NEW YORK —Despite a depressed real estate market, mortgage fraud and other related crimes continue to be a major problem, according to Brooklyn District Attorney Charles Hynes. Today he announced charges against 12 people for a variety of unrelated housing schemes, including mortgage fraud.

Three out of the 12 scams involved people posing as landlords and collecting rent and security deposits on apartments they didn’t own.

Those charged come from a variety of backgrounds. “Included among the 12 filings today is an attorney, a resigned attorney, and a suspended attorney. In addition there’s a New York City corrections officer and also, there are incredible to me, repeat offenders,” Hynes says.

Prosecutors say two of the alleged repeat offenders, Russell Pitt and Nathan Farkas, convinced an unemployed Brooklyn woman to grant them power of attorney so they could refinance her home. Instead, prosecutors say they sold her home and kept the proceeds. Attorneys for both men could not be reached.

One victim, Jean Kemp, says she was shocked to learn a $225,000 dollar mortgage had been taken out on her home in Marine Park. “When the guy told me that I said, ‘you’re out of your mind, I never took a mortgage, our house has been paid since 1987,” Kemp says.

The Brooklyn DA’s office says it’s special real estate crimes unit continues to receive hundreds of complaints.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INDIANAPOLIS—Kevin Lafavers, age 46, formerly of Indianapolis, was sentenced today to 33 months in federal prison, and Donald T. Brown, age 67, Lebanon, Indiana was sentenced to 27 months in prison. Circuit Judge David F. Hamilton sentenced both individuals following Lafavers’ guilty pleas to conspiracy to commit wire fraud and wire fraud and Brown’s guilty pleas to conspiracy to commit wire fraud and money laundering. These proceedings concerned the defendants’ participation in a multi-million dollar mortgage fraud scheme operated by Robert Penn in the Indianapolis area.

Today’s sentencing follows a lengthy investigation conducted by Special Agents of the Internal Revenue Service – Criminal Investigation Division, with the assistance of the Federal Bureau of Investigation. Judge Hamilton previously imposed sentence on six other individuals charged in the scheme as follows: Robert Penn, 84 months’ imprisonment; Mark Roth, 43 months’ imprisonment; Timothy Brown, 37 months’ imprisonment; Stephen Scott Brown, 37 months’ imprisonment; Jerry Jaquess, 30 months’ imprisonment; Tamara Scott, 24 months’ imprisonment.

Between November 2003 and August 2005, at least 136 fraudulent loans, totaling $16,613,850.00, were obtained by Robert Penn and his numerous business entities, assisted by Lafavers and Brown and others. The loans were obtained from Argent Mortgage Company, The MoneyStation, and People’s Choice Mortgage/Countrywide Home Loans.

The mortgage fraud schemes carried out by the defendants were accomplished as follows. Participants in the schemes, including Lafavers, located properties and arranged to purchase them at a fair market value generally by means of an option agreement or unrecorded land contract. Other participants in the scheme located straw purchasers who invested their good credit, but no money, to be the purchasers of these properties at a much higher price than that negotiated with the seller. Co-conspirators, including Brown, funded the down payments.

Lafavers was employed by Penn to locate properties for sale, negotiate the purchases of those properties, and enter into option agreements and land contracts with the sellers on behalf of Penn and his businesses. Lafavers generally received $1,000.00 per property located. Lafavers also attended some property closings on behalf of Penn’s companies and received checks that represented illegal proceeds. Lafavers’ sentence reflected his involvement in approximately 19 fraudulent loans. The total amount of those loans was $3,771,000.00.

Brown was primarily involved in funding down payments for investors on the fraudulent real estate transactions. Brown used a bank account, which was maintained by him and his son in the name of Brown Funding Inc. to fund the down payments. Brown obtained down payment checks and provided those checks to the title company, or to another co-conspirator, to be used for the closing. After the property closing, Brown received repayment of the checks from the fraudulent loan proceeds. In addition, Brown Funding Inc. received a fee of $1,000.00 – $3,000.00 for each down payment provided. The sole purpose of Brown Funding Inc. was to fund down payments for investors.

Brown borrowed some of the money for these down payments from individuals who he knew, but did not tell these people that they were in fact funding a fraudulent real estate scheme. Brown also added investors’ names to the Brown Funding Inc. bank account in order to convince the lenders that the investors had access to money which they did not have. Brown’s sentence reflected his involvement in approximately 113 fraudulent loans, including 86 Windsor Village loans. The total amount of those loans was $12,541,000.00.

According to Assistant U. S. Attorney Susan Heckard Dowd, who prosecuted the cases for the government, Judge Hamilton also ordered Lafavers to serve three years on supervised release, and Brown to serve two years on supervised release following their incarceration. Judge Hamilton also ordered the defendants to pay restitution as follows:  Lafavers – $ 1,475,851.63  and  Brown –  $ 9,985,004.15.

SHREVEPORT, LA—William Everett Nichols, 56, of Alexandria, La., President and sole shareholder of First Fidelity Mortgage, Inc., was sentenced to six years in federal prison and ordered to pay $3,903,071.00 in restitution for bank fraud, Acting United States Attorney William J. Flanagan announced today. Today’s sentence was imposed by U.S. District Court Judge Donald E. Walter in Shreveport.

Nichols pleaded guilty to bank fraud in November 2009. The FBI investigation of Nichols and First Fidelity Mortgage, Inc., doing business as Southern Funding, showed that Southern Funding was involved in the mortgage lending business and provided mortgages to customers in central Louisiana. Sabine State Bank and Peoples State Bank of Many, Louisiana, provided credit to Southern Funding for mortgages which were secured by customer notes pledged by Southern Funding to the banks. Nichols also had private investors as a funding source.

Nichols forged signatures of borrowers and provided the forged notes as collateral. He is responsible for a total amount of loss to banks and private investors of $3,903,071.00.

The case was investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Alexander C. Van Hook.

Brandon Foley, an owner of Smart Choice Realty, has agreed to plead guilty in a mortgage fraud conspiracy, operating what prosecutors call a “builder kickback” scheme in Mecklenburg County.

The Charlotte real estate agent, served as an agent for deals in which a builder “agreed to pay hidden kickbacks to buyers and promoters who recruited buyers,” according to court documents filed Monday. He was involved in the fraud ring for more than two years, starting about September 2005, documents say.

Foley is charged with one count of mortgage fraud conspiracy. He faces up to five years in prison and a maximum fine of $250,000. He declined to comment saying his attorney advised him not to discuss his case. A date in January 2010 is yet to determined for his plea to be heard.

The conspiracy generally involved an unidentified builder that had “numerous houses that were not selling at the desired price,” according to court papers. To stimulate sales, “Builder A” agreed to pay kickbacks, which were not listed on closing documents.

As the real estate agent, Foley “facilitated the hidden kickbacks,” the documents say.

Prosecutors say Foley’s case is not related to the “Waxhouse Investigation,” a mortgage fraud case in which 12 people have agreed to plead guilty since last year.

However, there are similarities, based on filings in the cases. For example, in both, participants lied to get mortgages, including misrepresenting buyers’ income, place of employment and intent to occupy the house as a primary residence.

In the Foley case, conspirators also used false identification, such as fake Social Security numbers, the filing says.

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Former Real Estate Investor Comes Up with the Short Straw in Mortgage Fraud Scheme

Kevin M. Lafavers of LaGrange, Ky. faces sentencing Feb. 2 in the case. He pleaded guilty to wire fraud.

A former real estate investor, Lafavers pleaded guilty to federal charges that he set up straw deals to obtain inflated mortgages on more than 100 Indianapolis houses has been sentenced to prison.

Forty-four-year-old Robert A. Penn of Naples, Fla. also was ordered Monday to pay more than $11 million in restitution. He earlier pleaded guilty to charges of wire fraud and admitted to money laundering conspiracy.

The former Indianapolis residents were indicted in July on charges that from 2003 to 2005 they bought many of the homes for $120,000. Those were later seized by lenders and resold at sheriff’s sales for $3,500 to $26,000.

Investigation by Federal, State, and Local Task Force Leads to Mortgage Fraud Charges Against Six People Involving Million-Dollar-Plus Houses
Two Home Builders and Former Banker Charged

CINCINNATI—A two-year investigation by the Greater Cincinnati Mortgage Fraud Task Force has resulted in a seven-count indictment charging two Cincinnati area home builders, a former Huntington National Bank vice president, and a self-employed tax preparer and interior designer with participating in a mortgage fraud scheme to sell four high-end luxury properties to “straw buyers.” A straw buyer is someone who is listed as the owner of a house, but is not really the one buying the house.

Carter M. Stewart, United States Attorney for the Southern District of Ohio, Ohio Attorney General Richard Cordray, Warren County Prosecuting Attorney Rachel Hutzel, and Keith L. Bennett, Special Agent in Charge, Federal Bureau of Investigation (FBI) and other task force participants announced the indictment today.

The grand jury returned charges against:

Eric D. Duke, 35, Newport, Kentucky. Duke is a self-employed tax preparer and interior designer. He also owned a property management company called Rivendale Property Management Group, L.P., in Maineville, Ohio.

Terrence J. Monahan Jr., 36, Cincinnati, formerly with Huntington National Bank.

Bernard J. Kurlemann, 56, of Mason, owner of Kurlemann Homes of Long Cove and Long Cove Management, LLC.

Bryan Sanneman, 38, of Mason, owner of Sanneman Homes, Inc.

The charges stem from the sale of four residential properties in 2006 to 2007, three of which were sold for approximately $2 million each. The indictment alleges that Monahan, Sanneman, and Kurlemann, each conspired with Duke to defraud lenders involved with the sales. 

The scheme, as alleged in the indictment, involved Duke locating two people willing to buy the properties in name only and let their names be used on loan applications. The indictment alleges that Duke worked with a mortgage broker who submitted fraudulent loan applications that contained false income and assets. According to the indictment, Monahan gave Duke a customer bank account statement to be used as a “go-by” to create fictitious account statements to support fraudulent assets on the loan applications. 

The indictment also alleges that Sanneman and Kurlemann provided documentation to the lenders falsely stating that they had received down payments from the borrowers when they had not. The indictment alleges that the defendants conspired with Duke to have the fraudulent loans approved in order to sell their properties. 

The indictment alleges that the defendants benefitted from the scheme because they were able to sell their expensive properties, get out from under substantial mortgages, and receive additional loan proceeds. 

The indictment charges all four defendants with conspiracy. Duke and Monahan are charged with conspiracy to commit wire fraud and wire fraud, both crimes punishable by up to 20 years’ imprisonment.

Duke and Kurlemann are charged with conspiracy to commit loan fraud, punishable by up to five years’ imprisonment, and two counts of loan fraud. Each count of loan fraud is punishable by up to 30 years’ imprisonment.

Duke and Sanneman are charged with conspiracy to commit loan fraud and loan fraud.

The indictment also seeks forfeiture of any property or assets derived as a result of the crimes.

Loan proceeds from the alleged fraud totaled approximately $6.7 million.

Charges have been filed separately against the straw buyers. Francisca Webster, 46, of Cincinnati, has been charged in a separate information, with conspiracy to commit wire fraud punishable by up to 30 years’ imprisonment. Christopher Gagnon, 37, of Florence, Kentucky has been charged with loan fraud, punishable by up to 30 years’ imprisonment.

Stewart commended the investigation by the Greater Cincinnati Mortgage Fraud Task Force. The Greater Cincinnati Mortgage Fraud Task Force is a multi-agency, multi-jurisdictional initiative dedicated to combating the mortgage fraud problem in the Southern District of Ohio.

The defendants will be summoned for their initial appearances before a U.S. Magistrate Judge.

The case is being prosecuted by Assistant United States Attorney Jennifer C. Barry, and Special Assistant United States Attorneys Bruce McGary of the Warren County Prosecutor’s Office and Christopher Wagner with Ohio Attorney General Richard Cordray’s Office.

In a complicated Ponzi scheme investigated by The Columbia Dispatch since July 2009, Somnath Ganguly is alleged to have stolen more than $1.5 million from them in real-estate schemes.

Columbus police have traced at least $500,000 in thefts by Ganguly and have turned the case over to the Franklin County prosecutor’s office. A grand jury has yet to review the case.

On December 29, 2009 Ganguly appeared before a U.S. Bankruptcy Court trustee to begin the process to erase nearly $850,000 owed to mortgage companies for investment properties, credit-card companies and former friends who invested with him.

Some of those investors attended the hearing, too, hoping that what is owed them will stick with Ganguly and not be eliminated by bankruptcy.

Ganguly has denied that he stole anything. He blames his former friends for ruining his plans to strike it rich by turning rental properties into condos.

Those friends and associates Ganguly, 47, of southern Delaware County, has left them penniless and buried in their own mountains of debt.

One woman was there with a copy of a $45,000 judgment against Ganguly. She and her elderly husband gave Ganguly more than $127,000 to invest and lost it all. She now works as a cashier to help make ends meet while her husband battles cancer.

Another was there hoping to recoup about $20,000 he invested.

“It’s amazing what devastation one single person can do,” said Raj Chakrabarti, who drained his savings account, mortgaged his house and borrowed from relatives to keep a 60-unit apartment complex in Worthington from falling into foreclosure. His efforts failed.

All were duped in a complex, Ponzi-like scheme in which Ganguly persuaded them to provide down payments on investment properties that he promised to fix up for resale or to turn into condominiums.

No property was ever renovated. At least five houses and two apartment complexes have faced foreclosure. County records show that the properties were mortgaged at their full value, meaning no down payment was made.

In the meantime, the investors hope to keep Ganguly on the hook. “These creditors represent thefts,” said Thomas Conkle, a Columbus lawyer who represents Chakrabarti and another investor.

Debts accumulated because of fraud cannot be forgiven by bankruptcy.

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.”

Four Sentenced in Mortgage Fraud Scheme  Mortgage Fraud Scheme

DAYTON—Four participants in an extensive mortgage fraud scheme that affected 210 residential properties, including 205 in Montgomery County, were sentenced today in federal court by U.S. District Judge Michael R. Barrett.

Carter M. Stewart, United States Attorney for the Southern District of Ohio, Keith L. Bennett, Special Agent in Charge, Federal Bureau of Investigation; Jose Gonzalez, Special Agent in Charge, Internal Revenue Service Criminal Investigation, and other members of the Dayton Mortgage Fraud Task Force announced the sentences handed down today by U.S. District Judge Michael A. Barrett.

Edward McGee, 76, was sentenced to three years’ probation and fined $140,000. Edward McGee pleaded guilty on May 11, 2009 to one count of conspiracy to commit money laundering.

His son, Kenneth O. McGee, 50, was sentenced to 32 months in prison and fined $12,500. Kenneth McGee pleaded guilty on May 11, 2009 to one count of conspiracy to commit mail fraud, wire fraud, and money laundering, and one count of conspiracy to commit money laundering.

Robert Mitchell, 43, Vandalia, was sentenced to 32 months in prison and fined $12,500. Mitchell pleaded guilty on March 11, 2009 to one count of conspiracy to commit mail fraud, wire fraud’ and money laundering, and one count of conspiracy to commit money laundering.

Kamal J. Gregory, 36, Centerville, was sentenced to 10 months in prison and fined $12,500. Gregory pleaded guilty April 14, 2009 to one count of conspiracy to commit mail fraud, wire fraud’ and money laundering, and one count of conspiracy to commit money laundering.

These cases stem from a 13-count indictment involving six defendants which was originally handed down on June 25, 2008. The four sentenced today were part of a conspiracy that operated and controlled various Dayton-based real estate mortgage and title insurance related businesses and corporations that schemed to defraud 33 mortgage lending institutions out of over $7 million in loan proceeds and other things of value. This scheme involved arranging, facilitating, and manipulating documents associated with real estate sales and closings in order to fraudulently obtain excess mortgage loan proceeds generated from the sale of residential properties for the personal benefit of the co-conspirators.

Two others involved in the scheme were previously sentenced. Julian M. Hickman, 32, formerly of Centerville and now living in East Cleveland, pleaded guilty on December 15, 2008 to conspiracy and tax crimes. Hickman was sentenced on December 10, 2009 to 33 months’ imprisonment. Jessica A. Zbacnik, 42, of Monroe, pleaded guilty on July 29, 2009 to one count of conspiracy to commit money laundering and one count of conspiracy to commit mail fraud, wire fraud, and money laundering. She was sentenced on December 3, 2009 to 30 months’ imprisonment.

Agencies participating in the Greater Dayton Mortgage Fraud Task Force in addition to the FBI and IRS include the Ohio Department of Commerce Division of Financial Institutions, the Ohio Attorney General’s Office, the U.S. Postal Inspection Service, the U.S. Department of Housing and Urban Development Office of Inspector General, and the Perry Township Police Department.

Mortgage Fraud Scheme Mortgage Fraud Scheme  Mortgage Fraud Scheme

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

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

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

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

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

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

Leon Gelfgatt, an attorney from Marblehead, Massachusetts entered an innocent plea Friday, December 18, 2009 to larceny charges. Gelfgatt is alleged to have masterminded an elaborate mortgage fraud scheme.

According to a statement from the Massachusetts’ State Attorney General, Martha Coakley, Leon Gelfgatt used false documents to give the appearance that mortgages on several properties scheduled for impending sale had been transferred to a fake company created by Gelfgatt.

Gelfgatt, according to the Attorney General’s office, recorded false documents at different registry of deeds offices indicating his fake company was the new holder of the mortgages for the properties slated for sale.

“His goal,” Coakley said, “was to divert mortgage payoff money to be sent to the fake company rather than the rightful mortgage holders by obtaining the money from real estate closing attorneys when the properties were sold.”

State Police arrested Gelfgatt Thursday in Boston as he attempted to retrieve more than $1.3 million in funds connected with his scheme. He was arraigned Friday in Cambridge District Court in Medford for attempted larceny.

State troopers assigned to Coakley’s office and AG’s Financial Investigation Unit member James McFadden investigated Gelfgatt.

“This arrest is the result of an intensive and ongoing investigation utilizing state-of-the-art tools and techniques into fraudulent assignments recorded at several Registries of Deeds within Massachusetts,” the AG’s statement said.

Julian M. Hickman, 32, now of East Cleveland, appeared before U.S. District Judge Michael Barrett. Hickman was sentenced Thursday, Dec. 10, to 33 months in federal prison for his role in an extensive mortgage fraud scheme that affected 210 residential properties, including 205 in Montgomery County.

According to Carter M. Stewart, U.S. Attorney for the Southern District of Ohio, the scheme affected 63 investors and led to foreclosure against owners of more than 90 percent of the properties.

He is the second of six co-defendants to be sentenced; the first, Jessica A. Zbacnik, who was sentenced Dec. 3 by Barrett to 30 months in prison.

Hickman pleaded guilty in December 2008 to two counts of conspiracy and three counts of willful failure to file income tax returns.

In a statement of facts filed with his plea, Hickman admitted that, between March 2002 and June 2008, he and others recruited unsuspecting individuals to buy residential properties, many of them dilapidated, at prices artificially inflated above legitimate fair-market values.

Hickman admitted that he participated in 107 separate fraudulent real estate closings between March 2002 and June 2006. He and his co-conspirators netted more than $3.8 million from the deals.

Hickman failed to file federal income tax returns in 2003, 2004 and 2005. In 2003, Hickman received gross income in excess of $680,000. In 2004, Hickman received gross income in excess of $830,000. In 2005, Hickman received gross income in excess of $200,000.

Zbacnik, 42, of Mason, pleaded guilty July 29 to one count of conspiracy to commit money laundering and one count of conspiracy to commit mail fraud, wire fraud and money laundering.

According to the statement of facts filed in court, Zbacnik admitted that she had helped arrange, facilitate and manipulate documents associated with real estate sales and closings. The purpose was to fraudulently obtain excess mortgage loan proceeds generated from the sale of residential properties.

There are four co-conspirators who are still awaiting sentencing:

— Edward McGee, 74, of Dayton, who pleaded guilty on May 12, 2009 to conspiracy to commit money laundering.

— Kenneth O. McGee, 49, of Dayton, son of Edward, who pleaded guilty May 12, 2009 to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering.

— Robert Mitchell, 42, of Vandalia, who pleaded guilty to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering on March 11, 2009.

— Kamal J. Gregory, 34, of Centerville, who pleaded guilty to conspiracy to commit mail fraud, wire fraud and money laundering and conspiracy to commit money laundering on April 14, 2009.

Charles E. Walker, 56, owner and president of the Charles E. Walker Realty in Springfield, Missouri was indicted by a federal grand jury December 16, 2009 along with 16 other people on 52 counts related to mortgage fraud conspiracy.

Also indicted with Walker were his wife Lind, his son Lee, five real estate agents at the realty, three mortgage brokers, two real appraisers and four investors.

Federal agents raided the Walker Realty three years ago after their investigation revealed that Walker and co-defendants inflated home values defrauding lenders and submitting false loan applications totaling nearly $11 million dollars.

Don Ledford, spokesman for the U.S. attorney’s office for western Missouri, said he could not provide details of the investigation because of the lengthy process of the paperwork.

“When you have this kind of financial crime, there is quite a bit of paperwork to be investigated and evaluated,” he said. “That takes time.”

A news release from the U.S. attorney outlined alleged fraud that involved 26 residential properties between Nov. 1, 2004, and June 30, 2006. The allegations include the following:

Investors, some of whom were real estate agents at Walker Realty or mortgage brokers, bought and resold homes among themselves to increasingly inflate the property values.

Walker Realty and its agents received commissions for many of those transactions.

Potential home buyers represented by Walker Realty were told they could receive substantial funds at the time of closing under the guise of repair costs or remodeling, which they could use for their personal benefit if they agreed to buy the homes at inflated prices.

Defendants Vincent Cantrell, 40, and Charles V. Pursley, 82, submitted inflated appraisals on the properties to support inflated prices.

Mortgage brokers William Wagoner, 56, Steve Casarez Jr., 32, and Juan A. Johnson, 41 — all named as defendants — reportedly facilitated the scheme by giving lenders false information about borrowers’ actual income, assets and liabilities. They also concealed the fact that portions of the loan proceeds would be remitted to the borrowers after closing.

Knowing the applications contained false information and omitted material facts, the borrowers signed and approved the loan applications. Some of the borrowers were indicted.

In some cases, Charles Walker, his agents and investors provided temporary loans to borrowers for down payments, with the understanding they would be paid back from future loan proceeds. Such information was not disclosed to lenders.

The loan applications also falsely reflected that the properties were purchased as the borrower’s primary residence rather than for investment purposes.

The loan proceeds totaled about $10,944,023, and the defendants pocketed $4.3 million, prosecutors alleged.

More than 20 of the 26 homes have since been foreclosed on, causing financial losses to the lenders, said Ledford.

In addition to the 26 mortgage fraud cases in which Charles and Linda Walker are charged, the federal indictment also alleges that:

- Lee Walker engaged in seven fraudulent real estate transactions totaling about $3,080,229.

- Frankie R. Powell, 67, a Walker Realty agent and an investor, engaged in nine fraudulent transactions totaling about $3,272,771.

- James H. Powell, 71, an investor, engaged in eight fraudulent transactions totaling about $4,197,139.

- Wagoner, a mortgage broker and an investor, prepared and submitted nine loan applications for himself and on behalf of other borrowers totaling about $2,578,531.

- Casarez, a mortgage broker and an investor, prepared and submitted five loan applications for himself and on behalf of other borrowers totaling about $2,345,588.

- Johnson, a mortgage broker, prepared and submitted nine loan applications for himself and on behalf of other borrowers totaling about $3,104,265.

- Eddie Lee Rohrs, 37, an investor, bought and sold four properties through Walker Realty at artificially inflated prices totaling about $2,416,919.

- Christopher Forrester, 29, an investor, bought and sold one property through Walker Realty at an artificially inflated price of about $1,501,595.

- Robert C. Barnica, 35, an investor, bought and sold two properties through Walker Realty at artificially inflated prices totaling about $1,006,015.

- Jess Kevin Cypret, 51, an investor, bought and sold two properties through Walker Realty at artificially inflated prices totaling about $536,096.

- Linda D. Hanks, 38, a Walker Realty agent and an investor, bought one property from Lee Walker at an artificially inflated price. In exchange for her purchase, Hanks received $91,145 from Walker after closing, which she did not disclose to the mortgage lender.

- Tammy R. Fedel, 53, purchased two properties through Walker Realty at artificially inflated prices, totaling about $672,648. In exchange for her purchases, Fedel received from the sellers after-closing payments, which she did not disclose to the mortgage lender.

- Laura Greer, 41, purchased, and later refinanced, one property from her father James Powell, also an investor, at an artificially inflated price.

In exchange for her purchase, Greer received after closing from James Powell $226,718, which she did not disclose to the mortgage lender.

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

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

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

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

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

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

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

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

Lucette Montane, 26, was arrested December 15, 2009 and arraigned in federal court on mortgage fraud charges. United States Attorney Karen P. Hewitt announced that Lucette Montane, a fugitive since June 2008, was arraigned on a 2008 indictment in federal court before Magistrate Judge Jan Adler.

On July 18, 2008, a federal grand jury returned an indictment charging Montane and five others with devising a plan to defraud and to obtain money and property by false and fraudulent means, related to mortgage fraud. According to court documents, in 2005, Montane and others started Creative Financial Solutions, Inc., (“CFS”), a mortgage brokering company located at 707 Broadway Avenue, Suite 1720, San Diego. CFS was in the business of sending loan application packages and other documents to lenders for review and funding.

The court documents further allege that CFS did not fund loans, but instead received commissions from the lenders when the loans closed. The defendants were loan officers at CFS and in addition to the commissions, they received payments from lenders, sellers, and buyers when loans closed.

The documents also allege that CFS obtained mortgage loans for unqualified borrowers by, among other things, concealing the true purchase price of the homes by submitting false purchase contracts; submitting false loan applications; intentionally concealing the fair market value of the home; using misleading appraisals; and submitting false bank statements and income documentation.

In total, the victim lenders funded more than $16 million in loans on properties that have been foreclosed or are in the foreclosure process. The lenders have lost over $3.9 million, with potential losses in excess of $5.1 million, due to the fraudulent loans.

Montane surrendered to Customs and Border Protection officials yesterday at the San Ysidro Port of Entry. Agents from the Federal Bureau of Investigation and Internal Revenue Service, Criminal Investigation Division, arrested Montane based on a pending arrest warrant.

If convicted on the charges of conspiracy to commit wire fraud and conspiracy to launder monetary instruments Montane could face a maximum penalty of 20 years behind bars and a fine up to $250,000 for each charge.

Three former New Century Financial executives were charged with fraud by the Securities and Exchange Commission on Monday, December 7, 2009: former New Century CEO Brad Morrice; former CFO Patti Dodge and ex-controller David Kenneally.

The charges against the New Century trio were filed in U.S. district court in Los Angeles, which like the thousands of foreclosures that have roiled Southern California, has become the epicenter of litigation against former executives from mortgage originators.

An investigative report by bankruptcy examiner Michael Missal of K&L Gates criticized New Century’s auditors and outside counsel at KPMG and O’Melveny & Myers for certain accounting practices and discovery delays. But Missal came down even harder on New Century executives, whom he claimed were responsible for improper loan evaluations and inflated profits by the real estate investment trust.

New Century was once the nation’s second-largest subprime mortgage loans provider and was valued at more than $1 billion before the company filed for bankruptcy in April 2007 after the mortgage market collapsed.  A trial date has not yet been set.

Man Sentenced to More than Three Years in Federal Prison in Mortgage Fraud Scheme
Defendant Apprehended on a Shrimp Boat in Caribbean Sea

DALLAS—James Ragnauth, a defendant charged in a mortgage fraud case, who was on the lam for about six weeks and apprehended on a shrimp boat in the Caribbean Sea by the U.S. Coast Guard in March 2009, was sentenced today by U.S. District Judge Sidney Fitzwater to 37 months in federal prison, announced U.S. Attorney James T. Jacks of the Northern District of Texas. Judge Fitzwater also ordered Ragnauth to pay approximately $205,000 in restitution.

Ragnauth pleaded guilty in September 2009 to one count of causing false entries to deceive the U.S. Department of Housing and Urban Development (HUD). According to the indictment, Ragnauth incorporated J.R. Mortgage, located in Dallas, and was in charge of the company’s day-to-day loan operations and supervised several loan officers, including co-defendant Rosa Irene Galvan and Ignacio Juan Jasso, charged in a related case.

Ragnauth admitted in documents filed in court that in 1997 and 1998, he and loan officer Jasso knowingly and willfully made false entries in HUD statements in connection with several residential loans. As part of their scheme to defraud HUD, Ragnauth and Jasso created, and caused others to create and later submit to HUD, several false and fraudulent documents, such as a Uniform Residential Loan Application which contained false information, a fraudulent W-2 form and a fraudulent credit report. At the sentencing hearing today, Ragnauth was found to be the organizer leader of a mortgage fraud scheme that caused the fraudulent funding of 30 residential loans, totaling more than $1.8 million.

Both Galvan and Jasso have pleaded guilty to their roles and are scheduled to be sentenced on February 26, 2010.

While Ragnauth was a fugitive in the Beaumont, Texas area, the U.S. Marshals Service in Beaumont featured Ragnauth’s photo on local newscasts along with information that he might be leaving the U.S. on a boat from Port Arthur, Texas. Ragnauth, a naturalized citizen, was captured by the U.S. Coast Guard when he was attempting to flee to his native Guyana. Guyana is located just east of Venezuela on the northern coast of South America. Ragnauth made it about half way to Guyana, being arrested in international waters between Cuba and Haiti.

The case was investigated by the FBI and HUD-Office of Inspector General. Assistant U.S. Attorney David Jarvis was in charge of the prosecution.

Dustin LaFavre plead guilty to one count of conspiracy to commit mail and wire fraud in connection with this crime. LaFavre was charged on November 5, 2009.

Appearing before United States District Court Judge Richard Kyle in St. Paul, the 27-year-old Webster man pleaded guilty today in federal court to bilking more than $7 million from at least 15 real estate mortgage lending companies between 2005 and 2008.

LaFavre and another individual, a licensed real estate broker, solicited real estate buyers by telling them they would receive significant cash from the proceeds of the mortgage loans. With the assistance of his accomplice, LaFavre then negotiated the value of single pieces of property as well as property groupings, known as bulk purchases, in an effort to inflate the sale prices of that real estate. Those inflated prices were reported to and ultimately approved by lenders. Then, after transaction closings, LaFavre and accomplice divided among themselves and the buyers the difference between the inflated sale prices and the true sales prices.

In addition, LaFavre helped buyers qualify for their mortgage loans by creating false verifications of employment, depositing money into their bank accounts to make their balances appear higher, providing them with down payments, and working with mortgage brokers and loan officers who were willing to prepare false documentation for submission to lenders.

LaFavre sold at least 172 properties during the course of this three-year scheme. In furtherance of the scheme, LaFavre sent false documents via the U.S. Mail as well as commercial carriers. He also caused wire transfers of mortgage loan proceeds from which he and others obtained cash kickbacks.

LaFavre faces a potential maximum penalty of 20 years in prison for his crime. Judge Kyle will determine his sentence in January 2010.

Disbarred Lawyer, Real Estate Investor Convicted of Massive Fraud Schemes

NORFOLK, VA—Troy A. Titus, 43, of Virginia Beach, Virginia, was convicted by a Norfolk federal jury today of operating multiple fraud schemes to steal and misappropriate more than $7 million from clients and investors.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and A.J. Turner, Special Agent in Charge of the Norfolk Field Office of the Federal Bureau of Investigation, made the announcement after the jury issued its verdict following four days of deliberations.

“Today, a jury found Troy Titus stole millions from people who trusted him to protect their investments,” U.S. Attorney MacBride said. “Today’s conviction is a testament to the ability of our law enforcement partners to tackle complicated investment and mortgage fraud cases. Especially in the light of the recent economic crisis, we are even more determined to work together to aggressively fight financial fraud in this district.”

“This case represents a strong investigative and prosecutive effort to protect our citizens and the financial services industry, and by extension, the larger economy,” said Special Agent in Charge Turner. “To that end, we will continue to target those who, motivated by greed, prey on honest investors and damage our country’s financial confidence.”

On March 25, 2009, a grand jury charged Titus in a superseding indictment with 49 counts of fraud-related charges. After a four-week trial, a jury at the Norfolk federal courthouse found Titus guilty of 33 charges, and he faces up to 590 years in prison when he is sentenced on April 15, 2010 by United States District Judge Raymond A. Jackson.

According to court documents and evidence at trial, Titus was a lawyer practicing in Virginia who also conducted investment seminars focusing primarily on real estate and estate planning. Titus approached clients or seminar participants and induced them into investing money with him to purchase and rehabilitate real estate, promising to return the money at a later date with a high rate of interest. However, Titus obtained many of the real properties involved through fraud or transferring the properties into trusts controlled by him. Instead of using the funds as promised, Titus directed the investment income toward paying business or personal expenses, backfill investment losses, and at times to make token payments or repay previous investors.

In addition, Titus misappropriated funds given to him by elderly or incapacitated clients who provided him with income intended to be held in trust and took steps to conceal those uses from those who inquired about the management of the trust. Trial evidence showed that Titus failed to make payments for the trust clients’ basic medical and housing needs. Titus engaged in a similar scheme to defraud involving real estate closing funds he held in trust.

Court records and evidence at trial indicate that the loss amount attributed to Titus’s activities totaled more than $7 million and affected approximately 30 victims. The Virginia State Bar revoked his law license in 2005.

This case was investigated by the Norfolk Field Office of the FBI, with assistance from the Virginia Attorney General’s Office, the State Corporation Commission, and the Virginia State Bar. The case was prosecuted by Assistant United States Attorneys Melissa O’Boyle and Michael Moore.