A third senior executive has admitted his role in a bank fraud scheme that kept a Missouri company afloat as it racked up a huge deficit.
In 2008, The Mortgage Store Inc. operated in four states and had hundreds of employees on its payroll.
But as the financial crisis deepened, expenditures at the St. Louis-based mortgage firm began to exceed available cash.
With its net worth diminishing, The Mortgage Store faced the loss of its approval as a Federal Housing Administration loan correspondent, according to an announcement from the U.S. Department of Justice. So fraudulent financial information was provided to its auditor for submission to the Department of Housing and Urban Development to make it appear that its net worth was sufficient.
The company reportedly failed to pay $600,000 in federal payroll taxes owed for the first three quarters of 2008. It also neglected to pass on $31,000 deducted from employees’ paychecks for a 401k retirement plan and a health and dental insurance plan.
At the same time, former chief executive officer Jason Rauschelbach was receiving substantial distributions and, along with other executives, directing funds to be paid on loans for two resort properties he was part owner of.
So the mortgage brokerage began writing checks between bank accounts at Enterprise Bank and the First Bank of the Lake. Bank account deficits were concealed through the float.
The check kiting scheme, which involved bank accounts for The Mortgage Store and Title America, eventually led to a negative balance of around $850,000, and the banks stopped accepting the floated checks.
Once the scheme was halted — The Mortgage Store quickly went out of business.
Rauschelbach, who was also president of Title America, pled guilty in March to one felony count of conspiracy. He was sentenced in June to two years in prison and ordered to pay restitution.
John York, who co-owned The Mortgage Store with Rauschelbach, also pled guilty earlier this year and is scheduled for sentencing on Feb. 2, 2015.
On Thursday, the U.S. Attorney’s Office for the Eastern District of Missouri announced that the company’s former controller, Mark Avalos, pled guilty to one felony count of bank fraud.
Avalos is scheduled to be sentenced on March 16, 2015, and faces up to three decades in prison and a fine up to $1 million.
However, court documents indicate that a lesser sentence is being requested due to Avalos’ cooperation in the investigation.
