Deputy Attorney General Mark Filip and FBI Director Robert Mueller announced the results of “Operation Malicious Mortgage,” a massive multiagency takedown of mortgage fraud schemes involving more than 400 defendants nationwide who have been charged over the past three and a half months.
The operation focused primarily on three types of mortgage fraud—lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. “To persons who are involved in such schemes, we will find you, you will be investigated, and you will be prosecuted,” said Mueller. “To those who would contemplate misleading, engaging in such schemes, you will spend time in jail.”
Among the 400-plus subjects of Operation Malicious Mortgage, there have been 173 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has secured more than $60 million in assets.
During its investigative phase, we worked closely with our partner agencies—including the Postal Inspection Service, Internal Revenue Service, Immigration and Customs Enforcement, Secret Service, U.S. Trustee Program, and the Inspector General Offices of the Department of Housing and Urban Development, Department of Veterans Affairs, and Federal Deposit Insurance Corporation.
The FBI’s mortgage fraud caseload has doubled in the past three years to more than 1,400 pending cases. To address this steady growth, Mueller noted that every FBI field office focuses on this criminal priority. The Bureau also takes part in 42 mortgage fraud task forces and working groups. And we continue our joint efforts with federal, state, and local agencies.
“Our objective, as always,” said Mueller, ”is to protect the consumer and stabilize our economic markets.”
Among the Bureau’s mortgage fraud cases are 19 sub-prime-related corporate fraud investigations. Most of these corporate fraud investigations, said Mueller, deal with accounting fraud, with insider trading, and with criminal intent, the failure to disclose the proper valuations of the securitized loans and derivatives.
Deputy Attorney General Filip also said that the Justice Departments remains committed to investigating and prosecuting cases of mortgage-related securities fraud, noting today’s announcement of an indictment against two senior managers of failed Bear Stearns hedge funds.

ATLANTA—Kelsey Torrey Hull, 38, and Jonathan Alfred Kimpson, 27, both of Lithonia, Georgia, pleaded guilty today in federal district court to a conspiracy to defraud reverse mortgage lenders and the Federal Housing Administration (FHA) insurer of the loans. Hull pleaded guilty to an additional bank fraud charge involving mortgage fraud, and Kimpson pleaded to an additional identity theft charge.

U.S. Attorney Sally Quillian Yates said, “These defendants plead to profiting from the corruption of a FHA-insured program designed to assist seniors with either cash for equity in their home or with funds toward the purchase of a home. These defendants changed real estate records and used other fake documents to place seniors in houses worth only a fraction of the amounts represented, and divert loan proceeds to themselves. With these prosecutions, we have taken a significant step to stop this type of crime.”

Inspector General Kenneth Donahue, U.S. Department of Housing and Urban Development (HUD) said, “HUD’s Home Equity Conversion Mortgage Program was created to help senior citizens find greater financial security through FHA-insured reverse mortgage loans. The HUD Office of Inspector General will aggressively investigate those who would prey on America’s senior citizens through reverse mortgage fraud, and encourages anyone having knowledge of such schemes to contact our HUD Hotline at 1-800-347-3735.”

According to U.S. Attorney Yates, the charges and other information presented in court: Reverse mortgages were designed to assist with the financial security of seniors, ages 62 or older. There are two types of reverse mortgages. In a “refi-reverse,” the senior homeowner receives money from the lender for a portion of the equity in the home they own. In a “purchase money reverse,” the senior receives money from the lender toward the purchase of a new home. Under both types of reverse mortgages, the senior does not have to repay the lender for as long as the senior lives in the home. However, refi-reverse mortgages fund only a percentage of the property value, requiring significant equity to remain in the property, and purchase money reverse mortgages require a significant down payment from the senior borrowers to establish equity in the property. The equity must remain in the home to cover loan principal, interest, insurance, and servicing costs upon FHA sale of the property when no longer occupied by the senior.

Hull and Kimpson took advantage of the system by faking the required seniors’ down payments needed to qualify for the FHA-insured purchase money reverses. The defendants did this through bogus “gift” letters from “relatives” in amounts between $50,000 and $105,000. They also used fake “HUD-1” Settlement Statements purporting to document the sale of the senior’s non-existent assets. All down payments were actually supplied by the defendants, not the senior citizens, to be returned to the defendants upon the reverse loan closings, along with profits substantially in excess of the true sales prices of the properties. The return of funds to the defendants were disguised as either seller proceeds or lien payoffs. All such fraudulently obtained reverse mortgages included inflated appraisals.

Kimpson’s plea to aggravated identity theft relates to his use of the stolen identity of realtors and their password to falsify Georgia Multiple Listing Service (MLS) records to create fake property listings and sales at inflated amounts in support many of the fraudulent appraisals.

Hull also committed refi-reverse fraud by transferring properties into seniors’ names to obtain refi-reverse mortgages at fraudulently inflated amounts. He thereby avoided the down payment requirement for purchase money reverses, and was able to divert loan proceeds to his shell companies, disguised as lien payoffs.

Hull was charged by a criminal information on Feb. 25, 2010. Hull could receive a maximum sentence of up to 30 years in prison and a fine of up to $1,000,000 on each of the conspiracy and bank fraud counts. Kimpson was indicted on Feb. 24, 2010. Kimpson could receive a maximum sentence of up to 30 years in prison and a fine of up to $1,000,000 on the conspiracy count, as well as a mandatory consecutive sentence of two years in prison and a fine of up to $250,000 on the aggravated identity theft charge. In determining the actual sentence upon any convictions in these cases, the court will consider the U.S. Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

Sentencings for both Hull and Kimpson are scheduled for July 16, 2010, beginning at 2 p.m., before U.S. District Judge Julie E. Carnes.

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

These cases are being investigated by Special Agents of the HUD-Office of Inspector General and the Federal Bureau of Investigation (FBI). Assistance in this case is being provided by the U.S. Department of Treasury Financial Crimes Enforcement Network (FINCEN) and the Georgia Multiple Listing Service.

Assistant U.S. Attorney Gale McKenzie is prosecuting the cases.

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

Redemption / Strawman / Bond Fraud

Proponents of this scheme claim that the U.S. government or the Treasury Department control bank accounts—often referred to as “U.S. Treasury Direct Accounts”—for all U.S. citizens that can be accessed by submitting paperwork with state and federal authorities. Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and websites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes. Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times.

This scheme predominately uses fraudulent financial documents that appear to be legitimate. These documents are frequently referred to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful. Notaries may be used in an attempt to make the fraud appear legitimate. Often, victims of the scheme are instructed to address their paperwork to the U.S. Secretary of the Treasury.

Tips for Avoiding Redemption/Strawman/Bond Fraud:

* Be wary of individuals or groups selling kits that they claim will inform you on to access secret bank accounts.
* Be wary of individuals or groups proclaiming that paying federal and/or state income tax is not necessary.
* Do not believe that the U.S. Treasury controls bank accounts for all citizens.
* Be skeptical of individuals advocating that speeding tickets, summons, bills, tax notifications, or similar documents can be resolved by writing “acceptance for value” on them.
* If you know of anyone advocating the use of property liens to coerce acceptance of this scheme, contact your local FBI office.

Advance Fee Schemes

An advance fee scheme occurs when the victim pays money to someone in anticipation of receiving something of greater value—such as a loan, contract, investment, or gift—and then receives little or nothing in return.

The variety of advance fee schemes is limited only by the imagination of the con artists who offer them. They may involve the sale of products or services, the offering of investments, lottery winnings, “found money,” or many other “opportunities.” Clever con artists will offer to find financing arrangements for their clients who pay a “finder’s fee” in advance. They require their clients to sign contracts in which they agree to pay the fee when they are introduced to the financing source. Victims often learn that they are ineligible for financing only after they have paid the “finder” according to the contract. Such agreements may be legal unless it can be shown that the “finder” never had the intention or the ability to provide financing for the victims.

Tips for Avoiding Advanced Fee Schemes:

If the offer of an “opportunity” appears too good to be true, it probably is. Follow common business practice. For example, legitimate business is rarely conducted in cash on a street corner.

* Know who you are dealing with. If you have not heard of a person or company that you intend to do business with, learn more about them. Depending on the amount of money that you plan on spending, you may want to visit the business location, check with the Better Business Bureau, or consult with your bank, an attorney, or the police.
* Make sure you fully understand any business agreement that you enter into. If the terms are complex, have them reviewed by a competent attorney.
* Be wary of businesses that operate out of post office boxes or mail drops and do not have a street address. Also be suspicious when dealing with persons who do not have a direct telephone line and who are never in when you call, but always return your call later.
* Be wary of business deals that require you to sign nondisclosure or non-circumvention agreements that are designed to prevent you from independently verifying the bona fides of the people with whom you intend to do business. Con artists often use non-circumvention agreements to threaten their victims with civil suit if they report their losses to law enforcement.

For more information:
- Work-at-Home Advance Fee Scheme
- Cancer Research Advance Fee Scheme

Identity Theft

Identity theft occurs when someone assumes your identity to perform a fraud or other criminal act. Criminals can get the information they need to assume your identity from a variety of sources, including by stealing your wallet, rifling through your trash, or by compromising your credit or bank information. They may approach you in person, by telephone, or on the Internet and ask you for the information.

The sources of information about you are so numerous that you cannot prevent the theft of your identity. But you can minimize your risk of loss by following a few simple hints.

Tips for Avoiding Identity Theft:

* Never throw away ATM receipts, credit statements, credit cards, or bank statements in a usable form.
* Never give your credit card number over the telephone unless you make the call.
* Reconcile your bank account monthly, and notify your bank of discrepancies immediately.
* Keep a list of telephone numbers to call to report the loss or theft of your wallet, credit cards, etc.
* Report unauthorized financial transactions to your bank, credit card company, and the police as soon as you detect them.
* Review a copy of your credit report at least once each year. Notify the credit bureau in writing of any questionable entries and follow through until they are explained or removed.
* If your identity has been assumed, ask the credit bureau to print a statement to that effect in your credit report.
* If you know of anyone who receives mail from credit card companies or banks in the names of others, report it to local or federal law enforcement authorities.

Investment-Related Scams

Letter of Credit Fraud

Legitimate letters of credit are never sold or offered as investments. They are issued by banks to ensure payment for goods shipped in connection with international trade. Payment on a letter of credit generally requires that the paying bank receive documentation certifying that the goods ordered have been shipped and are en route to their intended destination. Letters of credit frauds are often attempted against banks by providing false documentation to show that goods were shipped when, in fact, no goods or inferior goods were shipped.

Other letter of credit frauds occur when con artists offer a “letter of credit” or “bank guarantee” as an investment wherein the investor is promised huge interest rates on the order of 100 to 300 percent annually. Such investment “opportunities” simply do not exist. (See Prime Bank Notes for additional information.)

Tips for Avoiding Letter of Credit Fraud:

* If an “opportunity” appears too good to be true, it probably is.
* Do not invest in anything unless you understand the deal. Con artists rely on complex transactions and faulty logic to “explain” fraudulent investment schemes.
* Do not invest or attempt to “purchase” a “letter of credit.” Such investments simply do not exist.
* Be wary of any investment that offers the promise of extremely high yields.
* Independently verify the terms of any investment that you intend to make, including the parties involved and the nature of the investment.

Prime Bank Note Fraud

International fraud artists have invented an investment scheme that supposedly offers extremely high yields in a relatively short period of time. In this scheme, they claim to have access to “bank guarantees” that they can buy at a discount and sell at a premium. By reselling the “bank guarantees” several times, they claim to be able to produce exceptional returns on investment. For example, if $10 million worth of “bank guarantees” can be sold at a two percent profit on 10 separate occasions—or “traunches”—the seller would receive a 20 percent profit. Such a scheme is often referred to as a “roll program.”

To make their schemes more enticing, con artists often refer to the “guarantees” as being issued by the world’s “prime banks,” hence the term “prime bank guarantees.” Other official sounding terms are also used, such as “prime bank notes” and “prime bank debentures.” Legal documents associated with such schemes often require the victim to enter into non-disclosure and non-circumvention agreements, offer returns on investment in “a year and a day”, and claim to use forms required by the International Chamber of Commerce (ICC). In fact, the ICC has issued a warning to all potential investors that no such investments exist.

The purpose of these frauds is generally to encourage the victim to send money to a foreign bank, where it is eventually transferred to an off-shore account in the control of the con artist. From there, the victim’s money is used for the perpetrator’s personal expenses or is laundered in an effort to make it disappear.

While foreign banks use instruments called “bank guarantees” in the same manner that U.S. banks use letters of credit to insure payment for goods in international trade, such bank guarantees are never traded or sold on any kind of market.

Tips for Avoiding Prime Bank Note Fraud:

* Think before you invest in anything. Be wary of an investment in any scheme, referred to as a “roll program,” that offers unusually high yields by buying and selling anything issued by “prime banks.”
* As with any investment, perform due diligence. Independently verify the identity of the people involved, the veracity of the deal, and the existence of the security in which you plan to invest.
* Be wary of business deals that require non-disclosure or non-circumvention agreements that are designed to prevent you from independently verifying information about the investment.

“Ponzi’ Schemes

“Ponzi” schemes promise high financial returns or dividends not available through traditional investments. Instead of investing the funds of victims, however, the con artist pays “dividends” to initial investors using the funds of subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds or when a sufficient number of new investors cannot be found to allow the continued payment of “dividends.”

This type of fraud is named after its creator—Charles Ponzi of Boston, Massachusetts. In the early 1900s, Ponzi launched a scheme that guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial backers, the scheme dissolved when he was unable to pay later investors.

Tips for Avoiding Ponzi Schemes:

* Be careful of any investment opportunity that makes exaggerated earnings claims.
* Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework.
* Consult an unbiased third party—like an unconnected broker or licensed financial advisor—before investing.

For more information:
- Bernie Madoff Case
- Stanford Case
- Wholesale Grocery Distribution Ponzi Scheme
- ATM Ponzi Scheme
- Victims Turn Tables with Ponzi Scheme

Pyramid Schemes

As in Ponzi schemes, the money collected from newer victims of the fraud is paid to earlier victims to provide a veneer of legitimacy. In pyramid schemes, however, the victims themselves are induced to recruit further victims through the payment of recruitment commissions.

More specifically, pyramid schemes—also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses. At the heart of each pyramid scheme is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment. Promoters fail to tell prospective participants that this is mathematically impossible for everyone to do, since some participants drop out, while others recoup their original investments and then drop out.

Tips for Avoiding Pyramid Schemes:

* Be wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.
* Independently verify the legitimacy of any franchise or investment before you invest.

Market Manipulation or “Pump and Dump” Fraud

This scheme—commonly referred to as a “pump and dump”—creates artificial buying pressure for a targeted security, generally a low-trading volume issuer in the over-the-counter securities market largely controlled by the fraud perpetrators. This artificially increased trading volume has the effect of artificially increasing the price of the targeted security (i.e., the “pump”), which is rapidly sold off into the inflated market for the security by the fraud perpetrators (i.e., the “dump”); resulting in illicit gains to the perpetrators and losses to innocent third party investors. Typically, the increased trading volume is generated by inducing unwitting investors to purchase shares of the targeted security through false or deceptive sales practices and/or public information releases.

A modern variation on this scheme involves largely foreign-based computer criminals gaining unauthorized access to the online brokerage accounts of unsuspecting victims in the United States. These victim accounts are then utilized to engage in coordinated online purchases of the targeted security to affect the pump portion of a manipulation, while the fraud perpetrators sell their pre-existing holdings in the targeted security into the inflated market to complete the dump.

Tips for Avoiding Market Manipulation Fraud:

* Don’t believe the hype.
* Find out where the stock trades.
* Independently verify claims.
* Research the opportunity.
* Beware of high-pressure pitches.
* Always be skeptical.

For more information:
- Operation Shore Shells investigation

Telemarketing Fraud

When you send money to people you do not know personally or give personal or financial information to unknown callers, you increase your chances of becoming a victim of telemarketing fraud.

Here are some warning signs of telemarketing fraud—what a caller may tell you:

* “You must act ‘now’ or the offer won’t be good.”
* “You’ve won a ‘free’ gift, vacation, or prize.” But you have to pay for “postage and handling” or other charges.
* “You must send money, give a credit card or bank account number, or have a check picked up by courier.” You may hear this before you have had a chance to consider the offer carefully.
* “You don’t need to check out the company with anyone.” The callers say you do not need to speak to anyone including your family, lawyer, accountant, local Better Business Bureau, or consumer protection agency.
* “You don’t need any written information about their company or their references.”
* “You can’t afford to miss this ‘high-profit, no-risk’ offer.”

If you hear these or similar “lines” from a telephone salesperson, just say “no thank you” and hang up the telephone.

Tips for Avoiding Telemarketing Fraud:

It’s very difficult to get your money back if you’ve been cheated over the telephone. Before you buy anything by telephone, remember:

* Don’t buy from an unfamiliar company. Legitimate businesses understand that you want more information about their company and are happy to comply.
* Always ask for and wait until you receive written material about any offer or charity. If you get brochures about costly investments, ask someone whose financial advice you trust to review them. But, unfortunately, beware—not everything written down is true.
* Always check out unfamiliar companies with your local consumer protection agency, Better Business Bureau, state attorney general, the National Fraud Information Center, or other watchdog groups. Unfortunately, not all bad businesses can be identified through these organizations.
* Obtain a salesperson’s name, business identity, telephone number, street address, mailing address, and business license number before you transact business. Some con artists give out false names, telephone numbers, addresses, and business license numbers. Verify the accuracy of these items.
* Before you give money to a charity or make an investment, find out what percentage of the money is paid in commissions and what percentage actually goes to the charity or investment.
* Before you send money, ask yourself a simple question. “What guarantee do I really have that this solicitor will use my money in the manner we agreed upon?”
* Don’t pay in advance for services. Pay services only after they are delivered.
* Be wary of companies that want to send a messenger to your home to pick up money, claiming it is part of their service to you. In reality, they are taking your money without leaving any trace of who they are or where they can be reached.
* Always take your time making a decision. Legitimate companies won’t pressure you to make a snap decision.
* Don’t pay for a “free prize.” If a caller tells you the payment is for taxes, he or she is violating federal law.
* Before you receive your next sales pitch, decide what your limits are—the kinds of financial information you will and won’t give out on the telephone.
* Be sure to talk over big investments offered by telephone salespeople with a trusted friend, family member, or financial advisor. It’s never rude to wait and think about an offer.
* Never respond to an offer you don’t understand thoroughly.
* Never send money or give out personal information such as credit card numbers and expiration dates, bank account numbers, dates of birth, or social security numbers to unfamiliar companies or unknown persons.
* Be aware that your personal information is often brokered to telemarketers through third parties.
* If you have been victimized once, be wary of persons who call offering to help you recover your losses for a fee paid in advance.
* If you have information about a fraud, report it to state, local, or federal law enforcement agencies.

For More information:
- Telemarketing Fraud Targeting Seniors

Nigerian Letter or “419” Fraud

Nigerian letter frauds combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter mailed from Nigeria offers the recipient the “opportunity” to share in a percentage of millions of dollars that the author—a self-proclaimed government official—is trying to transfer illegally out of Nigeria. The recipient is encouraged to send information to the author, such as blank letterhead stationery, bank name and account numbers, and other identifying information using a fax number provided in the letter. Some of these letters have also been received via e-mail through the Internet. The scheme relies on convincing a willing victim, who has demonstrated a “propensity for larceny” by responding to the invitation, to send money to the author of the letter in Nigeria in several installments of increasing amounts for a variety of reasons.

Payment of taxes, bribes to government officials, and legal fees are often described in great detail with the promise that all expenses will be reimbursed as soon as the funds are spirited out of Nigeria. In actuality, the millions of dollars do not exist, and the victim eventually ends up with nothing but loss. Once the victim stops sending money, the perpetrators have been known to use the personal information and checks that they received to impersonate the victim, draining bank accounts and credit card balances. While such an invitation impresses most law-abiding citizens as a laughable hoax, millions of dollars in losses are caused by these schemes annually. Some victims have been lured to Nigeria, where they have been imprisoned against their will along with losing large sums of money. The Nigerian government is not sympathetic to victims of these schemes, since the victim actually conspires to remove funds from Nigeria in a manner that is contrary to Nigerian law. The schemes themselves violate section 419 of the Nigerian criminal code, hence the label “419 fraud.”

Tips for Avoiding Nigerian Letter or “419″ Fraud:

* If you receive a letter from Nigeria asking you to send personal or banking information, do not reply in any manner. Send the letter to the U.S. Secret Service, your local FBI office, or the U.S. Postal Inspection Service. You can also register a complaint with the Federal Trade Commission’s Complaint Assistant.
* If you know someone who is corresponding in one of these schemes, encourage that person to contact the FBI or the U.S. Secret Service as soon as possible.
* Be skeptical of individuals representing themselves as Nigerian or foreign government officials asking for your help in placing large sums of money in overseas bank accounts.
* Do not believe the promise of large sums of money for your cooperation.
* Guard your account information carefully.

For More information:
- Related Online Rental Ads Scheme
- Related Spanish Lottery Scam

Health Care Fraud or Health Insurance Fraud

Medical Equipment Fraud:

Equipment manufacturers offer “free” products to individuals. Insurers are then charged for products that were not needed and/or may not have been delivered.

“Rolling Lab” Schemes:

Unnecessary and sometimes fake tests are given to individuals at health clubs, retirement homes, or shopping malls and billed to insurance companies or Medicare.

Services Not Performed:

Customers or providers bill insurers for services never rendered by changing bills or submitting fake ones.

Medicare Fraud:

Medicare fraud can take the form of any of the health insurance frauds described above. Senior citizens are frequent targets of Medicare schemes, especially by medical equipment manufacturers who offer seniors free medical products in exchange for their Medicare numbers. Because a physician has to sign a form certifying that equipment or testing is needed before Medicare pays for it, con artists fake signatures or bribe corrupt doctors to sign the forms. Once a signature is in place, the manufacturers bill Medicare for merchandise or service that was not needed or was not ordered.

Tips for Avoiding Health Care Fraud or Health Insurance Fraud:

* Never sign blank insurance claim forms.
* Never give blanket authorization to a medical provider to bill for services rendered.
* Ask your medical providers what they will charge and what you will be expected to pay out-of-pocket.
* Carefully review your insurer’s explanation of the benefits statement. Call your insurer and provider if you have questions.
* Do not do business with door-to-door or telephone salespeople who tell you that services of medical equipment are free.
* Give your insurance/Medicare identification only to those who have provided you with medical services.
* Keep accurate records of all health care appointments.
* Know if your physician ordered equipment for you.

For more information:
- Heath Care Fraud webpage

With attempted fraud on the rise and fraudsters getting more sophisticated, brokers must ensure they don’t become soft targets by doing robust due diligence on all cases

With a raft of regulations, major funding problems and widespread dual pricing mortgage brokers have a lot on their plate at the moment. But one thing they can’t afford to ignore is the specter of fraud that permanently haunts the industry.

In the good old days between 2005 and 2007 when mortgages were aplenty brokers were probably guilty of being as lax as lenders and regulators when it came to checks.

Those days are gone and the consensus seems to be that as the industry dips and business volumes fall so does fraud, but this is a dangerous complacency.

Experian’s Fraud Index reveals that attempted fraud rose by 37% in the first half of 2010 compared with the second half of 2009 due to a rise in so-called soft fraud which is when borrowers misrepresent incomes to get a deal rather than by organized crime.

Hard fraud is committed by sophisticated criminals to money launder while soft fraud is the ordinary borrower lying to get a mortgage – serious but not in the same league. The best way for brokers to guard themselves against both is simple – due diligence on their clients through rigorous checks and questioning.

“The most important thing brokers can do is to identify applicants, be skeptical of what they are being told and check the facts rigorously,” says Nick Baxter, partner at Baxter Business Consultants.

“If a broker doesn’t have an impressive record it gets around and they can be used as a conduit to fraud, perhaps accidentally,” he adds. “The biggest danger is that brokers who don’t ask the tough questions become targets for money launderers who think they are lax. Brokers must ask tough questions at the right time.”

Alan Cleary, managing director of Precise Mortgages, agrees that brokers face the danger of being used by fraudsters.

“It’s not a good thing for brokers because you can’t plead ignorance if you’ve been targeted,” he says.

“Lenders can identify specific brokers they get bad business from and there are a lot of brokers being kicked off panels at the moment – it’s a growing problem. As lenders become more vigilant brokers are caught up in it and it is damaging to their business. If you get kicked off Lloyds Banking Group’s broker panel you’re out of business because you can’t be a broker without dealing with 30% of the market.”

For money laundering in particular Baxter says it is crucial brokers ask the right questions. Brokers must have proof of their deposit and ask where the money has come from and if it is legal.

“Buy-to-let frauds with no proof of deposit are a key risk,” he says. “There is no reason why a person who wants to buy 10 properties shouldn’t be asked where the deposit has come from. They should be asked whether it comes from legitimate means and how they have produced this money.

“By asking such questions brokers will protect themselves. Genuine customers won’t care about the intrusion and money launderers will go elsewhere.”

Ray Boulger, senior technical manager at John Charcol, agrees that tough questioning is the key to brokers preventing fraud but adds that it is difficult to counteract the sophistication of some documents.

“Brokers must do the obvious checks but also be experienced enough to recognize when something doesn’t sound right,” he says. “One of the biggest problems for brokers is the sophistication of fraudsters. Some copies of passports and identity are so good that you can’t tell they are fake.

“I was at a conference a few years ago where even fraud experts struggled to differentiate the two, so brokers can have difficulties sometimes.”

John Malone, chairman of PMS and the Association of Mortgage Intermediaries’ spokesman at the National Fraud Authority’s mortgage fraud forum, says fraudsters are always years ahead of the businesses they set out to deceive.

“Fraudsters are more sophisticated these days and use technology to their advantage,” he says. “On the internet you can get pay slips, P45s, fake passports and driving licenses that look real. Fraudsters will always be up to five years ahead of businesses.”

And Malone warns some types of fraud such as identity theft are increasing. His role at AMI gives brokers a voice at the National Fraud Authority. Until he took up the role this month brokers were not represented. Malone insists brokers are crucial in the chain as a conduit between clients, solicitors, surveyors and lenders.

“Brokers are right in the middle of it,” he says. “So we are trying to educate them and limit fraud as much as we possibly can.”

Baxter agrees that fraud is still an issue but believes there has been a decrease as volumes have fallen.

“Mortgage fraud has probably reduced because the days of the one minute mortgage don’t exist anymore,” he says.

But Baxter says brokers must be wary of mortgage fraud in the long term. He says many fraudsters are clever and present themselves as plausible customers. In short, if they can deceive people they will. He criticizes the speed of applications and the focus on volume and while praising fraud checks via credit scoring to highlight risks, he does not think it is a silver bullet.

“Credit scoring checks help but it was difficult for underwriters to consider all the information in the time they had,” he says. “I have seen things in credit scoring checks that should have made them ask questions but they didn’t.

“Between 2005 and 2008 I don’t think staff were adequately trained either. That is still the case but the difference is they now have more time. Lenders need to use this to train their staff for the future. Just because the mortgage market is depressed doesn’t mean fraudsters are going to leave. Lenders must do all they can to tackle it.”

Malone believes lenders can do more, such as making sure that brokers’ client information is secure.

“You can go into an intermediary’s office and there are files and computers lying around,” he says. “But what happens when they leave the office at night? Big institutions have to go through a risk education process to try to eliminate or reduce the onset of risk.

“Of course, one of the things lenders are asking everyone to do is to protect client details in a locked safe or filing cabinet. But in brokers’ offices that often isn’t the case. That’s the kind of things lenders should be asking questions about.”

Colin Snowdon, managing director of residential mortgages at Aldermore, says brokers should not be wary if lenders start to ask questions.

“When lenders ask questions that brokers think are strange it isn’t always because they are trying to make things difficult,” he says.

“You can’t be too careful about mortgage fraud these days. Brokers have an important role as it is they who meet the clients. They have to be aware of all the issues and ensure they don’t allow themselves to be used. There is a real danger of that.”

Eddie Goldsmith, senior partner at Goldsmith Williams, has just set up the Conveyancing Association to tackle fraud in conveyancing and says lenders will always use people they are comfortable with.

“In every profession there are good and bad individuals and you can’t avoid criminals who infiltrate the industry,” he says. “What lenders need to do is work with people they know, are comfortable with, and who they trust.

“Firms that are members of our trade body are all reputable and one of the reasons we formed it is to help lenders use good firms. This won’t get rid of fraud overnight but if lenders are going down a restricted panel route we can tell them to look at the Conveyancing Association as a reputable grouping.”

Malone agrees that brokers have a huge responsibility and that the Financial Services Authority is clamping down on them. He says that for years the buzzwords have been ’know your client’ but the emphasis has now changed as the FSA seeks to talk tough on fraud and stresses the need for ’client due diligence’.

“I think the phrase puts far more onus on brokers to understand more about their clients,” he says. “At PMS if we want to take on a new firm we have to do thorough due diligence on it before taking it on board and that is what brokers have to do. ’Know your client’ was good at the time but there is a change of emphasis at the FSA which is demanding due diligence.”

He adds that it is more than just clients who need to be thoroughly checked.

“Brokers also have to look all around the client’s situation such as the property they are buying and the solicitor they are using, and check things such as how long it has been operating and whether it has had any issues with lenders,” he says.

“These are the things that brokers haven’t been doing over the years. They’ve just been accepting the solicitors their clients use but it’s their responsibility now to find out more about them.”

Cleary says due diligence is crucial and if business is coming from an introducer brokers must take appropriate steps to guard against fraud.

“If brokers are accepting business from an introducer they are basically saying that they are so confident about that individual that they will use their FSA license to get the business through,” he says. “If it goes wrong the broker is in trouble, so they have to go through the appropriate checks.”

But Cleary does not believe brokers have to do all the work as lenders have systems and structures to combat fraud.

“Brokers can’t be expected to do everything,” he says. “Lenders have access to national fraud databases and credit referencing tools, which I don’t expect brokers to have because it costs a lot of money.

“The main thing for brokers is to verify the source of introduced business and make sure they don’t get duped into accepting dodgy pay slips. If you smell a rat check it as if it’s too good to be true then it probably is – we’ve all got that sixth sense that tells us when something isn’t right.”

Malone insists brokers have a responsibility to check the client’s situation.

“Brokers have to be aware of who they are dealing with,” he says. “It can be done in a few phone calls. If lenders are reducing the legal firms they use, they are clearly going through their lists to make sure they know those acting on their behalf. Brokers must do the same.”

He says that when individual registration is brought in there will be even more onus on brokers to perform thorough checks.

“Individual registration will reduce the number of brokers in the mortgage industry,” he says. “We don’t know by how many but I think it will further reduce the numbers. We will be left with a strong, hardcore group of intermediaries who will have to protect their position. We’re asking them to protect themselves and their business by having a firmer understanding of their transactions.”

There is a clear sense that brokers are going to have more responsibilities and be subject to more scrutiny when individual registration is introduced. Malone believes brokers should start verification of clients as early as possible.

“Brokers must start to verify potential clients before they become official clients,” he says. “A lot of brokers just get clients from lead generation firms and no-one has verified them. Brokers haven’t verified clients enough in the past because of the volumes they were doing. A lot of fraud is now being uncovered from the boom years when gross lending was £700bn in 2005 and 2006. If even 5% of that was fraudulent that would amount to a massive £35bn. It is these numbers we’re grappling with.”

A spokesman for the Council of Mortgage Lenders says that varying market conditions create opportunities for criminals who always target weaknesses.

“The ground is constantly shifting with fraud and different practices that organizations follow creating different opportunities for criminals to target,” he says. “They will systematically target weaknesses. But changing market conditions have exposed fraudulent practices that may not have been so apparent when property prices were rising.

“One of the problems with fraud is that it is difficult to quantify. Someone can make a fraudulent application which is declined and we have to decide whether it is a failure that the fraud was attempted or is it a success that the fraud didn’t happen.”

He adds that the most important thing is for brokers to report suspicious information to the right authorities. He highlights the FSA’s Information from Lenders programmed as an example of what brokers should be doing.

Even in depressed times and with brokers fighting for their survival, they must remain vigilant against fraud. Lax checking can ruin careers and reputations can be forever tarnished.

Brokers don’t have all the responsibility and clearly lenders have their role to play too but it is brokers’ necks on the line if something goes wrong, so they have to be sure who they’re dealing with.

There will always be fraudsters looking to deceive them so brokers must make sure they are not a soft target. By doing robust due diligence brokers can protect themselves and fulfill their responsibilities to tackle the specter of fraud that could come back to haunt the industry in a big way.

Brokers must be the first defense

It is a well-known fact in the financial services industry that mortgage lenders have tightened their criteria significantly in an effort to protect themselves from escalating mortgage fraud losses. Coupled with this, the Council of Mortgage Lenders has reported that gross mortgage lending has fallen by 6% in August 2010 compared with August 2009.

Applications are being heavily scrutinized by lenders for signs of material misrepresentation or other anomalies.

Mortgage brokers have suffered much bad press in recent months as the unscrupulous practices of a few have led to serious repercussions for the honest majority. In many cases lenders have reduced the number of brokers on their panels and therefore the number of brokers they are prepared to do business with.

So what can brokers do to win back favor with mortgage providers? What are banks looking for from individuals who are introducing business to them?

As part of my role as fraud consultant at CoreLogic Solutions, a company that specializes in fraud detection technology for the financial services sector, I recently undertook analysis that has highlighted the most common types of mortgage fraud.

The top six most common types of mortgage fraud are:

* Income – 35% of fraudulent applications had evidence of significantly over-inflated salaries.
* Employment – around 16% of applicants had tried to hide details relating to their employer, with a large proportion not disclosing they were self-employed.
* Occupancy – 14% were applications for undisclosed buy-to-lets.
* Fake accounts – over 11% of the proven fraud cases were supported by financial accounts that were either fake or bore no resemblance to the true trading performance of the company or trading individuals.
* Valuation fraud – 11% of cases were backed by valuations that were over-inflated by up to 500%.
* Other professionals – around 6% of the sample showed evidence of fraudulent behavior by other mortgage professionals.

In my experience, the best way for brokers to win back the confidence of lenders is to act as a first line of defense. In many cases it is brokers who build rapport with applicants and have access to supporting documentation. By checking documentation relating to income, employment and occupancy and ensuring that the application appears to make sense, brokers will be able to assist lenders and speed up the application process.

Hopefully in time, this will improve the rapport between lenders and brokers and ensure that strong relationships develop and flourish as the mortgage market starts to recover.”
Mortgage broker fraud cases this year

Noel Smith of Andrew Copeland Mortgages
Noel Smith, a director of south London-based Andrew Copeland Mortgages Limited, was fined £17,500 for systems and controls failings and for exposing his business to the risk of being used to further financial crime. Smith also had his Financial Services Authority approval to perform management functions withdrawn.

The FSA concluded that Smith’s poor management controls and compliance monitoring led to 224 clients being exposed to the risk of receiving unsuitable advice and left the firm open to abuse by fraudsters. Smith also failed to oversee remedial actions outlined by the FSA to address potential poor advice given to clients. There was also no evidence that affordability had been assessed.

John Apicella was banned for lack of competency by leaving his business open to the risk of involvement in financial crime. Apicella was a sole trader at Newbury-based Mortgages 4 You.

The FSA found that Apicella failed to meet the minimum standards required of a broker by not always completing a fact-find document for new customers or taking the time to research their attitude to risk. In interviews with the FSA regarding customer’s income Apicella said that “if a lender doesn’t require it I don’t ask for it”. He added that he would accept self-employed customers’ income figures at face value. Also, Apicella did not carry out due diligence on a mortgage introducer from whom he accepted seven mortgage applications.

Neale Morton, Syed Meah and Jonathan Smith of Neale Morton IMS Limited
The individuals banned all worked for one firm, Neale Morton IMS Limited, based in Gateshead, Tyne and Wear. Neale Morton was the principal and director of IMS. The FSA prohibited and fined him £130,192 for his knowing involvement in mortgage fraud and for systems and controls failings at IMS for which he was personally culpable. Part of the fine, £5,192, represented a disgorgement of the profit he made from the fraudulent applications.

Morton not only submitted mortgage applications for himself using false income details, but also allowed his firm to be used for mortgage fraud by its advisers and customers. Advisers Jonathan Smith and Syed Meah produced falsified compliance documents during the FSA investigation. Smith also submitted falsified applications to lenders on behalf of customers and Meah did not notify the FSA that he had been arrested on suspicion of money laundering and been suspended as a mortgage adviser at IMS.

In an interview with the FSA, Smith estimated that around 5% of the mortgage business he submitted at IMS was fraudulent.
Collective action is important

This year is notable for an unwelcome first – it is the year mortgage fraud cases with a collective value of more than £1bn were heard by Crown Courts in England and Wales. But anyone who thinks things will get better soon needs to think again, and quickly. My advice is to revise estimates penciled in for 2011. If £1bn is your benchmark, you’re seriously underestimating the problem.

There are two reasons for this. First, £1bn only relates to the known cases of mortgage fraud heard by the courts during the past 10 months. Second, any fraud professional will tell you that for every case that is uncovered, up to four go undetected.

My view is that the real level of mortgage fraud exposure in the UK could be significantly higher than £1bn – and growing rapidly. And if that is the case, the sooner the industry takes appropriate action the better.

The harsh reality is that fraudsters regard lenders as easy prey where the pickings are rich and the chances of being caught pretty remote. Lax and inconsistent controls in the lending and broking community and an unwillingness to recognize the crime – particularly insider and employee fraud – have enabled con men to run riot in sectors such as buy-to-let, self-cert and commercial.

This is a major reason why we have seen a huge increase in the number of lawyers, accountants, surveyors and intermediaries who are prepared to fleece their way to easy and lucrative property paydays.

Any fraud professional will tell you that for every case that is uncovered, up to four go undetected

The Solicitors Regulatory Authority clearly thinks the problem is growing. Recently, its head of fraud went on the record stating his team was looking into the affairs of dozens of law practices suspected of being run by criminals and involved in committing mortgage fraud.

The SRA is working with several police forces to start a major clean-up. This is welcomed as it’s a break with the legal world’s traditional practice of staying silent until a threat has been eliminated. I also applaud the likes of the Association of Mortgage Intermediaries for setting up a panel to address fraud.

But the time has come for the whole industry to debate the extent of the problem in a meaningful way.

Getting to the heart of the matter will require all parties to put their egos to one side because mortgage fraud afflicts all organizations, regardless of their size, geography and corporate DNA.

It also means the industry must stop sweeping cases of insider fraud under the carpet. Organizations need to realize 60% of all fraud has a significant insider element and staff poses a threat to the well-being of businesses.

If there isn’t the collective desire to get to grips with things, then mortgage fraud will continue to be a major bête noire – and the sector will remain a safe haven for organized crime and opportunistic thieves.

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

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

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

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

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

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

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

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

MORTGAGE FRAUD REPORT

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

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

Other key findings presented in the report include:

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

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

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

According to the Federal Bureau of Investigation’s 2009 Mortgage Fraud Report, released today, mortgage fraud suspicious activity reports referred to law enforcement increased 5 percent to 67,190 during fiscal year (FY) 2009. The total dollar loss attributed to mortgage fraud is unknown. It’s estimated that $14 billion in fraudulent loans originated in 2009.

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

Other key findings presented in the report include:

* There are more than 2.8 million properties with foreclosure filings, a 120 percent increase from 2007 to 2009. The Las Vegas area reported the most significant rate of foreclosures, with more than 12 percent of housing units there receiving a foreclosure notice.
* The top 10 states ranked by the number of foreclosure filings per housing unit were California, Florida, Arizona, Michigan, Nevada, Georgia, Ohio, Texas, and New Jersey. In April 2010, one in every 386 housing units received a foreclosure filing.
* Prevalent mortgage fraud schemes in fiscal year 2009 include loan origination, foreclosure rescue, builder bailout, equity skimming, short sale, illegal property flipping, reverse mortgage fraud and loan modifications. Emerging trends include fraud involving economic stimulus plans/programs, property theft/fraudulent leasing of foreclosed properties and tax-related fraud.

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

***