates on the condition that they rehabilitate the properties before re-selling them at market prices. With James’s help, Tamika Riley acquired the properties at cut-rate prices and resold them without any rehabilitation.

Tamika Riley had no real estate or construction experience and did not possess the financial wherewithal or backing required to participate in the program. She was, in fact, the owner of a failed Newark clothing store and had operated an entertainment and public relations firm that reported no income or assets on tax returns in 1999 or 2000, the years before she started flipping Newark properties.

According to trial testimony, throughout the period of their relationship and the property transactions benefitting Tamika Riley, Sharp James and Riley traveled and socialized together, shared hotel rooms and stayed in fine resorts, among other things. Testimony also revealed that James once directed his security personnel to purchase and install an air-conditioner in Tamika Riley’s Jersey City apartment. Riley also donated several times to James’ political campaigns.

Earlier today, the FBI released another new report detailing fraud in financial markets, including those related to real estate. The Financial Crimes Report for Fiscal Year 2007 covers corporate fraud, securities and commodities fraud, health care fraud, mortgage fraud, insurance fraud, mass marketing fraud, and asset forfeiture/money laundering.

As we know, financial crimes affect the economic security of all Americans, regardless of whether we feel safe and secure in our homes or not. Key findings presented in the new report include:

1. By of the end of Fiscal Year 2007, 529 corporate fraud cases were being pursued by the FBI, several of which involve losses to public investors that individually exceed $1 billion.
2. FBI securities and commodities fraud cases increased from 937 in 2003 to 1,217 in 2007, and resulted in $24 million in recoveries, $1.7 billion in restitution orders, and $202.7 million in fines in 2007.
3. Through 2007, the 2,493 health care fraud cases investigated by the FBI resulted in 839 indictments and 635 convictions of health care fraud criminals.
4. The 1,204 pending real estate and mortgage fraud cases in 2007 resulted in 321 indictments, 206 convictions, $595.9 million in restitution orders, and $21.8 million in recoveries.
5. The FBI investigated 548 money laundering cases in FY 2007, resulting in 141 indictments, 112 convictions, $66.9 million in restitution orders, $2.2 million in recoveries, and $11.4 million in fines.

Although there are many mortgage fraud schemes, the FBI says it is focusing the majority of its efforts on those perpetrated by real estate industry insiders. In the report, the FBI says it is engaged with the mortgage industry primarily in identifying fraud trends and educating the public. Some of the upwardly trending real estate and mortgage fraud schemes include:

• Equity skimming
• Property flipping
• Mortgage-related identity theft

Equity skimming is a tried and true method of committing real estate fraud. Today’s common equity skimming schemes involve the use of corporate shell companies, corporate identity theft, and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors. Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers, shell companies, along with a slew of industry insiders, to conceal their methods and override lender controls.

Suspicions about illegal property flipping in north Minneapolis have led to a major bust and guilty plea. The owners of a Roseville, Minnesota, real estate company pleaded guilty earlier today in federal court to charges of real estate and mortgage fraud in connection with a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

Concerns surrounding the scheme were originally aroused by sales that attracted the attention of a north Minneapolis neighborhood association. A Minneapolis City Council member brought the neighborhood association’s concerns to federal, state and county investigators, and soon, two more bad guys will be behind bars.

According to their plea agreements, Jonathan Helgason, 45, of Chisago, MN, a licensed REALTOR®, and Thomas Balko, 37, of Rogers, MN, a licensed appraiser, were the owners of numerous companies, including TJ Waconia, Total Title LLC, Complete Real Estate Services, Inc. and CityWide Management, LLC and Investor’s Warehouse LLC (the TJ Group). From 2005 to 2007, the pair executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and Balko purchased more than 160 properties throughout the Twin Cities metropolitan area,. They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than that the TJ Group had paid.

Helgason and Balko said that the investors were simply lending their good credit to TJ Waconia, in exchange for which the investor would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from them. Through the scheme, Helgason and Balko perpetrated a fraud on the lenders who were led to believe that the “investors” were the actual owners of the properties, when, in fact, the ownership was in name only.

During the two-year period during which investors owned property, TJ Group was responsible for all payments and maintenance on the property. In some instances, Helgason and Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan, according to the plea agreements.

Helgason and Balko, on behalf of investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.

Another defendant has been sentenced to federal prison in a real estate flipping scheme that involved properties in Springfield and Decatur, Illinois. Frank Kelly Ciota, 47, of Riverton, Illinois, pled guilty last week to one count of bank fraud, one count of wire fraud, five counts of mail fraud, and one count of conspiracy to commit money laundering, and has been sentenced to a term of eight years and one month in federal prison.

Frank Ciota was involved in the real estate scheme with co-defendant Gary Knox, 61, of Decatur, who was sentenced the week before last week nearly 20 years in federal prison. A third defendant, Dennis Wiese, Jr., 39, of Belleville, Illinois, who performed real estate appraisals, is scheduled for sentencing on May 2, 2008.

The three defendants each pled guilty to their respective roles in the scheme which involved more than 150 fraudulent real estate sales and financing transactions of more than $8 million from 1999 to 2005 in Springfield and Decatur, Illinois. Gary Knox represented himself and his business, Central Illinois Management and Development Company, as being in the business of buying, selling and managing real estate; however, he was not a licensed real estate broker or salesperson. Knox and Ciota obtained more than $3 million for their personal use and to promote the ongoing scheme while Wiese received fees of $350 to $450 per appraisal.

The three men admitted engaging to illegally flipping homes, which involves making false representations–including fraudulently inflated real estate appraisals–which were used to entice owners to sell, buyers to purchase, and lenders to finance rental properties that were sold at substantially higher prices than their reasonable value.

Frank Ciota, who was not a licensed real estate broker or salesperson, admitted that his own relatives were among his victims whom he advised of investment opportunities in rental real estate. Ciota falsely represented to one couple that they qualified for financing to purchase 12 to 20 houses. As a result, the couple became unwitting buyers of 12 properties, including four that were purchased within a three-day period in November 2002 for a total of $229,500. Three of the properties–830 S. 12th Street; 1320 S. 13th Street, and 1305 South Grand Avenue East–were purchased by the couple, without their knowledge or approval, on November 5, 2002. The fourth property, at 821 S. 14th Street, was sold to the couple on November 8, 2002, also without their knowledge or approval.

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.

Has anyone ever heard of Armando Montelongo? For the uninitiated, along with his wife–Veronica Montelongo–and a few helpers, Armando Montelongo’s work as a real estate investor / flipper is featured on the A&E Television Network’s reality show, “Flip This House,” which can been seen on Saturday evenings at 9:00 p.m. Eastern/8:00 p.m. Central on A&E. According to the A&E website, “Flip This House” is an hour-long “docu-soap” that follows the sometimes painful efforts of three real estate developers in New Haven, CT; San Antonio, TX; and Atlanta,GA, where “…each boasts a team of characters that buys homes, renovates them, then flips them for a profit.”

The Montelongos head up the San Antonio contingent, and like other reality TV personalities, Armando Montelongo appears to be looking to leverage his new found fame via the Internet. Some Internet marketing “gurus” even refer to him as “Armando Montelongo, the Internet millionaire,” but you need to take such endorsements with a grain of salt. Internet endorsements are often indirectly paid for through “affiliate” marketing; that is, one business financially rewards another for delivering paying customers.

I recently received the following report from a Flipping Frenzy reader who claims that Armando Montelongo’s company is essentially ripping him off:

“I answered a radio ad for free dvd for flipping houses. It was Armando Montelongo’s Flip and Grow Rich. I gave them my credit card# for shipping. They sent a package of books and cds and dvds. All of which I had 30 days to return. I called and got a Return Authorization Number. I also got a receipt post card from the Post Office. Yet 3 months later I am seeing charges of $86.55 on my credit card statement. I have called them to no avail.“

It doesn’t take much looking around to find Armando Montelongo. Each of these sites…

• BuyFlipItNow.com
• ArmandoMontelongo.com
• Armando-Montelongo.com
• iBuyHousesFlorida.us
• MontelongoHouseBuyers.com

… eventually leads to the same pitch (captured below, sans video):

Opening shot: Montelongo drives a beautiful Mercedes Benz automobile toward the camera–presumably the car is his own, secured via all the money he makes flipping houses and teach others how to do the same. Notice that he’s driving through an industrial office park–again, presumably he has an office here, and you’ll be able to afford one here too if you follow his advice.

Scene continues: Armando Montelongo exits his car…

… and says the following, word-for-word:

“Hi, I’m Armando Montelongo from America’s #1 Hit real estate reality Show, Flip This House San Antonio. Right now I am filming my third season of Flip This House, and guess what, I’m looking for a new eager intern to teach my multi-million dollar real estate secrets to. So if you’re excited and you want to learn about real estate from the absolute best, for totally free, and get an amazing education at no expense to you, simply fill out the form below and I’ll be contacting you to see if you can qualify to be my new eager intern. Fill out the form below, and you could be my new real estate millionaire.”

Taking a look at each of Armando Montelongo’s sites, it’s easy to see why someone may choose to question his tactics:

• Nowhere on any of his sites is there a telephone number
• Many of his sites are packed with Google AdWords–a common tactic used by so-called Internet marketing gurus to generate additional revenue
• There is no mention anywhere of a money-back guarantee for any of his courses, products or services
• His video states he is looking for an intern but there’s no application, job description, or even a hint about who might qualify

On the surface, it would appear Armando Montelongo is preying on the get rich quick hopes of what low level Internet marketers call the “business opportunity” consumer. We’ve all seen “Biz Opp” advertisements, haven’t we? They can be found in the classified section of newspapers and on Craigslist, and they look an awful lot like these:

• Earn $5,000 a WeekWorking From Home!
• Get Real Results Fast! $250,000 1st Year! Not a Trick!
• $$ Make $2000+ per week… EVERY WEEK! $$
• Hottest Opportunity Ever (No Cold Calling)!!
• Get 100 Internet sites for $8,995. Retire Early! Call 1-800-XXX-XXXX.

To be fair, I sell my own real estate investment training via books, including Flipping Houses For Dummies (published by Wiley Publishing), Protect Yourself from Real Estate and Mortgage Fraud (published by Kaplan), Foreclosure Investing For Dummies(published by Wiley Publishing), and Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (published by John Wiley & Sons). The big difference may be that I present real estate investing in a more realistic light. I am always careful to warn prospective investors that investing in real estate requires hard work and carries real risks (and who knows, maybe Armando Montelongo does the exact same thing, but when he uses language like “…you could be my new real estate millionaire,” one seriously has to wonder). Some people–especially those looking to get rich quick–just don’t have the mindset, resources, and support network in place to be successful at flipping houses.

Like Mr. Montelongo, I too have had my fair share of real estate failures, and I’m not one to hide or run away from them either. I tip my hat to Armando for telling it like it is (this statement can be found online via another one of his promotional videos):

When you see me on television, you get to see my successes. What you don’t see is all of the failures that I have had before I started flipping houses. It’s very easy to share your success, but much harder to share your failures with the world. However, I believe in being dirt honest and by doing so, I believe that sharing my failures will actually help you be more successful.

To be clear, I am not saying that Armando Montelongo is a person of questionable character or a real estate guru. I don’t know him personally, nor have I purchased any of his products or thoroughly reviewed his system. Who knows–perhaps he received some poor advice on positioning himself online. Maybe he himself got taken in by an Internet marketing guru who told him that this is how it’s done online. I can only ask the question: Is Armando Montelongo a real estate guru? Is the experience of the Flipping Frenzy reader mentioned above a universal one or an isolated incident?

If you or someone you know has ordered or purchased products or services from Armando Montelongo, please leave a comment to let us know about your experience.

Alexander MacInnes of the Herald News interviewed me this week for a story about a Bergen County, NJ, Real Estate developer who for years exploited unsuspecting homebuyers while bribing city employees to direct tenants in the houses he managed. The developer, 63-year-old Michael Eliasof, pleaded guilty Wednesday to conspiracy to commit money laundering. He was charged with taking nearly $2.5 million in illegal proceeds from the sale of overvalued properties to buyers not qualified to purchase them. Eliasof, who will be sentenced in late-February of next year, is looking at 10 years in prison and up to $250,000 in fines (or twice the amount he gained from his criminal activity).

From the Herald News, courtesy of NorthJersey.com:

The circle of professionals Eliasof worked with included Garfield Municipal Judge William C. Colacino Jr., who was the closing attorney for dozens of deals Eliasof lined up with inexperienced buyers. Colacino was not in court Wednesday and has not been indicted. He declined to comment Wednesday.

Eliasof and 10 co-conspirators, including mortgage brokers, loan officers and appraisers, artificially inflated the values of properties throughout Paterson. They then falsified loan applications and income levels for those buyers whom Eliasof lured in with “no money-down” deals, according to the federal charges.

Eliasof, 63, admitted to controlling the profits and dispersing kickbacks to his lawyer and mortgage broker. In another example of his reach, Eliasof admitted in court Wednesday that he bribed Paterson Section 8 caseworkers to direct tenants in the houses he managed.

In March, 14 public employees from Paterson and Passaic County were arrested on charges of taking bribes from an unnamed property manager who was cooperating with federal investigators. U.S. Attorney Hope Olds, who is prosecuting those cases, said the witness started cooperating after being caught in a real estate scheme.

More from Alexander MacInnes and the Herald News:

National real estate experts said the description of the fraud that occurred in Paterson is a variation of either illegal house flipping or a deal called “cash back at closing” — a scheme in which money is transferred off the books between the parties involved.

Ralph Roberts, a Michigan Realtor and author of “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” said there’s a reason this type of fraud exists.

“It’s extremely profitable,” Roberts said. “That’s why they do it. It’s easier than working.”

As lucrative as the deals are, they often falter and leave a distinct footprint on communities.

“They hurt the neighborhoods, they hurt the tax base, they the hurt schools,” Roberts said. “Imagine living across the street from the house that now sits vacant.”

Read MacInnes’ entire article: “Magnate guilty in housing scheme”

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.

On the surface, it looks likes one of those too-good-to-be-true businesses, plucked straight from a late-night television infomercial. You buy foreclosed homes and turn them around in a short time for a big profit. “It’s the American dream,” notes Scott Smith, a Staff Writer who covers the courts, crime and high seas rafters for Stockton, California’s The Record.

And in the case of Stockton’s own Iftikhar Ahmad — who was arrested by federal agents earlier this month and arraigned on seven charges of identity theft, mail fraud and illegally sending money out of the country, only to be freed on a $1 million property bond — Smith tells us how federal agents suspect it’s all too good to be true.

From this past weekend’s online edition of The Record:

FBI details housing fraud case
Stockton man awaits a court hearing Thursday

By Scott Smith
Record Staff Writer

Ahmad is accused of spearheading a ring using his company I&R Investment Properties to illegally “flip” more than 100 homes, allowing him to reap millions of dollars along the way. Flipping property, or buying a home to fix it up and sell it at a profit, is not a crime, but authorities say Ahmad broke the law the way he did it.

So far, Ahmad, 36, and two others have been arrested and charged in a Sacramento federal court based on a 140-page FBI affidavit that implicates a dozen others, including Ahmad’s three brothers and those who appraised, notarized and serviced the escrows for the properties.

The one common thread in all the deals was Ahmad who bought up Stockton homes in foreclosure – often paying cash – and sold them at inflated prices to “straw buyers,” or fake buyers, created with the help of stolen identities or fake documents, the affidavit said.

Ahmad supposedly sold the homes to some of those named in the affidavit who obtained subprime loans using the false identities. That allowed them to put little or nothing down to start. Most of the homes went into foreclosure within months when nobody made the loan payments, the affidavit says.

Ahmad amassed $8.6 million in the past decade, and sent $484,000 to his native Pakistan without reporting it, according to federal agents, who were tipped off when a Sacramento-area woman reported she was a victim of identity theft.

“I still want to know, ‘How did I get involved?’” said Rebecca Wood, a senior legislative assistant for state Assemblyman Greg Aghazarian of Stockton.

Wood said she never bought property in Stockton and does not recall ever meeting Ahmad. But one day nearly four years ago, stern creditors started calling to tell her she was not making her house payments. Wood called police.

“I had visions of me in a jail cell,” she said, describing the panic she felt at first. “Seriously.”

The FBI and Internal Revenue Service turned their attention to Ahmad, digging papers from his curbside trash, going undercover to inquire about the sale of the El Camino Motel on Mariposa Road owned by one of Ahmad’s brothers, and pouring through 100 mortgage deals.

For more on this developing story, including a list of illegal house flipping red flags to be on the lookout for, read “FBI details housing fraud case.”