Fraud Files VII

"Like termites, criminals have burrowed into America's housing finance system."

"They chewed away about $1.2 billion of its worth last year, FBI officials told a Mortgage Bankers Association conference audience here last week."

'"That's a conservative estimate," said John M. Robbins, the association's chairman-elect. Only federally regulated lenders - about a third of the industry - must report fraud, he noted.
"In many cases, losses are kept within the company. They pay the claims, book the losses and on they go," Robbins said. "The consumer ultimately picks up the price tag."'

"Crooks latched onto the U.S. housing boom's incredible cash flow - $2 trillion in mortgage originations this year alone, law enforcement experts told the crowd. Schemes capitalized on lenders' aversion to admit being duped and the failure of law enforcement to grasp the enormity of the offenses."

'"The problem is increasing exponentially," warned Georgia Attorney General Thurbert E. Baker. "Entire neighborhoods are being jeopardized. If unchecked, this could undermine the financial integrity of the nation's real estate market."'

"It's time to fight back, with a concerted public-private effort, Baker said. His state, until this spring the nation's biggest mortgage fraud hotspot, is leading the way. The weapons: the 2005 Georgia Residential Mortgage Fraud Act, a team of specially trained prosecutors and a raft of assertive victims."

'"We've taken on more than 100 cases in less than a year," Baker said. "Our law makes it a felony to misstate, misrepresent or have omissions in a real estate transaction for the purpose of fraud. The penalty for one offense is 1 to 10 years in jail (plus) $10,000 to $100,000 in fines."'

"Experts advised other states to put safeguards in place or this crime wave won't abate."

'"In the last five years, there have been $12 trillion in mortgage originations. If only a small fraction of that gets infected, it's huge sums," said John B. Arterberry, executive deputy chief of the U.S. Department of Justice's fraud section."

You do know the DOJ reads this blog right?

"The scams take varied forms, involving different configurations of industry insiders and outsiders, McLaughlin said. They share a common feature: an inflated property appraisal, he said."

'"Once you start looking for it, you'll find it -- everywhere," he predicted. "And it's morphing, getting more disciplined. As we chase them, the fraudsters change and change again."'

'"The classic scam is double papers," usually to downplay the risks of an iffy deal or to create hidden profits, the prosecutor said."

'"But with the housing boom over, we're going to see a lot more seller fraud," as the cash-strapped seek to unload properties any way they can, McLaughlin said."

"Arthur J. Prieston, chairman of The Prieston Group, a fraud indemnification company in Novato, Calif., was among those advocating U.S. Senate Bill 2280. Called "The Stop Fraud Act" and sponsored by Sen. Barack Obama (D-Ill.), this proposal requires all mortgage lenders to report fraud, establishes a national database of censured mortgage professionals and authorizes criminal charges when fraud is proposed - not just committed."

'"It will act as a deterrent, encourage settlements and allow consumers a private right of action," Prieston said. "It will also exclude from liability the most common victim - us."'

• "Scrutinize the details of real estate transactions, including the reputations of the professionals involved."

• "Don't allow loan originators or underwriters to choose the appraiser for their property deal.
The nation's appraisers have been pleading for such independence for years, said James R. Blaydes, a Peru, Ill., appraiser and instructor for the national Appraisal Institute."

"There's a lot of pressure by the lending side for an appraiser to make the numbers," needed to justify loan size, Blaydes said. "That increases the likelihood of loan failure and foreclosure."


The Feds Are on a Roll

While the federal government has garnered its biggest victory from the business scandals of recent years with the conviction of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling, prosecutors may have their sights on a new crop of potential targets.

This week’s revelations concerning Fannie Mae — regulators said the mortgage giant manipulated accounting so that senior executives could collect millions in bonuses — were a reminder that there’s more out there.“Corporate corruption is not over,” Sen. Carl Levin, D-Mich., who investigated many facets of the Enron tangle, declared Friday.

“The victory, and the visibility of the victory, is going to encourage prosecutors to take on more cases that involve very complex financial dealings,” said James Cox, a professor at Duke University who specializes in securities law.

For individual executives, there could be more handcuffs and perp walks on the horizon. “Your risks of facing serious criminal and civil sanctions are going up with every successful prosecution by the government,” Cox said.

Regarding Fannie Mae, the Securities and Exchange Commission and the Office of Federal Housing Enterprise Oversight are looking at the roles of several current and former executives — including ousted Chairman Franklin Raines — in the accounting failures and whether they should be forced to return millions in compensation. A criminal investigation of the company by the Justice Department is continuing.

At least 15 companies have received subpoenas. “I would not be surprised to see it double or even triple in the coming months,” said Bruce Vanyo, a securities lawyer at Katten Muchin Rosenman in Los Angeles.


Bad Boys, Bad Boys, Whatcha Gonna Do?
Whatcha Gonna Do When They Come For You?

"Thieves skimmed at least $1 billion from America's mortgage market last year, law enforcement officials said Monday."

"Karen Spangenberg, chief of the FBI's financial crimes section, called mortgage fraud "the fastest growing white-collar crime in the United States." Losses topped $1 billion last year, her agency's records show."

'"Dollar losses almost doubled from 2004 to 2005," she said. Bank allegations of fraud, known in the industry as suspicious activity reports, are running 33% higher this year than last year, she said."

"This year, officials warned, crooks will work overtime and exploit the panicky and overeager as the nation's housing sales slow."

'"We're arresting people left and right," David McLaughlin, assistant attorney general of Georgia, said at a Mortgage Bankers Association fraud conference. "But the problem is still growing off the charts -- and it's morphing."

"Schemes vary widely, as do the participants, McLaughlin told a crowd of more than 300 at the meeting sponsored by the Washington D.C.-based trade group. He said he sees deceptive sellers, overtaxed buyers, builders desperate to unload inventory, greedy loan officers and other housing professionals pushing iffy sales deals to get their commission, plus an assortment of criminals seeking quick and easy profits."

"The losers from the fraud include home buyers, mortgage lenders and financiers, plus neighborhoods skewed by inflated values and hurt from foreclosures, McLaughlin said."

'"The attraction is enormous: a $2 trillion, fast-moving mortgage business, rife with consumers who don't fully understand the paperwork they sign, said John Robbins, chairman and chief executive officer of American Mortgage Network."'

'"Our concern is, as residential mortgage debt grows from $8 trillion to $20 trillion over the next 15 years, many more opportunities will be available."'

"Lenders must stop hiding their insider scandals and report wrongdoing to law enforcement agencies and internal industry databanks, said John Arterberry, executive deputy chief of the U.S. Department of Justice's fraud section. That means filing a suspicious activity report."

"It's going to take the FBI, state efforts, state attorneys general, neighborhood activists -- all of us -- to help us prevail," Robbins said.


A Few Examples...

PLATTSBURGH — A local real-estate agent recently pleaded guilty to falsifying business records and possessing forged real-estate documents in an attempt to secure financing for a man to purchase a home he had no intention of buying.

April Mesec, 26, of 279 Brand Hollow Road in Peru, falsified business records of National City Mortgage and New Millennium Properties in September 2004 in order to secure financing for a home to be purchased by Richard Bola, according to a Clinton County grand jury indictment.

The home was valued at $30,658.From July to September 2004, Mesec also possessed five real-estate documents that were forged with Bola's signature. Those documents included a contract from New Millennium Properties to construct and sell the home, a deposit statement and a bill of sale.

Clinton County Chief Assistant District Attorney Kristy Sprague said Bola was not aware that Mesec, then an employee of New Millennium Properties, was attempting to secure financing for the home.


PITTSBURGH
An accountant accused of defrauding clients out of more than $7.2 million in a phony investment scheme was sentenced to more than seven years in federal prison Friday.

Barry Korcan, 50, of Chippewa Township, Beaver County, pleaded guilty in January to one count each of mail fraud and tax evasion in a scheme that prosecutors said involved dozens of clients from 1994 to 2004.

Prosecutors said Korcan promised clients returns of 7 percent to 8 percent if they put their money in something he called Guardian Investments, a company authorities said did not exist.
Instead, prosecutors said, Korcan laundered the money through real estate deals and used it to fund a lavish lifestyle - and failed to pay federal taxes on the ill-gotten income.

In addition to serving 87 months in prison, U.S. District Judge Gary L. Lancaster ordered Korcan to repay 28 investors who lost millions in the scheme, said Margaret Philbin, spokeswoman for U.S. Attorney Mary Buchanan. Korcan took $11.3 million from a total of 39 clients, but previously paid back about $4 million, prosecutors said.


Hillsborough, CA
"A former officer of Seaborne Airlines was arrested in California earlier this month, accused of swindling millions of dollars from senior citizens there in a complex real estate scam."

"Michael Schneider had stepped down from his position as interim chief executive officer at Seaborne in March."

"Schneider is currently being held in Santa Clara County Jail on $5 million bond, said Dale Lohman, a deputy district attorney with the Santa Clara County District Attorney's Office."

"The dealings that led to the charges involved a real estate loan business that police say Schneider operated in Santa Clara, Calif., and have nothing to do with Seaborne Airlines."

"Schneider currently is facing 27 felony counts of grand theft, elder financial abuse and forgery in connection with a scam that prosecutors believe he had been operating for years."

'"That's just the tip of the iceberg," Lohman said, noting that investigators expect more charges to be filed and believe total losses from the scam could top $50 million."

"Prosecutors say that with California Plan, Schneider acted as a middle man, linking investors looking for a higher rate of return on their savings with people who wanted to buy real estate.
The investors would act as private lenders and were promised deeds of trust on the property, so that if the borrower defaulted and did not pay back the loan, they could foreclose on the property, Lohman said."

"Prosecutors charge, however, that Schneider would sell the same mortgage to two or three investors - and record the deed of trust for only one of them in the county recorder's office.
They say that he pocketed the rest of the money and forged the other deeds of trust - even going as far as cutting and pasting deed numbers - so that they appeared valid."