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Criminal Elements in Real Estate Finance

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The latest roundup of mortgage-related crimes includes three bid-rigging cases in California, corporate fraud by senior executives and mortgage fraud. Other cases involve embezzlement and fraudulent reporting on more than $2 billion in subprime residential mortgage-backed securities.

Meridian Group was the biggest Ponzi operation ever prosecuted in Western Washington, according to the U.S. Attorney for the Western District of Washington. Frederick Darren Berg, who operated the scheme, was sentenced on Feb. 9 to 18 years in prison.

Investors — many who were senior citizens — poured $245 million into the Mercer Island business. But Berg allegedly squandered more than $100 million of the funds on “a luxurious lifestyle” that included Lear jets, yachts and multiple homes. Berg, who was indicted in November 2010 and pleaded guilty in August 2011, allegedly concealed $400,000 in cash from his bankruptcy trustee.

In one of the industry’s highest-profile cases following the mortgage industry meltdown, Lee Bentley Farkas was sentenced last year to 30 years in prison for allegedly orchestrating a fraud scheme that brought down Taylor, Bean and Whitaker Mortgage Corp. The alleged crimes also led to the subsequent demise of Taylor Bean’s warehouse lender, Colonial Bank.

In January, Farkas filed an appeal with the Fourth Circuit U.S. Court of Appeals. He claims that the court’s “myopic insistence on rapidly moving the case to trial” abrogated constitutional protections and prevented him from finding the best attorney to represent him. In addition, an overwhelming amount of documents and discovery “made coordination with appointed counsel next to impossible.”

Additionally, the trial court’s jury instructions improperly diluted the government’s burden of proof and justified the defense’s request for further clarification,” the filing states. “The trial court also improperly limited Mr. Farkas’ rights to confront adverse witnesses. However, defense counsel inexplicably did not raise a contemporaneous constitutional challenge.”

The appeal also claims that the trial court’s determination that Taylor Bean was insolvent during the time that crimes were allegedly committed “is clearly erroneous and must be set aside.”

The former chief executive officer of Hammond, La.-based First Community Bank, Reginald R. Harper, was criminally charged along with Troy A. Fouquet on Feb. 15, the Department of Justice reported. Harper is accused of lending more than $2 million to Fouquet, a real estate developer, to purchase and develop land and subsequently build homes. But when buyers for the properties couldn’t be found in 2005, the pair devised a scheme to hide delinquency on the construction-and-land-development loans.

The methods used by Harper and Fouquet included mortgage fraud and a check-kiting scheme. “Severe” losses to the bank resulted from the alleged crimes.

An announcement last month from the U.S. Attorney’s Office for the Eastern District of Missouri indicated that Matthew Kent was sentenced to 30 months in prison and ordered to pay $1.2 million in restitution. Kent, who was vice president and co-operator of Coral Mortgage Bankers Corp., was accused along with partner David Rubin and Joshua Gold of Woodbury Financial of embezzling $1.5 million from a retired individual who had provided capital to Coral Mortgage Banker to beef up the balance sheet.

But the trio allegedly used the cash for business operations, personal investments and entertainment even though they promised not to spend any of the funds. They deceived the investor by providing bogus account statements. Gould was previously sentenced to 97 months, while Rubin is scheduled for sentencing this month.

Jacinto Puentes, Elinor Puentes, Theodore Tarone, Raul Salabarria and former Wachovia assistant vice president Rogelio Ramirez were all charged last month in a criminal information, the U.S. Attorney for the Southern District of Florida announced. Ramirez allegedly prepared fraudulent verifications of deposit in order obtain millions of dollars in mortgages so the group could purchase 17 properties in Florida and Tennessee between November 2006 and November 2007.

Two mortgage brokers in Hawaii, Welton Kalani and Stephen Balino, were found guilty of fraud, the Department of Justice reported in December. Kalani was co-owner of Accel Mortgage LLC, and Balino was owner of New Horizons Financial. The two were accused of deceiving distressed borrowers into signing over their properties with promises of selling the properties back to them when they could afford the payments. But instead, the pair used straw buyers and mortgage fraud to earn points and extract equity. In three transactions, $227,000 was diverted. Eight other people already pled guilty in the case.

The owners of BMC Capital, Calvin and Mary Brainard, were charged and arrested in December, U.S. Attorney William J. Hochul, Jr. announced. In addition to owning BMC, Calvin was an attorney. The couple is accused of diverting $95,208 from a refinance loan closing that was supposed to be used to pay off a Bank of America mortgage. In an effort to hide their actions, the defendants allegedly forged bank records to make it look like BofA was paid but lost the funds.

In December, Larry K. Shackelford pled guilty to deceiving a lender into believing he was authorized to originate mortgages in South Carolina, the state’s Department of Consumer Affairs said. Shackelford allegedly provided the lender with a letter that appeared to be from the department indicating he was authorized to originate. But the letterhead and state employee’s signature were both forged.

Sentences were handed down last month to Kelsey Torrey Hull, Jonathan Alfred Kimpson, attorney James Michael Green, Herbert Bush, loan originator Wilbur “Sonny” Letak and Kevin Claude Barnett, according to a Feb. 23 news release from the U.S. Department of Justice in Atlanta. The sentences ranged from five years’ probation to 151 months.

The defendants allegedly funded the downpayments and provided bogus gift letters on home purchases that were financed by home-equity conversion mortgages. Once the deals were closed, the downpayment money was returned to the defendants along with the loan proceeds. Some of the properties were acquired through secret short-sale transactions then immediately resold for as much as 16 times the acquisition price.

Two defendants, William “Ondra” Joel and Maurice Vernon, were found guilty in January of mortgage fraud, U.S. Attorney Robert E. O’Neill announced. The pair was indicted in February 2011 along with loan processor Elton Lassiter over allegations they obtained financing on 10 properties valued at $1.8 million for Jill Jackson — a call-center supervisor who took home less than $2,000 a month. Lassiter previously pled guilty.

David Willan was among several defendants charged during December 2007 in a 147-count indictment that alleged mortgage and securities fraud at his company, Evergreen Corp., the Beacon Journal reported. Willan was subsequently convicted and sentenced to 10 years in prison, but the sentence was overturned by Akron’s 9th District Court of Appeals.

The U.S. Attorney for the Eastern District of California announced that Wiley C. Chandler pleaded guilty on Feb. 24 to conspiring with other investors to rig bids at foreclosure auctions in San Joaquin County. Chandler, who was originally indicted with three other investors in December, was the 10th defendant to plead guilty in the case. The group allegedly purchased the properties at artificially low prices then held private auctions to determine which investor would end of the home. The profits earned at the second auction were split among the group.

Criminal informations were filed on Feb. 9 in U.S. District Court for the Northern District of California naming Barry Heisner, Dominic Leung and Hilton Wong as a defendants. The trio is accused of rigging bids at foreclosure auction between May 2009 and January 2011 in violation of the Sherman Act.

Another foreclosure bid-rigging ring in California’s San Joaquin County has produced nine guilty pleas, including one on Jan. 27 by Kenneth A. Swanger, according to the Justice Department. The government said that bid rigging “undermines the transparency and integrity of the competitive market for residential real estate.”

Former Credit Suisse global head of structured credit trading Kareem Serageldin, David Higgs, who previously headed the bank’s hedge trading, and mortgage bond traders Faisal Siddiqii and Salmaan Siddiqui were sued in federal court in Manhattan by the Securities and Exchange Commission on Feb. 1. The SEC claims that the defendants deliberately ignored negative market information to fraudulently overstate the prices of $3 billion in subprime bonds. The fraudulent reporting led to “lavish year-end bonuses” and even a promotion for one of the defendants.

When the fraud was detected in February 2008, Credit Suisse ended up having to report $2.65 billion in additional subprime-related losses tied to the defendants’ alleged misconduct.

Berkline Financial Group and GreenPoint Capital were shut down by Michigan’s Office of Financial and Insurance Regulation, an announcement said. The state said that it believes that the companies are “bogus” firms posing as legitimate lenders as part of a scheme to steal money and identities through their websites.

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