Fraud Files VIII
California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.
The state is examining Pinnacle Development Partners LLC, whose ads tell investors they will receive a 25 percent return on their investments in 60 days. Capitalizing on investors' thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle's address. A person familiar with Pinnacle said those buyers are related to the company.
California officials are trying to determine whether Pinnacle is generating profits from buying and selling real estate, or whether it is paying returns using other investors' money, which would make it a Ponzi scheme, according to one person familiar with California's investigation. In a Ponzi scheme, earlier investors are paid with money from newer investors, until the supply of new investors runs out.
Pinnacle's growing business comes as the real-estate boom appears to be faltering. Many investors have been trying to snap up bargains by buying foreclosed real estate from buyers who took out risky loans but now can't make payments, or from banks left holding the properties.
Pinnacle's ads, promising 25 percent returns, have run in major publications, including this newspaper and Barron's, both published by Dow Jones & Co. In April, Newsweek began running a full-page ad for Pinnacle. "Stocks still low?" begins the ad in Newsweek's current issue.
"Invest now in Atlanta's booming real estate market." A Pinnacle newsletter distributed to current and potential investors says the company is "anticipating the addition of many new investors" as a result of the Newsweek ad.
A spokeswoman for Washington Post Co.'s Newsweek said the magazine had received an official inquiry about Pinnacle earlier this week, "and made the decision not to run any more of the ads until the investigation is complete."
The company has discouraged investors from checking out its business practices. In a recent letter, a lawyer for Pinnacle, Christopher M. Kunkel, told investors that if they check with anyone other than an approved list of partners, they risk "dismissal from the investment group and a return of only your initial capital contribution."
Since incorporating in 2003, Pinnacle bought 15 properties for $9 million in Georgia, according to AFX Corp., which collects and analyzes real-estate records. In that period, AFX found no sales to third parties except to entities listing Pinnacle's address.
Barry Minkow, a private investigator who runs Fraud Discovery Institute, a for-profit corporation in San Diego, says the apparent lack of sales raises "red flags" about financial wrongdoing. Mr. Minkow started investigating Pinnacle after an investor contacted his office. He says that the Federal Bureau of Investigation, at his urging, is looking into the matter.
Mr. Minkow served time in the 1980s for financial fraud, and subsequently founded an investigative service focused on financial services. The FBI commended him in October 2005 for helping to "disrupt and dismantle" financial schemes worth millions of dollars.
Mortgage fraud earns man a 33-month term
"A Salt Lake man has been sentenced to 33 months in federal prison for his role in a mortgage fraud scheme. Rob Ellertson, 42, was sentenced earlier this month by U.S. District Judge Dee Benson, who also ordered Ellertson to pay about $2.8 million in restitution to victims' mortgage and title-insurance companies."
"Ellertson pleaded guilty last March to two counts of wire fraud and admitted that from March 2002 to September 2003, he and another man devised a scheme to obtain loan money and property from mortgage companies by means of a straw buyers scheme. The scheme involved buying lots in Salt Lake and Summit counties and then recruiting people who were paid a fee for permission to use their names and financial information to take out loans."
"According to the plea agreement signed by Ellertson, he admitted that he completed all loan applications on behalf of the straw borrowers, which is against the law. He also misrepresented the borrowers' incomes and indicated that the borrowers intended to occupy the property when they did not."
Mortgage arranger guilty of fraud Lenders lost $2.3 million, authorities say
"The operator of a Springdale mortgage firm that promised unsuspecting home buyers they could obtain financing with "no money down" pleaded guilty Friday in U.S. District Court in Cincinnati to conspiracy to commit bank fraud and money laundering."
"Troy Scott Clements, 37, who operated American Funding on Kemper Road, could face up to 30 years in prison and $1.5 million in fines. He agreed to plead guilty to two counts in a plea agreement to settle a seven-count indictment handed down by a federal grand jury last October. Under federal sentencing guidelines, Clements' actual prison time was estimated at 63 to 78 months by Assistant U.S. Attorney Benjamin Dusing."
"Clements' indictment said he defrauded various mortgage lenders out of $2.3 million between 2001 and 2003 and to further the conspiracy laundered $1.5 million through bank accounts."
"According to investigators for the Internal Revenue Service, the U.S. Postal Service and the FBI, Clements conspired with others to recruit home buyers with thousands of fliers stating they could purchase real estate with no money out of pocket."
"In qualifying buyers, false documents would be prepared and sometimes Clements would deposit money into their accounts to mislead lenders, investigators said. Clements would purchase a home picked by a buyer for cash and turn around and sell it to the buyer for $5,000 more than he had just paid for it, investigators said."
"Clements' firm would issue a mortgage on the home and the fraudulent loan package would then be submitted to other lenders such as ABN Ambro Mortgage Group for refinancing using false appraisals. The proceeds would be used to repay Clements."
A former president of Allen Village School's board of directors pleaded guilty in federal court Monday to mortgage and investment fraud schemes.
"James Elliott Coleman, 58, of Raytown, pleaded guilty before U.S. Chief District Judge Dean Whipple to all the charges contained in an April 20 federal indictment, Bradley Schlozman, U.S. attorney for the Western District of Missouri, said in a news release."
"Coleman admitted that he had participated in a $778,336 mortgage fraud scheme and a $40,000 investment fraud scheme perpetrated against an older widow and her daughter. Coleman also admitted that he had used some of the proceeds of the investment fraud to repay money he had embezzled from the charter school."
"Coleman admitted that he had participated in a conspiracy from December 2001 to July 29, 2004, to defraud mortgage lenders and individual victims. As a result of the mortgage fraud conspiracy, Coleman personally obtained about $148,200, Schlozman said."
"Coleman solicited two victims, an older widow and her daughter, to invest in real estate. Coleman prepared false and fraudulent loan applications and supporting documents for submission to mortgage lenders in the names of straw borrowers, caused inflated appraisals to be prepared in relation to the properties and submitted false and fraudulent loan applications and documentation to mortgage lenders, Schlozman said."
"Coleman told the victims they could make money by owning rental properties that they could then rent to people who qualified for Section 8 rent subsidies. Coleman told the women that they would not have to pay any money to buy the properties, that he would manage and maintain the properties and that the real estate would produce income."
Mortgage Fraud Hot Spot
"Mortgage fraud has grown in recent years as the real estate market has sizzled. More recently, foreclosure fraud is on the rise as the number of foreclosures has risen about 25 percent in the past year. Foreclosure fraud often occurs because the original owner, desperate not to lose the home forever, agrees to lease/buyback terms that are essentially impossible to meet."
"From a fraudster's point of view, it all makes perfect sense: Why not find a way to latch onto the most expensive asset most people ever own?"
"Real estate fraud gives "the least risk with the most potential reward," says Rachel Dollar, a California-based lawyer who handles fraud recovery for lenders and puts together a Web site called http://MortgageFraudBlog.com, which is to say she keeps very, very busy."
"There are no precise figures for real estate fraud, but the FBI, which uses the term mortgage fraud to describe an array of illegal real estate activities, said in a study last year that "based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing."
"In what the FBI calls industry insider fraud, those involved often falsely inflate the value of a property or issue loans based on fictitious properties. The FBI study listed Florida as one of 10 mortgage fraud "hot spots."
"Many schemes involve phony appraisals and doctored documents such as loan applications. In some cases quitclaim deeds are forged to transfer property without the true owner ever knowing. Then the fraudulent owner sometimes takes out a second mortgage."
Ex-Buffalo landlord gets year in jail
"A Buffalo landlord who earlier this year pleaded guilty to multiple felony charges in a mortgage fraud scam will spend one year in jail on top of paying $1.5 million in restitution."
"Robert Palano, 51, formerly of Clarence, was sentenced in State Supreme Court Justice Penny Wolfgang. Palano was facing up to seven years in prison on the felony counts."
"Investigators looked into Palano's real estate dealings from 1998 to 2002 and found that he fraudulently obtained more than $4 million dollars in mortgage loans on more than 100 rental properties he owned. After pocketing the loan proceeds Palano moved to Florida. Authorities said that at least ten lenders were left with defaulted loans secured by properties worth far less than the debt. Also some tenants were evicted through foreclosures on the properties."
"In 2001 Palano was charged by the state Attorney General's office after an investigation found that he orchestrated a real estate scheme that targeted African-American, first-time home buyers. Palano agreed to pay $225,000 in restitution to his victims and The Associates First Capital Mortgage Corp. in a separate mortgage fraud case."
Mortgage-fraud scheme brings prison sentence
"A Salt Lake City businessman has been sentenced to almost three years in prison after pleading guilty to charges in a mortgage fraud scheme he was involved with four years ago. In addition to the 33-month sentence, U.S. District Judge Dee Benson ordered Rob Ellertson, 42, to pay nearly $2.8 million in restitution to the mortgage and title insurance companies bilked in the scam."
Two mobile home salesmen in Vance County have been sentenced to federal prison for a $19 million mortgage fraud scheme.
"Richard D. Meador and Donald Scott Carroll worked for Donald Wayne Gupton, a Vance County businessman who operated several companies."
"Gupton and his employees used a half-dozen illegal means to falsify loan applications so buyers with bad credit could get loans, prosecutors have said. Banks ended up foreclosing on the homes because the borrowers could not afford the mortgages."
"Gupton owned Dynasty Homes of Henderson, Superior House Center and Creative Real Estate and Manufacturing Housing Sales Center. He has already pleaded guilty to federal charges and is scheduled to be sentenced next month."
"Meador, a manager at one of the companies, was sentenced Wednesday at the federal courthouse in New Bern to four years and five months in prison, followed by three years of probation. He also was ordered to pay $1.2 million in restitution."
"Carroll, also a manager, was sentenced to two years in prison and three years of probation. He was ordered to pay $1.4 million in restitution."
Homebuilder on bail until appeal
"One of two Rochester homebuilders, who with their father were accused of running the largest federal mortgage fraud scheme ever prosecuted in the region, was released from prison on bail while he appeals his conviction. Richard Amico, 35, has been serving a nine-year prison term."
"His brother, Robert Amico, 44, who is serving 17 and-a-half years, was denied bail.
Both decisions were handed down Sept. 21 by U.S. District Judge David Larimer in Rochester.
The Amicos were convicted in 2003 of conspiring to swindle lenders out of $60 million on 169 homes in Monroe, Ontario and Wayne counties from 1994 to 2000. Charges against their father, Robert A. Amico, were postponed and he died in 2003 before coming to trial."
"Buffalo-based M&T Bank was one of the Amicos' victims. In January, 2000, M&T seized more than $375,000 which the younger Robert Amico later told the court he needed to pay his bills."
Frisco townhome sales scrutinized
"Some luxury townhome purchases in the trendy development surrounding Frisco's new City Hall are under criminal investigation."
"The questionable property transactions occurred in Frisco Square, a showcase for suburban growth aided by more than $50 million in city government investment. The investigation centers on a tight-knit group of investors led by Nigerian businessman Ademola Kumapayi. Mr. Kumapayi and his group repeatedly bought and sold luxury townhomes among themselves beginning in 2004. Often, their transactions appeared to inflate the values of those homes, according to property records."
"Lenders involved with Mr. Kumapayi and his group poured millions into a three-block stretch of Library Street and suffered at least eight foreclosures since December, property records show. Some of those investors now say they face claims for hundreds of thousands of dollars in foreclosure costs rather than the payoffs Mr. Kumapayi promised."