Former CEO of Worldwide Financial Resources Pleads Guilty to $11 Million Fraudulent Loan Scheme

TRENTON, NJ—The former CEO of Worldwide Financial Resources, a New Jersey-based mortgage origination firm, pled guilty today to wire fraud in connection with an $11 million fraudulent loan scheme, U.S. Attorney Paul J. Fishman announced. David Findel, 45, of Monmouth County, N.J., entered his guilty plea before U.S. District Court Judge Peter G. Sheridan to an information charging him with wire fraud.

According to the information to which Findel pleaded guilty and statements made in Trenton, N.J., federal court, Findel is the former CEO of Worldwide Financial Resources, which was in the business of originating residential home loans. Worldwide worked with borrowers to prepare mortgage applications and qualify the borrowers for home mortgages. Although Worldwide would originate the mortgage loans, after origination, Worldwide would re-sell the loans to another financial institution in the secondary mortgage marketplace.

Findel admitted that he prepared and sold fake mortgage loans from 2008 through September 2009. Specifically, after Worldwide had originated a mortgage loan and sold that loan to a third-party lender, Findel would create a second set of fraudulent loan documents for the same property. He would then sell the second set of fraudulent loan documents to another third-party lender, even though the actual mortgage loan for that property already had been sold. As a result of these fake mortgage loans, Findel received more than $11 million in illicit proceeds, which he used, in part, to maintain his lavish lifestyle—including his multi-million-dollar home in Colts Neck, N.J., exotic travel and exclusive seating at a major New Jersey professional sports arena.
The count of wire fraud to which Findel pleaded guilty carries a maximum penalty of 20 years in prison and a fine of $250,000, or twice the aggregate loss to the victims or gain to Findel. Sentencing is scheduled for Jan. 18, 2011.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, in Newark, N.J., with the investigation that resulted in today’s guilty plea.

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

Joe Ryan/The Star-Ledger Joe Ryan/The Star-Ledger

Solomon Dwek, the fraudster-turned-informant who anchored last year’s sweeping FBI sting, returned to the witness stand today and recounted his epic real estate swindles and named a string of current and former Monmouth County officials he claims to have bribed.

Testifying in the corruption trial of a Bergen County mayor, Dwek told a federal jury in Newark that before he began wearing a wire for federal investigators he regularly bribed politicians to help him secure building approvals, including mayors and councilmen from Long Branch and West Long Branch.

“If they were in power, I would have them in my pockets,” said Dwek, a 38-year-old rabbi’s son who began cooperating with federal authorities after being charged in 2006 with a $50 million bank fraud.

Dwek said the politicians who took payoffs from him included Long Branch Mayor Adam Schneider, who won a sixth term this year; and ex-West Long Branch Mayor Paul Zambrano, who admitted in 2005 to taking payoffs from a different informant.
PREVIOUS COVERAGE:

• Full coverage of the New Jersey corruption probe

• Solomon Dwek again relays tales of his illegal activities as trial of Ridgefield Mayor Suarez opens

• Solomon Dwek to take stand in corruption trial of Ridgefield Mayor Anthony Suarez

• Attorneys offer differing accounts of Ridgefield mayor’s alleged acceptance of bribe

• Prosecutors say they have hidden video of Ridgefield mayor agreeing to take bribe

• Ridgefield Mayor Suarez asks judge to limit evidence that can be presented in his corruption trial

Schneider said today he never took an illegal payoff from Dwek, saying the informant’s testimony was “absolutely false.” Attempts to reach Zambrano, who was sentenced to one year, were unsuccessful. During two previous trials, Dwek alluded to giving bribes to Schneider and Zambrano. Today was the first time he identified them by name.

The informant’s assertions today came in the trial of Anthony R. Suarez, mayor of Ridgefield, and Vincent Tabbachino, a former police officer from nearby Guttenberg. Suarez, a 43-year-old Democrat, is accused of taking a $10,000 bribe from Dwek, who posed as a developer trying to buy off public officials. Authorities say Tabbachino delivered the money.

They were charged last year along with 44 others including five rabbis, three mayors and two state legislators. At the crux was Dwek, who traversed New Jersey with a hidden camera as he tried to convince rabbis to launder money and politicians to take bribes.

Suarez’s lawyers said he met three times with Dwek, but never took a bribe. Tabbachino’s attorney contends he tried to return the $10,000 he accepted.

During his five hours on the witness stand, Dwek told jurors how he bilked millions from friends and relatives through a massive real estate fraud that led to him agreeing to work undercover for the FBI in hopes of minimizing his prison time. In addition to the mayors, Dwek testified that he bribed former West Long Branch councilman Joseph DeLisa and ex-Long Branch councilman John Zambrano. They both pleaded guilty in 2006 to bribery cases unrelated to Dwek. Their lawyers did not return calls seeking comment.

Star-Ledger reporter MaryAnn Spoto contributed to this report.

Three members of a mortgage fraud scheme, including a title agent and a mortgage broker, were arrested today on a criminal Complaint charging them with conspiring to commit wire fraud, United States Attorney Paul J. Fishman announced today in the attached Press Release.

Ania Nowak, 43, Zbigniew Cichy, 41, both of Belvidere, New Jersey, and Kim Salvemini, 55, of Wallington, New Jersey were arrested this morning by Special Agents of the Federal Bureau of Investigation (“FBI”). The defendants are charged by Complaint with conspiring to defraud various mortgage lenders of over $2.7 million by conducting at least five fraudulent real estate transactions involving two residential properties in New Jersey. An initial appearance for all three defendants is scheduled before United States Magistrate Judge Esther Salas today at 2:00 p.m. in Newark.

According to the Complaint unsealed today in Newark federal court:

Nowak owned a real estate title company, A.N. Title Agency, LLC, and acted as the title and settlement agent at real estate closings. In that role, Nowak was responsible for, among other things: ensuring that the seller or the borrower in a refinancing transaction actually owned the home that was being used to secure a mortgage loan; paying off any prior mortgages before paying any money to the borrower; and recording certain mortgage documents with the county clerk. Instead of fulfilling these responsibilities in the five transactions described in the Complaint, Nowak allegedly used her position to perpetrate the fraud along with her coconspirators.

From November 2005 to December 2007, in furtherance of their scheme, Nowak and Cichy employed numerous fraudulent techniques – including allowing Cichy to apply and obtain a loan on a property he did not own, failing to pay off prior mortgages with new money lent by lenders, and failing to record mortgage documents with the county clerk. Nowak and Cichy also recruited Salvemini, a mortgage broker, to serve as a straw buyer to purportedly purchase a property that Cichy owned. The transaction was made so Salvemini could apply for fraudulent mortgage loans which Nowak and Cichy then stole. Cichy paid Salvemini approximately $17,500 for his role in the fraud as a straw buyer and in obtaining fraudulent loans.

In total, Nowak and Cichy spent over $1 million of the fraudulent loans they obtained to support Cichy’s construction business and to pay for various personal expenses. Those expenses -2- included a Mercedes Benz and other automobiles, multiple trips to Aruba, a trip to Poland, furniture, clothing, and purchases from QVC and the Home Shopping Network.

The wire fraud conspiracy count with which each of the defendants is charged carries a maximum potential penalty of 30 years in prison and a maximum $1 million fine. In determining an actual sentence, the judge to whom the case is eventually assigned would, upon a conviction, consult the U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the individual defendant’s criminal history, if any, and other factors. The judge, however, is not bound by those guidelines in determining a sentence.

Fishman credited the Special Agents of the FBI, under the direction of Special Agent in charge Michael B. Ward, with the investigation leading to the criminal Complaint. Fishman also thanked Stewart Title for their assistance in the investigation.

The Government is represented by Assistant United States Attorney Matthew E. Beck of the Economic Crimes Unit in Newark.

The charge and allegations contained in the Complaint are merely accusations, and each defendant is presumed innocent unless and until proven guilty.

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

Ronald O’Malley, the former chairman of Bergen County’s public financing wing and the CEO of a New Jersey private mortgage brokerage firm, was indicted Tuesday by a federal grand jury on 68 counts of fraud and conspiracy to commit fraud.

The 53-page indictment alleges that O’Malley used his position as chairman of the Bergen County Improvement Authority to falsify employment records and other documents to secure loans for clients who used his brokerage firm.

O’Malley’s firm, the Ridgewood-based Residential Mortgage Corp., collected clients’ fees based on the loans, according to the indictment.

News of O’Malley’s role in the alleged scam first became public in July, when his partner in the firm, Edward Olimpio, said in court that O’Malley signed verification forms for borrowers that falsely claimed the borrowers were being paid substantial salaries by the BCIA.

The indictment released by the U.S. Attorney’s Office late Tuesday afternoon shed more light on the scheme.

It alleges the following:

• O’Malley falsified a client’s verification of deposit records, using his and his mother’s joint bank account number on a client’s mortgage form.

• As chairman of the BCIA, O’Malley claimed that private clients with Residential Mortgage Corp. were employed by the improvement authority when, in fact, they were not.

• O’Malley falsely stated that a client had a balance of more than $50,000 with the “Bergen County Improvement Authority Credit Union Account” when such a credit union did not exist.

• BCIA staffers falsely confirmed to lenders at the behest of O’Malley that Residential Mortgage clients were agency employees.

• When confronted by American Partners Bank, a mortgage lender, about two of the loans, O’Malley said asset information had been falsified by an employee who had been terminated for substance abuse issues.

O’Malley did not return a request for comment, and his attorney, Brian Neary, declined to answer questions Tuesday.

Also named in the indictment is Laura-Jean Arvelo, who is accused of several counts apiece of wire, bank and loan-application fraud. Arvelo’s attorney, Joseph P. Rem Jr., said his client is innocent.

“Follow the money,” he said. “You find one penny that went to my client, then God bless you. … If she didn’t get any money, why would she engage in a criminal conspiracy? Don’t conspirators share in the profits? She was not involved in a criminal conspiracy.”

O’Malley’s indictment sparked renewed criticism of the BCIA and demands for a state investigation of the agency, which has accumulated about $450 million in debt during the past 10 years.

“I have always felt they are one of the shadow governments out of the public scrutiny,” said state Sen. Loretta Weinberg, D-Teaneck, a longtime critic of the BCIA.

Weinberg said she now wants to know whether any remaining BCIA staff were involved in fraud.

“I would assume that county authorities would immediately take a look to see if that’s so,” she said.

Republican County Freeholder Robert Hermansen called for an independent audit of the BCIA. Freeholder John Driscoll, also a Republican, said he would call on Governor Christie to initiate a state investigation.

Hermansen also questioned the judgment of Democratic County Executive Dennis McNerney, who appointed O’Malley as BCIA chairman in 2004.

“It’s a lapse in judgment,” Hermansen said. “Dennis needs to answer for what’s gone on here.”

McNerney said in a written statement released Tuesday night that “if any employees of the Bergen County Improvement Authority were remotely involved in inappropriate or illegal actions, they will be terminated and immediately referred to the appropriate authorities.”

McNerney appointed former Superior Court Judge Douglas K. Wolfson last month to investigate allegations that O’Malley participated in the scam just days after O’Malley resigned from his BCIA post. McNerney described the review as “ongoing” in his press release, but declined to answer specific questions about the indictment.

O’Malley also held a public post with the Northwest Bergen County Utilities Authority as a commissioner. That title carries a $5,000 annual salary and a state pension.

According to McNerney’s spokesman, Brian Hague, O’Malley resigned from that post Tuesday.

PHILADELPHIA—Gennaro Rauso, who owned and operated a real estate management company that purported to help financially distressed homeowners with their foreclosure problems, was charged today by information with several mortgage fraud related offenses. The information alleges that as part of his scheme, Rauso took advantage of desperate homeowners with the promise of staying in, or saving, their homes, when in fact, he was using them to defraud the mortgage holders. The charges were announced by United States Attorney Zane David Memeger, Internal Revenue Service Acting Special Agent-in-Charge Troy N. Stemen, with the Criminal Investigation Division, Federal Bureau of Investigation Special Agent-in-Charge Janice K. Fedarcyk, and Inspector General of the Department of Housing and Urban Development Kenneth M. Donohue. Invaluable assistance was also provided by the Office of the United States Trustee.

According to the information, between January 2005 and December 2008, Rauso owned and operated a real estate management company, D&B Property Investors, to carry out a scheme to defraud mortgage companies out of hundreds of thousands of dollars in mortgage payments. Rauso sought out homeowners who were facing immediate foreclosure on their homes and offered to help them avoid foreclosure. In a flyer mailed to these homeowners, Rauso claimed that he could help homeowners fight the mortgage companies on their behalf, while at the same time helping them to rebuild their credit so they could keep their home. Rauso also boasted that even if their home were lost to foreclosure, he could still keep them in their home for an additional 12-18 months after the sheriff’s sale.

Once a homeowner agreed to participate, Rauso had the homeowner transfer the title of the home over to him for a nominal sum. Rauso then had the homeowner sign a lease, making the homeowner a tenant who paid rent to Rauso. He then delayed and obstructed the foreclosure process by, among other things, filing federal bankruptcy petitions. During this time when foreclosure was delayed, Rauso collected monthly rent payments from the homeowners, but made no payments to the mortgage companies. Ultimately, Rauso used more than 200 homeowners and their properties in his scheme to defraud mortgage companies, resulting in Rauso pocketing at least $400,000 in diverted or lost mortgage payments. With respect to at least four of the homes involved, the mortgages were federally insured by the Federal Housing Administration (“FHA”), resulting in substantial claims paid by the FHA once the mortgages defaulted.

“The troubles in our economy and housing market have, unfortunately, created new opportunities for scam artists,” said Memeger. “According to the information, this defendant took advantage of struggling homeowners, and preyed on their desperation to use them in his corrupt scheme to defraud mortgage companies. We urge the public to seek assistance from the U.S. Department of Housing and Urban Development before signing over their lifelong investment to a third party.”

In addition to the mortgage fraud scheme alleged in the information, Rauso is also charged with willfully failing to file a tax return on behalf of D&B Property Investors, defrauding the government of taxes owed on more than $1.6 million in income.

INFORMATION REGARDING THE DEFENDANT

NAME: Gennaro Rauso
ADDRESS: Trenton, New Jersey
AGE OR YEAR OF BIRTH: 46

If convicted, the defendant faces a maximum possible sentence of 247 years in prison, a $6.95 million fine, five years of supervised release and a $2,000 special assessment.

Janice K. Fedarcyk, Special Agent in Charge of the Philadelphia Division of the FBI stated: “The type of criminal activity alleged in this indictment today is particularly despicable in that it targeted those victims who were the most vulnerable financially and the most desperate for some type of assistance to avoid foreclosure on their properties. It also represents an affront to the millions of hard-working Americans who struggle every day to meet their mortgage obligations and keep their families in their homes.”

Kenneth M. Donohue, Inspector General of the Department of Housing and Urban Development stated: “In the past several years, we have seen enormous and damaging developments in the mortgage and housing markets with an urgent reliance on the government to bolster unstable marketplaces and devastated communities. The HUD OIG, in partnership with other federal agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”

Troy N. Stemen, Acting Special Agent-in-Charge of IRS Criminal Investigation, stated: “The charges announced today describe a scheme involving fraud at many levels. According to the charging documents, not only did Rauso earn substantial income by deceiving homeowners, defrauding mortgage companies and manipulating the bankruptcy process, he also failed to pay taxes on this income. The financial expertise of IRS-CID agents allows us to analyze complex financial transactions, such as those employed in this scheme.”

The Office of the United States Trustee also praised the work of investigators working to target abuses of the bankruptcy system: “I am grateful to U.S. Attorney Zane Memeger and our law enforcement partners for their pursuit of those who seek to use the bankruptcy system to prey upon financially distressed consumers,” said Roberta DeAngelis, United States Trustee for Pennsylvania, Delaware, and New Jersey. “As a member of the President’s inter-agency Financial Fraud Enforcement Task Force, the U.S. Trustee Program works to combat fraud and abuse throughout the bankruptcy system, including bankruptcy-related mortgage fraud.”

The case is being prosecuted by Assistant United States Attorney Leo R. Tsao.

PREET BHARARA, the United States Attorney for the Southern District of New York, and GEORGE VENIZELOS, the Acting Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced today the arrest this morning of ANTOINETTE HODGSON on charges that she orchestrated a $45 million real estate Ponzi scheme that fraudulently solicited investments from over 20 New York and New Jersey investors. HODGSON is charged in a Complaint with one count of wire fraud conspiracy and one count of wire fraud, and surrendered to the FBI this morning. She is expected to appear in Manhattan federal court later today.

According to the Complaint unsealed today in Manhattan federal court:

HODGSON solicited tens of millions of dollars from investors in New York and New Jersey on the false pretense that she would use the investors’ money to purchase and/or renovate residential real estate properties, and then re-sell the properties to third party buyers or rent them for a period of time before re-selling them. HODGSON promised investors high rates of return on their investments, which she represented was based on the profits generated by her successful real estate business.

In truth and in fact, however, HODGSON, misappropriated tens of millions of dollars of investors’ funds, and used those funds to repay other investors or for her own purposes. Between 2006 and 2009, HODGSON solicited approximately $45 million from investors who understood, based on HODGSON’s representations, that they were investing in her real estate business. During the same period, HODGSON only spent approximately $6 million on residential real estate. Most of the $45 million she received from investors was immediately used to repay other investors, in the pattern of a classic Ponzi scheme.

Some of the investor money was used to enrich HODGSON and her family members. HODGSON spent hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas, invested over $700,000 in a Dunkin Donuts franchise in Arizona, and gave tens of thousands of dollars to friends and family members.

HODGSON is charged with one count of conspiracy to commit wire fraud and one count of wire fraud. If convicted on the conspiracy count, HODGSON faces a maximum sentence of 20 years in a prison and a fine of $250,000, or twice the gross gain or loss derived from the offense, and a maximum sentence of 20 years in prison and a fine of $250,000, or twice the gross gain or loss derived from the offense, for the wire fraud count.

HODGSON, 58, of Montclair, New Jersey, surrendered this morning and will be presented before a United States Magistrate Judge in Manhattan federal court later today.

U.S. Attorney PREET BHARARA said: “What Antoinette Hodgson allegedly promised to investors seemed too good to be true and that’s because it was. This case is a further reminder that whether the real estate market is up or down, innocent investors can be and will be targeted by unscrupulous fraudsters. This Office will continue to work with our partners at the FBI to pursue and prosecute fraud in every sector of our nation’s economy.”

FBI Acting Assistant Director-in-Charge GEORGE VENIZELOS said: “What we have here is a classic example of someone engaging in a get rich quick and get rich easy scheme, but the outcome is far from simple. Antoinette Hodgson allegedly has already proved she’s a lousy gambler by losing the investor’s money in the casinos. She has now gambled with her future and faces serious charges for a plot of her own making. The FBI will continue to seek out those who engage in all types of fraudulent real estate deals, bringing about certain justice for them and clearing a path for those who work hard to uphold the standards of our justice system.”

Mr. BHARARA praised the investigative work of the FBI and added that the investigation is very much ongoing.

If you believe you were a victim of these crimes, including a victim entitled to restitution, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact Wendy Olsen-Clancy, the Victim Witness Coordinator at the United States Attorney’s Office for the Southern District of New York, at (866) 874-8900, ornWendy.Olsen@usdoj.gov. For additional information, go to: http://www.usdoj.gov/usao/nys/victimwitness.html

This case was brought in coordination with President BARACK OBAMA’s Financial Fraud Enforcement Task Force, on which Mr. BHARARA serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President OBAMA established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being prosecuted by the Office’s Complex Frauds Unit. Assistant United States Attorneys ANTONIA M. APPS and AMANDA KRAMER are in charge of the prosecution.

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

NEWARK, NJ—An East Stroudsburg, Penn., man pleaded guilty today to a wire fraud charge in connection with the $136 million fraud scheme that bankrupted Pine Brook, N.J.-based U.S. Mortgage Corp. and its subsidiary, CU National Mortgage, LLC, U.S. Attorney Paul J. Fishman announced.

Leroy Hayden, 47, the servicing manager of U.S. Mortgage from 2004 through Jan. 28, 2009, pleaded guilty before U.S. District Judge Katharine S. Hayden to one count of wire fraud conspiracy.

According to documents filed in this and related cases and statements made in federal court:

During the relevant period, Leroy Hayden conspired with Michael J. McGrath, Jr.—then the president and controlling shareholder of closely-held U.S. Mortgage—and several others to fraudulently sell Fannie Mae hundreds of loans belonging to various credit unions. He also provided numerous reports to credit unions falsely stating that loans that had been sold were still in the credit unions’ portfolios, and falsified records, at McGrath’s direction, to conceal these fraudulent sales. Leroy Hayden also admitted that he modified data in U.S. Mortgage’s servicing system to help carry out the scheme.

The pace of the fraudulent sales increased during 2008 and early 2009. On Jan. 27, 2009, dozens of law enforcement agents executed a search warrant at U.S. Mortgage and CU National’s Pine Brook headquarters. In the following weeks, U.S. Mortgage and CU National commenced bankruptcy proceedings.

McGrath pleaded guilty on June 12, 2009, to mail fraud, wire fraud and money laundering conspiracy charges, admitting that he hatched his scheme to prop up his company. He further admitted that he fraudulently sold hundred of loans belonging to various credit unions to Fannie Mae and used the proceeds to fund U.S. Mortgage’s operations, his personal investments, and investments he made on U.S. Mortgage’s behalf. McGrath is scheduled to be sentenced on July 6, 2010, before Judge Hayden.

The charge to which Leroy Hayden pleaded guilty carries a maximum potential penalty of five years in prison and a maximum fine of $250,000, or twice the amount of loss suffered by the victims of the conspiracy. His sentence is also expected to include restitution to the victims of the conspiracy, presently estimated at $136 million. His sentencing is scheduled for July 27, 2010.

U.S. Attorney Fishman said, “Frauds of this magnitude don’t happen without someone to cook the books and push the paper. Leroy Hayden had to decide whether to go along with his boss’ fraud or alert law enforcement to the scheme. Unfortunately, he made the criminal choice, and he answered for that choice today.”

Fishman credited Postal Inspectors of the U.S. Postal Inspection Service, under the direction of Postal Inspector in Charge David Collins; Special Agents of the IRS Criminal Investigation Division, under the direction of Special Agent in Charge William P. Offord; Special Agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward; and Special Agents of the U.S. Department of Housing and Urban Development’s Office of Inspector General, under the direction of Special Agent in Charge Joseph Clarke, for their investigation leading to this guilty plea. Fishman also thanked the U.S. Postal Service Office of Inspector General for assisting in the investigation.

The government is represented by Assistant U.S. Attorney Mark E. Coyne of the U.S. Attorney’s Office Economic Crimes Unit.

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

NEWARK, NJ—The former owner and chief executive officer of Capitol Investments USA, Inc., a purported wholesale grocery distribution business, was charged today in a criminal complaint with operating a $880 million Ponzi scheme, U.S. Attorney Paul J. Fishman announced.

Nevin Shapiro, 41, of Miami Beach, Fla., surrendered this morning to special agents of the FBI and the Internal Revenue Service (IRS) in Newark, N.J. Shapiro is scheduled for an initial appearance and bail hearing this afternoon before U.S. Magistrate Judge Madeline Cox Arleo in Newark.

According to the complaint filed in Newark federal court:

From January 2005 through November 2009, Shapiro, through Capitol, solicited investors from New Jersey and throughout the United States, telling them that he would use their money to fund his wholesale grocery distribution business. To induce those investors, Shapiro directed others to create and show to the investors documents fraudulently touting Capitol’s profitability. Those documents included: financial statements, profit and loss figures that fraudulently represented that Capitol’s wholesale grocery business was generating tens of millions of dollars in annual sales; personal and business tax returns for Shapiro and Capitol which also fraudulently reflected those sales; and numerous invoices fraudulently reflecting transactions between Capitol and other companies in the wholesale grocery business.

As a result of these solicitations, more than 60 investors sent over $880 million to Shapiro and Capitol during this time period. To date, the investigation has revealed that Shapiro caused investor losses of at least $80 million.

In most instances, Shapiro and others under his direction provided investors with promissory notes reflecting the amount of their investment in Capitol and a schedule, varying from a matter of days to one year, for the payment of interest and the return of principal. The interest Shapiro and Capitol promised investors ranged from 10 percent to 26 percent annually.

In reality, Capitol had no active wholesale grocery business during the time period relevant to this complaint. In fact, Capitol had virtually no business sales. Shapiro used new investor funds to make principal and interest payments to existing investors, as well as to fund his own lavish lifestyle.

Shapiro misappropriated approximately $35 million in investor funds for his personal use, including paying millions of dollars in debts resulting from illegal gambling on sporting events. Using investor money, he also spent, at various times, more than $400,000 for floor seats to watch the Miami Heat professional basketball team; approximately $26,000 per month for mortgage payments on his residence in Miami Beach, recently appraised at approximately $5.3 million; approximately $7,250 per month for payments on a $1.5 million dollar Riviera yacht; and approximately $4,700 per month for the lease of a Mercedes-Benz automobile.

Shapiro also used stolen funds to purchase a pair of diamond-studded handcuffs, which he gave as a gift to a prominent professional athlete, as well as to make $150,000 in donations to the athletic program of a local university in the Miami area. As a result of a 10-year gift to the university, the Nevin Shapiro Student-Athlete Lounge at the university was named for the defendant.

U.S. Attorney Fishman stated: “Nevin Shapiro is charged with tricking investors with false documents and false promises. He spent tens of millions of their money on gambling debts, lavish gifts, and a luxury lifestyle built on a house of cards.”

FBI Special Agent in Charge Michael B. Ward stated: “This case is a perfect example of greed run amok. In pursuit of wealth and a lifestyle he was otherwise unable to attain, Mr. Shapiro allegedly preyed upon unsuspecting investors looking to secure a safe place to maximize their investments. Instead, their futures have been irrevocably damaged.”

“Scammers, con artists, and swindlers will do and say anything to get you to buy into their scheme,” stated William P. Offord, Special Agent in Charge, IRS-Criminal Investigation. “Remember the old cliché, ‘If it’s too good to be true, it probably is.’”

The criminal complaint charges Shapiro with one count of securities fraud and one count of money laundering. He faces a maximum term of 20 years in prison on the securities fraud charge, and a fine of up to $5 million. He also faces a maximum term of 10 years in prison on the money laundering charge, and a fine of up to $250,000, or twice the gross gain or loss from the offense.

In determining an actual sentence, the judge to whom the case is assigned would, upon a conviction, consult the advisory U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the defendant’s criminal history, if any, and other factors. The judge, however, is not bound by those guidelines in determining a sentence. Parole has been abolished in the federal system. Defendants who are given custodial terms must serve nearly all that time.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, and special agents of the IRS Criminal Investigation Division, under the direction of Special Agent in Charge William P. Offord, for the investigation leading to today’s complaint. Fishman also thanked the Securities and Exchange Commission’s Miami Regional Office, under the direction of Eric Bustillo.

The government is represented by Assistant U.S. Attorneys Justin W. Arnold and Jacob T. Elberg of the Criminal Division, in Newark.

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

The charges and allegations contained in the complaint against Shapiro are merely accusations, and the defendant is considered innocent unless and until proven guilty.

The alleged mastermind of a mortgage fraud and money laundering scheme involving residential properties in Atlantic City had an initial appearance in connection with a two-count Indictment today, U.S. Attorney Paul J. Fishman announced.

The Indictment charges that Jong Shin conspired with others to obtain more than a million dollars of mortgage loans for unqualified borrowers during June 2006 through December 2006 to purchase seven houses in Atlantic City at inflated prices. The Indictment further alleges that Jong Shin and other members of the conspiracy extracted a portion of the proceeds from the fraudulently obtained mortgage funds paid at the real estate closings, which Shin used to, among other things, gamble, purchase a liquor store, and make payoffs to her coconspirators in furtherance of the scheme.

Shin, 50, of Bayside, New York, surrendered herself earlier today, and following a brief hearing before the Honorable Joel Schneider, U.S. Magistrate Judge, was released on $100,000 bail. The Indictment is the latest step in an ongoing investigation by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation Division into fraudulent mortgage loans in southern New Jersey.

According to the Indictment, Jong Shin and her conspirators arranged to sell the Atlantic City properties to “straw purchasers,” that is, friends and acquaintances whom Shin knew had good credit scores, but lacked the financial resources to qualify for mortgage loans to purchase the properties.

According to the Indictment, in exchange for purchasing the properties in their names, Shin promised the straw purchasers that they would not have to pay deposits or closing costs to acquire the properties, would not have to make monthly mortgage payments, and would receive cash after the closing for allowing their names and credit information to be used to buy the properties. The Government maintains that, in completing the borrowers’ loan applications, Shin and her coconspirators claimed fake employers, inflated incomes, false bank account balances, and fictitious assets in order to induce the lenders to extend the mortgage loans.

It is further alleged that Shin and others took proceeds from the fraudulent mortgage loans by having funds wired into various accounts that they controlled. The Indictment further alleged that Shin used some of the proceeds from the mortgage fraud to further the scheme by: (1) making payoffs to her co-conspirators, including the straw purchasers, a title clerk and a real estate appraiser; and (2) making two to three payments on each property before allowing the mortgage loans to go into default. In addition, the Indictment alleges that Shin also used the proceeds for personal living expenses, gambling and to purchase a liquor store.

The Indictment charges Jong Shin with one count of conspiracy to commit wire fraud, which carries a statutory maximum prison sentence of 30 years and a statutory maximum fine of not more than $1,000,000. The Indictment also charges Shin with one count of conspiracy to commit money laundering, which carries a statutory maximum prison sentence of 10 years, and a statutory maximum fine equal to the greatest of $250,000, twice the gain from the offense, or twice the loss caused by the offense. Despite the Indictment, however, the defendant is presumed innocent unless and until proved guilty beyond a reasonable doubt.

PREET BHARARA, the United States Attorney for the Southern District of New York, JOSEPH M. DEMAREST JR., the Assistant Director-in-Charge of the New York Field Division of the Federal Bureau of Investigation (“FBI”), and BRIAN G. PARR, the Special Agent-in-Charge of the New York Field Office of the United States Secret Service (“USSS”), announced today the arrests of three defendants—SHAHEID BILAL, RHONDA PAYNE, and RICHARD BRITT—on charges stemming from a subprime mortgage fraud scheme involving $3 million worth of mortgages on residential properties in and around Orange and East Orange, New Jersey.

According to the five-count Indictment filed in Manhattan federal court:

From 2005 through 2007, the defendants targeted residential properties in Orange and East Orange, New Jersey. To purchase the properties, the defendants submitted mortgage loan applications, in the name of straw purchasers, that contained false information regarding, for example, the applicant’s creditworthiness and intention to live in the residence. The defendants recruited such straw purchasers by, among other things, paying them thousands of dollars in fees. The defendants told several of these straw purchasers that they would not have to pay the mortgages because the defendants would make payments for several months, and/or that the defendants would make money to pay the mortgages by renting out the properties. The defendants involved in each transaction distributed the proceeds from the fraudulently obtained home mortgage loans among themselves and their co-conspirators for their personal gain.

The defendants involved in each transaction further profited by renting out the fraudulently mortgaged properties to tenants while failing to make mortgage payments on behalf of the straw purchasers. Certain affected straw purchasers have gone into default on their mortgages, and mortgage lenders have foreclosed on certain properties.

BILAL, 33, of Lawrenceville, Georgia, supervised and coordinated the recruitment of straw purchasers and the preparation of fraudulent loan applications and other documents for submission to the lenders, among other things.

PAYNE, 36, of Queens, New York, recruited straw purchasers to participate in the fraudulent scheme and assisted in the preparation of fraudulent paperwork for submission to the lenders, among other things.

BRITT, 48, of McDonough, Georgia, assisted in the preparation of fraudulent paperwork for submission to the lenders, among other things.

A chart setting forth the charges contained in the Indictment and the maximum potential penalties for each offense is below.

All three defendants were arrested yesterday. This case has been assigned to United States District Judge DENNY CHIN. PAYNE was presented yesterday before United States Magistrate Judge THEODORE H. KATZ in Manhattan federal court;

BILAL and BRITT were presented yesterday before United States Magistrate E. CLAYTON SCOFIELD III in the Northern District of Georgia.

Mr. BHARARA praised the work of the FBI, USSS, FDICOIG, and USPIS. He also thanked the New York State Banking Department for their outstanding work in the investigation.

U.S. Attorney PREET BHARARA stated: “In a time when real families are having difficulties obtaining mortgages honestly, it is all the more important to stop schemes to obtain mortgages fraudulently. The money stolen from banks in mortgage fraud schemes is money that could be going to enable working families to buy homes. We will continue to work with our partners at the FBI, the USSS, and the FDIC-OIG, as well as the New York State Banking Department, to bring mortgage fraudsters to justice.”

FBI Assistant Director JOSEPH M. DEMAREST, JR., stated: “Vigorous enforcement to thwart mortgage fraud is an FBI priority. The health of the economy is affected by the vitality of the housing market, and steps to ensure integrity in mortgage financing reduce the risks of failed banks and foreclosed properties.”

USSS Special Agent-in-Charge BRIAN G. PARR stated: “Mortgage Fraud continues to be a priority investigative area for the United States Secret Service. Our partnership with the other agencies allows us to maximize our resources to combat this type of fraud.”

TRENTON, N.J. — Lax oversight, confusing rules and potential fraud have combined to cost New Jersey millions each year in rebates and tax deductions given to homeowners who may not qualify for them, according to a recently released state audit.

If not corrected, the state could stand to lose more money as residents age and property taxes go up.

At an average of $7,000 a year and rising, New Jersey has the highest property taxes in the nation. It’s a serious problem for many homeowners and an even worse one for those on fixed incomes.

For years the state has offered rebate programs and tax breaks to seniors and disabled homeowners in the form of checks that are usually mailed out in the fall — just in time for November elections.

But a new report by the State Auditor found that the Division of Taxation, which oversees the programs, and municipalities failed to cross-check records or demand proof from homeowners to make sure they qualify for the programs.

In 2007, the year examined by the auditor, the two programs paid out more than a quarter billion dollars.

“We’re kind of taking people at their word,” said Acting State Auditor Stephen Eells, “and there are improper payments going out.”

Known as “senior freeze” rebates, the program allows low-income senior and disabled citizens to be directly reimbursed by the state for property tax increases above the rate they lock into when they enroll in the program.

To qualify for the rebates in 2007, a homeowner had to make less than $60,000 and needed to be 65 or older or receiving federal disability benefits. Lawmakers have since expanded the program to include homeowners making up to $80,000.

Because the tax freeze program requires homeowners to live in a residence for several years in order to qualify, homeowners didn’t receive the rebates and credits until 2009.

Homeowners must submit a copy of a driver’s license or birth certificate to verify their age and disabled homeowners must provide proof that they receive disability benefits.

Before 2002, the state didn’t ask for those verifications and the audit found that the homeowners who qualified for the program before 2002 were never asked to provide such proof after the law changed.

In 2007, the average “freeze” rebate checks averaged $958, according to the Treasury Department. That year, 154,600 senior and disabled homeowners received “senior freeze” rebates totaling $165 million.

A random sample found that 6,000 homeowners who received the rebates were younger than 65, according to federal records. Of those, 405 receiving $318,000 in rebates weren’t receiving social security benefits, indicating that they weren’t as old as they claimed.

The audit also found sloppy accounting; some homeowners who claimed disabilities were listed instead as over 65. And it found that many — nearly 1,250 homeowners who received a total of $1.3 million in rebates — claimed they made less than $60,000 a year while a cross-check against federal tax forms showed they made too much to qualify.

Also examined was a $250 tax credit program for seniors and veterans. Those credits are applied directly to a tax bill and are administered by municipalities. Only age and proof of service restrictions apply.

The audit highlighted problems at the municipal level because that’s where the programs are administered. A major problem is that there was no incentive to weed out fraud; the state reimburses municipalities for the deductions and pays them an administrative fee for each one processed, so the more deductions granted, the more money for the municipality.

A look at everyone — 362,000 homeowners — who received the $250 credit in 2007 found 9,162 cases where, according to tax records, homeowners made more than the threshold. That cost the state $2.3 million in lost revenue.

The audit said municipalities are unable to cross-check income information and the state was not using databases at its disposal, including real estate and tax records.

Eells notes that some mistakes may not have been intentional fraud.

“You are dealing with a senior population and they may have made errors,” he said.

The acting director for the Division of Taxation, Cheryl Fulmer, acknowledged that more verification should be done but noted in her response to the audit that manpower was a problem.

“Our plans are subject to the limitations caused by reduced staffing and technology resources,” she wrote, noting the difficulty in administering multiple tax programs each with its own set of rules, requirements and deadlines.

Fulmer said in her response that her department was looking at ways to enhance screening protocols, including cross-checking records, and would work more with municipalities to enhance their screening of tax credit applicants.

She did not return a call seeking comment.

New Jersey’s new Republican governor, Chris Christie, has vowed to increase rebates even as the state faces an upcoming deficit of between $8 and $11 billion for the 2011 budget year.

Christie spokesman Michael Drewniak said the administration is taking “a close look” at the report but hasn’t made any decisions yet on what to do with the programs.

Former Bogota mayor Steve Lonegan, who ran against Christie in the GOP gubernatorial primary, has long been opposed to the rebate program, calling it a form of “income redistribution.”

He wasn’t surprised to hear that unqualified homeowners were cashing in on it.

“What they really need to do is eliminate the program and cut everyone’s taxes across the board,” he said. “It’s too complex, too costly to administer, too subject to political manipulation. It’s a failed program.”

Solomon Dwek’s credibility is key in Beldini corruption trial Defense lawyer puts focus on deal failed mogul made

NEWARK – A federal jury’s answer to that question is likely to decide the fate of the government’s extortion and bribery case against suspended Jersey City deputy mayor Leona Beldini. Beldini, 74, is the first of the 44 people arrested in a July 2009 FBI public corruption and money-laundering sting to go to trial.

Dwek, 37, admitted career criminal, is the government’s witness. He spent almost five full days on the witness stand. At times stoic and subdued, at others angry and annoyed, and once moved nearly to tears, the disgraced land mogul who had ruled over a $400 million empire, testified before spectators that often included defense attorneys for others arrested in the FBI operation.

They heard him admit to bilking his uncle of $100 million in a real estate scheme and stealing millions more from a close family friend. They watched him choke up as he admitted under questioning that his mother and father are no longer his friends. They heard him admit to breaking several of the Ten Commandments.

But they also listened as he repeatedly contended that Beldini had only continued to meet with him because her motives were corrupt: she wanted the cash he was offering for Mayor Jerramiah T. Healy’s election campaign, and she wanted to be the exclusive real estate agent for the fictitious condominium complex Dwek claimed he was going to build.

“If she didn’t want to talk about it, she could have got up and left . . .,” Dwek responded testily to one series of questions from Beldini’s attorney, Brian J. Neary.

Neary implied that Beldini was simply too courteous to walk away from the meeting.

“She is courteous enough to simply talk to you. . .,” Neary said.

“And accept the money, yes,” Dwek shot back. “She was courteous for her own good, not for my own good.”

The government called only three other witnesses in the Beldini trial, while the defense presented no testimony at all. Should Beldini be acquitted, it is likely to encourage other defendants to take their chances at trial instead of agreeing to a plea deal.

The jury is expected to begin deliberations as early as Monday.

Posing as corrupt developer David Esenbach, Dwek wore a wire and secretly videotaped several meetings with Beldini, Healy, former Housing Commissioner Edward Cheatam and political consultant Jack Shaw. The black-and-white videotapes, along with wiretapped conversations from Shaw’s telephone, were the government’s key evidence at the trial.

Beldini is charged with funneling $20,000 in cash that Dwek gave to Cheatam and Shaw, into Healy’s 2009 mayoral campaign. Beldini served as campaign treasurer for Healy, who has not been charged with any wrongdoing.

Under cross examination by Neary, Dwek admitted that he never gave Beldini any cash directly. But on one videotape, Dwek can be heard asking the deputy mayor if Mayor Healy knows that Dwek had given Cheatam and Shaw $10,000 in cash to secretly purchase tickets for a Healy fundraiser.

“The mayor knows, you know, where the tickets came from?” Dwek asks, adding “. . .He appreciates the way I do business, right?’ ” Dwek asks.

“Absolutely,” Beldini answers.

Shaw died of an overdose of Valium on July 28, five days after his July 23 arrest. Two more people have since been arrested in the case, 12 have so far pleaded guilty, including Cheatam, who admitted to taking about $70,000 from Dwek.

Dwek admitted under questioning by Neary that he did not initially know that Beldini’s $66,000-a-year job as deputy mayor was an appointed position, and that she had no vote and did not sit on the city’s planning or zoning boards.

He had been told by Cheatam and Shaw, he said, that Beldini was the mayor’s “right-hand man,” and Jersey City’s second-most powerful public official.

Dwek began cooperating with the FBI only months after he was arrested on $50 million in bank fraud charges in May 2006. During more than two years working undercover as a government informant, Dwek drove all over New Jersey and into New York City in a Lexus, meeting with public officials and Sephardic rabbis.

The $1,753 monthly rental and insurance fee for his car was paid for by the federal government, which also reimbursed him for tens of thousands of dollars he spent on mileage, meals, tolls and parking

The jury is expected to begin deliberations as early as Monday.

Posing as corrupt developer David Esenbach, Dwek wore a wire and secretly videotaped several meetings with Beldini, Healy, former Housing Commissioner Edward Cheatam and political consultant Jack Shaw. The black-and-white videotapes, along with wiretapped conversations from Shaw’s telephone, were the government’s key evidence at the trial.

Beldini is charged with funneling $20,000 in cash that Dwek gave to Cheatam and Shaw, into Healy’s 2009 mayoral campaign. Beldini served as campaign treasurer for Healy, who has not been charged with any wrongdoing.

Under cross examination by Neary, Dwek admitted that he never gave Beldini any cash directly. But on one videotape, Dwek can be heard asking the deputy mayor if Mayor Healy knows that Dwek had given Cheatam and Shaw $10,000 in cash to secretly purchase tickets for a Healy fundraiser.

“The mayor knows, you know, where the tickets came from?” Dwek asks, adding “. . .He appreciates the way I do business, right?’ ” Dwek asks.

“Absolutely,” Beldini answers.

Shaw died of an overdose of Valium on July 28, five days after his July 23 arrest. Two more people have since been arrested in the case, 12 have so far pleaded guilty, including Cheatam, who admitted to taking about $70,000 from Dwek.

Dwek admitted under questioning by Neary that he did not initially know that Beldini’s $66,000-a-year job as deputy mayor was an appointed position, and that she had no vote and did not sit on the city’s planning or zoning boards.

He had been told by Cheatam and Shaw, he said, that Beldini was the mayor’s “right-hand man,” and Jersey City’s second-most powerful public official.

Dwek began cooperating with the FBI only months after he was arrested on $50 million in bank fraud charges in May 2006. During more than two years working undercover as a government informant, Dwek drove all over New Jersey and into New York City in a Lexus, meeting with public officials and Sephardic rabbis.

The $1,753 monthly rental and insurance fee for his car was paid for by the federal government, which also reimbursed him for tens of thousands of dollars he spent on mileage, meals, tolls and parking.

Image via Wikipedia

Gerald Carti, a 62-year-old loan officer and owner of a filed mortgage New Jersey-based mortgage company, pled guilty last week to wire fraud conspiracy and money laundering conspiracy in connection with a mortgage fraud and property-flipping scheme involving rental properties in Paterson, NJ.

Carti, who ran US Mortgage Corp., was originally scheduled to go on trial May 4th, admitted conspiring with his co-defendants and several others to originate mortgage loans fraudulently and to launder proceeds of the loans for the four years between 2002 and 2005. Carti pleaded guilty before U.S. District Judge Jose Linares to one count of wire fraud conspiracy, which carries a maximum statutory penalty of 30 years in prison and a fine of $1 million, and one count of money laundering conspiracy, which has a maximum statutory penalty of 10 years in prison and a fine of $250,000.

Under the advisory U.S. Sentencing Guidelines, Gerald Carti now faces an actual sentencing range of between 46 and 71 months in prison. He will also be required to pay restitution to the victims, estimated at $1,030,745, not including interest. The guidelines are advisory only, and Judge Linares has discretion in imposing a sentence within, above or below the guidelines range.

Carti admitted that he conspired with Michael Eliasof, a former Paramus, NJ, real estate agent; William C. Colacino Jr., a now-deceased Garfield, NJ, attorney previously identified as an un-indicted co-conspirator; Melanie Gebbia, William C. Colacino Jr’s legal assistant; William Ottaviano, an appraiser; Frank Corallo, a former US Mortgage loan processor; co-defendant Renford Davis, of Paterson, and Hopeton Bradley, who jointly managed many of the Paterson properties involved in the scheme; and others. Eliasof, Gebbia, Ottaviano, Corallo, Bradley (who has since died) and one other conspirator have each pleaded guilty in connection with the scheme. A trial is scheduled to begin on May 4 for Davis and co-defendants Amer Mir, of Jersey City, NJ, and Frederick Ugwu, of Saddle River, NJ.

Gerald Carti admitted helping Michael Eliasof obtain mortgage loans for borrowers to purchase two- and three-family homes in Paterson, knowing that the borrowers would be putting no money down to purchase the properties. Carti also admitted permitting the borrowers to submit loan applications to US Mortgage falsely stating that they had made substantial down payments and allowing US Mortgage to fund the loans, even though the borrowers had not made any down payments. Carti then admitted that the closings of the loans took place at the law office of William C. Colacino Jr., then a Garfield municipal judge, and that Carti received as a commission 50 percent of the fees that US Mortgage received for each loan.

Carti also admitted that by April 2004, Residential Funding Corporation informed US Mortgage that some of the loans were part of a scheme involving Carti, Michael Eliasof and William C. Colacino Jr.

According to Carti, during a meeting concerning these allegations, M.M. and S.M., both senior officers at US Mortgage, were informed that the loans were no-money-down deals.

Carti stated that after the meeting, S.M. directed him to pay off the loans by refinancing them through new mortgage loans for the existing unqualified borrowers or reselling the Paterson properties, which Carti partly accomplished with Corallo’s assistance by originating new mortgage loans for some of the Paterson properties through US Mortgage.

According to Carti, S.M. insisted that these new mortgage loans be brokered, rather than funded and underwritten by US Mortgage. In addition, Carti admitted that he gave applications for mortgage loans for some of the properties to his co-defendant, Mir, a loan officer at Jersey City-based United Home Mortgage Co., who demanded bribes from others to ensure that the mortgage loans being sought were funded. Finally, Carti admitted that in 2002, S.M. told him he would receive a commission from American Title & Settlement Services, LLC, which S.M. controlled, for each mortgage loan that he referred to American Title for title insurance, and that he received these commissions through an entity called Dream On Enterprises, LLC.

Carti’s guilty plea is the latest step in an investigation by the U.S. Department of Housing and Urban Development Office of Inspector General (HUD-OIG), the FBI, the U.S. Postal Inspection Service and the IRS Criminal Investigations Division into fraudulent Federal Housing Administration-insured and conventional mortgage loans originated by various New Jersey mortgage companies, including US Mortgage and United Home Mortgage. The investigation has resulted in a dozen guilty pleas from New Jersey residents.

Image via WikipediaA New Jersey attorney who ran his law practice from the basement of his home, has pleaded guilty to stealing approximately $4,000,000.00 entrusted to him for 20 different real estate closings. Michael Rumore, 50, of Lyndhurst, NJ, gambled away the stolen funds at a variety of Atlantic City, NJ, casinos, including the Trump Taj Mahal Casino Resort.

According to Deborah Gramiccioni, director of the State of New Jersey’s Division of Criminal Justice, Rumore pleaded guilty to first-degree money laundering and second-degree theft by failure to make required disposition of property received. Under the terms of his plea agreement, the State of New Jersey will recommend Michael “Mike” Rumore be sentenced to 15 years in state prison. In addition, he must sign a consent judgment to pay full restitution to the victims ($6,200,00.00), which are five title insurance companies (First American Title Insurance Co., New Jersey Title Insurance Co., Fidelity National Title Insurance Co., Stewart Title Insurance Co., and Lawyers Title Insurance Co.).

Michael Rumore’s sentencing hearing is schedule for April 17, 2009. He is currently free on $100,000 bail.

According to the plea agreement, Michael Rumore was hired as an attorney and settlement agent for numerous real estate purchasers. Between April 2007 and August 2008, he received approximately $4 million into his attorney trust account from various mortgage companies. He had a duty to disburse the funds for closings and use them to pay balances on existing mortgages and other associated costs and fees. In pleading guilty, Rumore admitted that he instead transferred the funds into his personal and business accounts and used them to gamble at casinos in Atlantic City, primarily on slot machines.

A licensed attorney since 1984, Michael Rumore was disbarred in mid-September of last year.

A New Jersey woman who raised more than $10 million from hundreds of investors in connection with real estate investments has been arrested and charged with operating a Ponzi scheme. According to Justin W. Arnold, the Assistant U.S. Attorney handling the prosecution, Marcia Sladich, 50, of Clifton, NJ, was arrested yesterday morning by Special Agents of the FBI and Postal Inspectors at her home. Prosecutors have charged Sladich with one count of mail fraud, which carries a maximum statutory prison term of 20 years and a fine of $250,000.

The U.S. Attorney’s office for the District of New Jersey alleges that beginning in 2004 and continuing through at least August of 2007, Marcia Sladich solicited hundreds of investors, most of them members of her church, to invest money with her and her company, Kay Services, LLC. According to the Criminal Complaint filed in the case, Sladich told investors that she was partnering with a successful businesswoman who would be responsible for investing their money in real estate here in the U.S. and abroad. Prosecutors say Sladich promised investors that the investments were safe and secure and guaranteed 100% annual returns.

Contrary to the representation she made to investors, Sladich did not have a successful business partner. Rather, she forged that individual’s signature on numerous investment contracts to deceive investors. What’s more, there were no bona fide investments made on behalf of any investors during the course of the scam. To perpetuate her scheme, Sladich simply used new investor money to make required payments to existing investors (i.e., she ran a Ponzi scheme).

Sladich is said to have misappropriated at least $400,000 of investor funds to purchase real estate in Florida and in Brazil for herself, and used other investor funds to pay for numerous personal expenses, including credit card bills and everyday expenses.

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.

We talk about a lot of “constants” here on Flipping Frenzy (e.g., constant threads in real estate and mortgage fraud; the constant barrage of seemingly never-ending real estate and mortgage fraud cases; the constant denial by many in the real estate industry and elsewhere that real estate and mortgage fraud is that big of a problem; etc.). So today we’re joyous over the news out of Brooklyn, New York, of another “constant” development… namely, that one Emmanuel Constant–a Haitian national who, despite being convicted for crimes against humanity, has been living freely in New York since the mid-1990s–has been found guilty of six felony counts against him related to a mortgage fraud scheme.

(photo (c) 2007 Jesse Ward)

A Kings County, NY, Supreme Court jury found Emmanuel Constant guilty last Friday of fraudulently arranging millions of dollars in home loans for three Brooklyn properties. Constant, who has been convicted in Haiti, in absentia, for crimes against humanity, will remain in police custody. Sentencing will occur on September 10, 2008.

In an elaborate mortgage fraud scheme, Emmanuel Constant and other co-conspirators fraudulently arranged bank financing for the purchase or refinancing of three Brooklyn properties. After locating a property for sale and generating an artificially high appraisal value for the property, they would pay a straw buyer to get loans from mortgage banks to purchase the house at the inflated value. Constant and the co-conspirators would then divert the proceeds of the fraudulently obtained home loans to themselves. Many of Constant’s co-conspirators have been arrested, and some contributed to the testimony against him.

For part of the period of the mortgage fraud scheme, Emmanuel Constant, 51, served as the Suffolk County branch manager for D & M Financial, Inc., a New Jersey-based mortgage bank. In a separate conviction also prosecuted by the New York AG’s office, Constant served two years in prison for his involvement in the theft of over $1 million in mortgage funds from the fraudulent sale of a Suffolk County home. Constant completed serving this jail time on July 1, 2008.

Before being arrested for mortgage fraud, Constant, a native of Haiti, had been living freely in New York despite a 1995 federal immigration warrant and a 1995 federal deportation order. He was convicted in Haiti, in absentia, for crimes against humanity. He was the founder and commander of the Front Revolutionnaire Pour L’Advancement et le Progres d’Haiti, or “FRAPH,” which was dedicated to terrorizing and torturing political opponents of Haiti’s military regime.

The Kings County Supreme Court jury found Emmanuel Constant guilty of two class C felonies, two class D felonies, and two class E felonies. Sentencing will occur on September 10, 2008. Emmanuel Constant faces a maximum of 15-45 years in prison.

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

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

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

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



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

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

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