False Claims Act Reaps $3.5 Billion in FY 2015

   WASHINGTON – 1/1/2016 - The U.S. Department of Justice obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, announced in December, 2015. This is the fourth year in a row that the department has exceeded $3.5 billion in cases under the False Claims Act, and brings total recoveries from January 2009 to the end of the fiscal year to $26.4 billion.

    “The False Claims Act has again proven to be the government’s most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs,” Mizer said. “The recoveries announced today help preserve the integrity of vital government programs that provide health care to the elderly and low income families, ensure our national security and defense, and enable countless Americans to purchase homes.”

    Of the $3.5 billion recovered last year, $1.9 billion came from companies and individuals in the health care industry for allegedly providing unnecessary or inadequate care, paying kickbacks to health care providers to induce the use of certain goods and services, or overcharging for goods and services paid for by Medicare, Medicaid, and other federal health care programs. The $1.9 billion reflects federal losses only. In many of these cases, the department was instrumental in recovering additional millions of dollars for consumers and state Medicaid programs.

   The next largest recoveries were made in connection with government contracts. The government depends on contractors to feed, clothe, and equip our troops for combat; for the military aircraft, ships, and weapons systems that keep our nation secure; as well as to provide everything that is needed to fund myriad programs at home. Settlements and judgments in cases alleging false claims for payment under government contracts totaled $1.1 billion in fiscal year 2015.

  The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans’ benefits, federally insured loans and mortgages, highway funds, research grants, agricultural supports, school lunches, and disaster assistance. In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government.

    Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government. If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery. Whistleblowers filed 638 qui tam suits in fiscal year 2015 and the department recovered $2.8 billion in these and earlier filed suits this past year. Whistleblower awards during the same period totaled $597 million.

Health Care Fraud

    Including this past year’s $1.9 billion, the department has recovered nearly $16.5 billion in health care fraud since January 2009 to the end of fiscal year 2015 – more than half the health care fraud dollars recovered since the 1986 amendments to the False Claims Act. These recoveries restore valuable assets to federally funded programs such as Medicare, Medicaid, and TRICARE – the health care program for the military. But just as important, the department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring others who might otherwise try to cheat the system for their own gain. The department’s success is a direct result of the high priority the Obama Administration has placed on fighting health care fraud. In 2009, the Attorney General and the Secretary of the Department of Health and Human Services, the department that administers Medicare and Medicaid, announced the creation of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement. Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.

    Two of the largest health care recoveries this past year were from DaVita Healthcare Partners, Inc., the leading provider of dialysis services in the United States. DaVita paid $450 million to resolve allegations that it knowingly generated unnecessary waste in administering the drugs Zemplar and Venofer to dialysis patients, and then billed the government for costs that could have been avoided. DaVita paid an additional $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to physicians to induce patient referrals to its clinics. DaVita is headquartered in Denver, Colorado, and has dialysis clinics in 46 states and the District of Columbia.

   Hospitals were involved in nearly $330 million in settlements and judgments this past year. A cardiac nurse and a health care reimbursement consultant filed a qui tam suit against hundreds of hospitals that were allegedly implanting cardiac devices in Medicare patients contrary to criteria established by the Centers for Medicare and Medicaid Services in consultation with cardiologists, professional cardiology societies, cardiac device manufacturers, and patient advocates. The department settled with nearly 500 of these hospitals for a total of $250 million, including $216 million recovered in the past fiscal year. For details, see 500 Hospitals.

    Several settlements involved violations of the Stark Law. The Stark Statute prohibits certain financial relationships between hospitals and doctors that could improperly influence patient referrals. Services provided in violation of the Stark Statute are not reimbursable by Medicare or Medicaid. Hospitals settling false claims involving Stark violations include Adventist Health System for $115 million, an organization that operates hospitals and other health care facilities in 10 states; North Broward. Hospital District for $69.5 million, a special taxing district of Florida that operates hospitals and other health care facilities in Broward County, Florida; and Georgia hospital system Columbus Regional Healthcare System and Dr. Andrew Pippas for $25 million plus contingent payments up to an additional $10 million The Adventist settlement also involved allegations of miscoding claims to obtain higher reimbursements for services than allowed by Medicare and Medicaid

    Claims involving the pharmaceutical industry accounted for $96 million in settlements and judgments. Daiichi Sankyo Inc., a global pharmaceutical company with its U.S. headquarters in New Jersey, paid $39 million to resolve allegations of false claims against the United States and state Medicaid programs. Daiichi allegedly paid kickbacks to physicians to induce them to prescribe Daiichi drugs, including Azor, Benicar, Tribenzor and Welchol. Medicare and Medicaid prohibit reimbursement for drugs involved in kickback schemes. AstraZeneca LP and Cephalon Inc. paid the United States $26.7 million and $4.3 million, respectively, in separate settlements for allegedly underpaying rebates owed under the Medicaid Drug Rebate Program. As part of those settlements, the two drug manufacturers agreed to pay an additional $23 million to state Medicaid programs for their losses. And in another settlement, PharMerica Corp., the nation’s second largest nursing home pharmacy, agreed to pay the United States $9.25 million to resolve allegations that it solicited and received kickbacks from pharmaceutical manufacturer Abbott Laboratories in exchange for promoting the drug Depakote for nursing home patients. PharMerica is headquartered in Louisville, Kentucky.

    Skilled nursing homes and rehabilitation facilities have also been fertile ground for civil fraud and false claims actions. In the largest failure of care settlement with a skilled nursing home chain in the department’s history, Extendicare Health Services Inc. and its subsidiary, Progressive Step Corporation, agreed to pay the United States $32.3 million to resolve allegations that Extendicare billed Medicare and Medicaid for deficient nursing services and billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services. Extendicare and Pro-Step paid an additional $5.7 million to eight states for their Medicaid losses. The department has ongoing litigation against additional nursing home chains and rehabilitation centers based on similar allegations of false claims for medically unreasonable or unnecessary rehabilitation therapy. For example, see HCR ManorCare.

Housing and Mortgage Fraud

    The department has recovered over $5 billion in housing and mortgage fraud from January 2009 to the end of fiscal year 2015, including this past year’s recoveries of $365 million. Notable recoveries this past year include a $212.5 million settlement with First Tennessee Bank N.A. First Tennessee admitted that from 2006 to 2008, through its subsidiary, First Horizon Home Loans Corporation, it originated and endorsed mortgages for federal insurance by the Federal Housing Administration (FHA) that did not meet eligibility requirements. First Tennessee also admitted failing to report such deficiencies to the authorities as required under the program despite widespread knowledge by its senior managers by early 2008. In August 2008, First Tennessee sold First Horizon to MetLife Bank N.A., a wholly-owned subsidiary of MetLife Inc. Metlife admitted similar misconduct regarding the loans it originated and endorsed from September 2008 to March 2012. MetLife paid the United States $123.5 million to resolve liability under the False Claims Act arising from its misconduct in endorsing mortgagees for FHA insurance.

    The department also settled claims against Walter Investment Management Corp. for $29.63 million. The government alleged that the company, through subsidiaries Reverse Mortgage Solution Inc., REO Management Solutions LLC, and RMS Asset Management Solutions LLC, caused false claims for fees and other costs in servicing reverse mortgages under the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program. Reverse mortgage loans allow elderly people to access the equity in their homes. The loans provide monthly payments that enable the elderly to meet their day-to-day living expenses while remaining in their homes. To encourage these loans, HUD insures banks and other institutions that service the mortgages against loss, providing the institution complies with requirements to ensure the quality of such loans. Walter Investment allegedly failed to comply with these requirements.

    These recoveries are part of the broader enforcement efforts by President Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency task force in 2009, 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. For more information about the task force, visit www.stopfraud.gov.

Government Contracts

    Government contracts and federal procurement accounted for $1.1 billion in fraud settlements and judgments in fiscal year 2015, bringing procurement fraud totals to nearly $4 billion from January 2009 to the end of the fiscal year. Significant cases include a $146 million settlement with Supreme Group B.V. and several of its subsidiaries for alleged false claims to the Department of Defense (DoD) for food, water, fuel, and transportation of cargo for American soldiers in Afghanistan. Supreme Group is based in Dubai, United Arab Emirates (UAE). In addition, Supreme Group affiliates Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held UAE company, pleaded guilty to related criminal violations and paid more than $288 million in criminal fines.

    In two other defense contract settlements, Lockheed Martin Integrated Systems, a subsidiary of aerospace giant Lockheed Martin Inc., paid $27.5 million and DRS Technical Services Inc. paid $13.7 million to resolve allegations that their employees lacked required job qualifications while the companies charged for the higher level, qualified employees required under contracts with U.S. Army Communication and Electronics Command (CECOM). The CECOM contracts were designed to give the Army rapid access to products and services for operations in Iraq and Afghanistan.

In a pair of cases involving contracts with the General Services Administration, VMware Inc. and Carahsoft Technology Corporation paid the United States $75.5 million and Iron Mountain Companies paid $44.5 million to settle their respective liability under the False Claims Act. The government alleged that California-based VMware and Virginia-based Carahsoft misrepresented their commercial sales practices, which resulted in overcharging government agencies for their software products and services sold through GSA’s Multiple Award Schedule. Similarly, Iron Mountain, a records storage company headquartered in Massachusetts, misrepresented its commercial sales practices to GSA and failed to give certain discounts given to its commercial customers, as required to gain access to the vast federal marketplace available to contractors through the Multiple Award Schedule.

    The department settled allegations that private contractor U.S. Investigations Services Inc. (USIS) violated the False Claims Act in performing a contract with the Office of Personnel Management (OPM) to perform background investigations of federal employees and those applying for federal service. The government alleged that USIS took shortcuts that compromised its contractually-required quality review and that, had the government known, it would not have paid for the services. USIS agreed to forego at least $30 million in payments legitimately owed to the company to settle the government’s allegations.

Other Fraud Recoveries and Actions

    Although health care, mortgage, and government contract fraud dominated fiscal year 2015 recoveries, the U.S. Justice Department has aggressively pursued fraud wherever it is found in federal programs.The department recovered $44 million from Fireman’s Fund Insurance Company for alleged fraud under the U.S. Department of Agriculture’s federal crop insurance program. The United States alleged that Fireman’s Fund knowingly issued federally reinsured crop insurance policies that were ineligible for federal reinsurance. Specifically, Fireman’s Fund allegedly backdated policies, forged farmers’ signatures, accepted late and altered documents, whited-out dates and signatures, and signed documents after relevant deadlines. The policies were issued by Fireman’s Fund offices in California, Kansas, Mississippi, North Dakota, Texas, and Washington.

    The department also recovered $13 million from Education Affiliates, a for-profit education company based in White Marsh, Maryland, for alleged false claims to the Department of Education for student aid for students whose qualifications for admission were falsified to get them enrolled so they could receive aid which would be paid to the school. Education Affiliates operates 50 campuses throughout the United States under various trade names.

    In other actions, the department filed lawsuits to recover funds disbursed under the Troubled Asset Relief Program (TARP) and payments made under contracts awarded to benefit disadvantaged populations identified under the Small Business Administration’s set-aside programs. In one action, the department sued the estate and trusts of the late Layton P. Stuart, former owner and president of One Financial Corporation, and its operating subsidiary, One Bank & Trust N.A., both based in Arkansas, alleging that Stuart made misrepresentations to induce the Department of the Treasury to invest TARP funds in One Financial as part of Treasury’s Capital Purchase Program. The department recently settled with the Stuart estate and trusts for $4 million, but claims remain pending against One Financial Corporation.

   In a second action, the department filed suit against Florida-based Air Ideal Inc. and its owner, Kim Amkraut. The government alleged that Air Ideal and Amkraut falsely certified that the company qualified for preferences given to small businesses located in a Historically Underutilized Business Zone (HUBZone) when Air Ideal’s HUBZone location was no more than a virtual office and its principal place of business was in a non-HUBZone location. The government further alleged that Air Ideal used its fraudulently-procured HUBZone certification to obtain contracts from the Coast Guard, Army, Army Corps of Engineers, and Department of the Interior that were worth millions of dollars. The department settled with Air Ideal and Amkraut for $250,000 plus five percent of Air Ideal’s gross revenues for five years.

    In addition to those suits involving individuals described above, the department settled or filed suit against individuals in an array of cases. For example, Two Florida couples agreed to pay the United States $1.137 million collectively, to resolve allegations that they accepted kickbacks in exchange for home health care referrals to A Plus Home Health Care Inc. The United States previously settled with A Plus, its owner Tracy Nemerofsky, and five other couples that allegedly accepted payments from A Plus. Dr. Charles Denham, of Laguna Beach, California, paid the United States $1 million to settle allegations that he solicited and accepted kickbacks from CareFusion in return for promoting a CareFusion product and influencing recommendations by the National Quality Forum.

    Denham was a patient safety consultant who co-chaired a National Quality Forum Committee. After settling with two cardiovascular testing laboratories for $48.5 million - Health Diagnostics Laboratory Inc. (HDL) and Singulex Inc., the department intervened in three qui tam suits against another laboratory, Berkeley HeartLab Inc., a marketing company, BlueWave Healthcare Consultants Inc. and three individuals – BlueWave’s owners, Floyd Calhoun Dent III and Robert Bradley Johnson and HDL’s co-founder and former chief executive officer, LaTonya Mallory. The department also intervened in two qui tam suits against Florida cardiologist Dr. Asad Qamar and his practice, the Institute for Cardiovascular Excellence PLLC, alleging that Qamar and his practice billed Medicare for medically unnecessary peripheral artery procedures and interventions and paid kickbacks to patients by waiving Medicare copayments irrespective of financial hardship. The department also filed a complaint against H. Ted Cain, Julie Cain, Corporate Management Inc. and Stone County Hospital Inc. for false claims for Medicare reimbursement. The government alleged that Ted and Julie Cain, the hospital and hospital management company owned and controlled by Ted Cain, claimed reimbursement for the hospital’s costs at inflated rates and for ineligible expenses. These matters are ongoing.

    Outside the health care arena, EDF Resource Capital Inc. agreed to transfer assets worth $5.8 million to the United States, and its chief executive officer, Frank Dinsmore, agreed to pay $200,000 to the United States, to settle allegations that they violated the False Claims Act in failing to remit payments to the Small Business Administration under the 504 loan program. The 504 loan program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. The program operates through local lenders like EDF, who reap benefits from the program in return for shouldering certain financial obligations which Dinsmore and EDF allegedly ignored. The department also entered settlements with two individuals for evasion of Customs duties owed on imports of aluminum extrusions from the People’s Republic of China (PRC). Robert Wingfield, the U.S. sales representative of a Chinese manufacturer, and Bill Ma, owner of an ostensible importer, allegedly misrepresented the country of origin of goods to avoid steep antidumping and countervailing duties imposed by the Department of Commerce and collected by U.S. Customs and Border Protection on imports of aluminum extrusions from the PRC to protect domestic manufacturers from unfair foreign pricing practices. The government previously settled related allegations with four importers, bringing total settlements in the case to $4.6 million, including the $435,000 from Wingfield and Ma.

Recoveries in Whistleblower Suits

    Of the $3.5 billion the government recovered in fiscal year 2015, more than $2.8 billion related to lawsuits filed under the qui tam provisions of the False Claims Act. During the same period, the government paid out $597 million to the individuals who exposed fraud and false claims by filing a qui tam complaint, often at great risk to their careers.

    The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 638 qui tam suits filed this past year. The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries. From January 2009 to the end of fiscal year 2015, the government recovered $19.4 billion in settlements and judgments related to qui tam suits and paid whistleblower awards of $3 billion during the same period.

    “Many of the recoveries obtained under the False Claims Act result from courageous men and women who come forward to blow the whistle on fraud they are often uniquely positioned to expose,” said Principal Deputy Assistant Attorney General Mizer.

    In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud. In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes. And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.

   Principal Deputy Assistant Attorney General Mizer also expressed his deep appreciation for the many dedicated public servants who investigated and pursued these cases – the attorneys, investigators, auditors and other agency personnel throughout the Department of Justice’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General and the many federal and state agencies that contributed to the department’s recoveries this past fiscal year.

    “The department’s lawyers and staff, together with our law enforcement partners in federal and state governments, work tirelessly and often overcome daunting challenges to achieve these successes on behalf of the taxpayers,” Mizer said.

    The government’s claims in the matters described above are allegations only; except where indicated, there has been no determination of liability.

    Source: U.S. Department of Justice release of 12/19/2015

Investor Pleads Guilty To Bid Rigging, Mail Fraud

   (DOJ) - May 28, 2014 -- A Northern California real estate investor has agreed to plead guilty for his role in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.
   Felony charges were filed in February in the U.S. District Court for the Northern District of California in Oakland against Charles Gonzales, of Alamo, Calif. Including Gonzales, a total of 44 individuals have pleaded guilty or agreed to plead guilty as a result of the department’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions in Northern California.
    According to court documents, beginning as early as April 2009 until about October 2010, Gonzales conspired with others not to bid against one another, and instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Alameda County, Calif. Gonzales was also charged with conspiring to commit mail fraud by fraudulently acquiring title to selected Alameda County properties sold at public auctions and making and receiving payoffs and diverting money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy. The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions. The private auctions often took place at or near the courthouse steps where the public auctions were held.
   “The Antitrust Division’s ongoing investigation has resulted in charges against 44 individuals for their roles in schemes that defraud distressed homeowners and lenders,” said Bill Baer, assistant attorney general in charge of the Department of Justice’s Antitrust Division. “The division will continue to work with its law enforcement partners to vigorously protect competition at the local level.”
    The department said that the primary purpose of the conspiracies was to suppress and restrain competition and to conceal payoffs in order to obtain selected real estate offered at Alameda County public foreclosure auctions at non-competitive prices. When real estate properties are sold at the auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner. According to court documents, the conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties, and, in some cases, the defaulting homeowner.
    “The symbolism of holding illegitimate and fraudulent private auctions near a courthouse is deplorable,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office. “The justice system will continue to prevail in this ongoing investigation pursuing bid rigging and fraud at public foreclosure auctions.”
    A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than $1 million. A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.
    The charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif. Investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300, or call the FBI tip line at 415-553-7400.
   Source: Financial Fraud Enforcement Task Force; Department of Justice

Foreclosure Rescue Scheme Brought To End

   DENVER – 3/26/2012 - U.S. Attorney for the District of Colorado John F. Walsh and Colorado Attorney General John W. Suthers announced today the end of a national foreclosure rescue scheme. The perpetrators, operating through Bella Homes LLC, had promised hundreds of distressed homeowners that Bella Homes would help homeowners avoid foreclosure. Instead of helping homeowners, the perpetrators helped themselves to a lavish lifestyle replete with fancy cars, vacations and even gold coins.

   “Today (3/26) brings an end to a scheme that harmed distressed homeowners across the country,” Walsh said. “With false promises, the perpetrators of this scheme convinced hundreds of homeowners to hand over the last of their life savings and turn over the deed to their homes. Together with our partners in the state Attorney General’s Office, we stopped this fraud from harming additional victims within our state and across the nation.”
   “This agreement not only will help Bella Homes’ victims, but it also will bar the defendants from engaging in any kind of mortgage or foreclosure activity ever again,” Suthers said. “Foreclosure rescue scams prey on distressed homeowners’ desire to save their homes and to find any means to help fix their dire financial situations. Our work in cooperation with the U.S. Attorney’s Office quickly shut down this scam and should send a message that we and our partners in law enforcement will vigorously pursue any foreclosure or mortgage scam preying on Colorado homeowners.”
   The civil action, brought jointly by the U.S. Attorney’s Office for the District of Colorado and the state attorney general of Colorado, put an end to a scheme that started in March 2010, in the basement of a convicted felon in Georgia, and went national, affecting homeowners in Colorado and other states across the country. The civil action that put an end to the scheme was filed in the U.s. District Court for the District of Colorado on Feb. 14, 2012, and resulted in a consent judgment, in which Bella Homes “admits the allegations in the complaint and acknowledges its role in defrauding homeowners who signed over title to their homes to Bella Homes.” Bella Homes further admitted that all deed transactions in which it entered should be deemed.
   As alleged in the complaint, the defendants, through Bella Homes, engaged in a fraudulent scheme in which they solicited homeowners to convey title to their homes to Bella Homes for no consideration and to enter into purported lease agreements under which the homeowners, instead of making their mortgage payments, paid Bella Homes monthly “rent.”

   To entice homeowners into this arrangement, defendants made or caused to be made numerous material misrepresentations to homeowners to convey the false and fraudulent impression that:

• Bella Homes would stop any foreclosure on the home;
• Bella Homes would purchase or otherwise settle the existing mortgage on the home from the lender;
• Federal law provided the homeowner the right to remain in the home for the duration of the lease with Bella Homes; and
• The homeowner would have an option to repurchase the home in three years from Bella Homes for significantly less than the amount currently owed on the mortgage.

   Defendants made these false representations on a website and in solicitations and documents sent to interested homeowners across the country. Contrary to Bella Homes’ representations and promises, Bella Homes admitted in response to a subpoena that it had not purchased any mortgages as of October 2011, and that it lacked the financial capacity to purchase mortgages. In all, more than 560 homeowners were victimized by Bella Homes. Throughout the life of the scheme, the company only acquired one mortgage just before the complaint was filed. As part of the consent judgment, the single mortgage may be sold and the proceeds returned to victims.
   The complaint alleged that Mark Stephen Diamond, Daniel David Delpiano, David Delpiano and Michael Terrell were involved in running Bella Homes. Through the consent judgment, these individual defendants confess liability to counts six and seven of the complaint, which allege violations of the Mortgage Assistance Relief Services Rule (MARS Rule). Specifically, the individual defendants confess liability to: violating Section 322.3(c) of the MARS Rule by making a representation, expressly or by implication, about the benefits, performance, or efficacy of any mortgage assistance relief service without competent and reliable evidence that substantiates that the representation is true. violating Section 322.5(a) of the MARS Rule, which makes it a violation of the MARS Rule to: request or receive payment of any fee or other consideration until the consumer has executed a written agreement between the consumer and the consumer's dwelling loan holder or servicer incorporating the offer of mortgage assistance relief the provider obtained from the consumer's dwelling loan holder or servicer. 

   As part of the consent judgment, the defendants have permanent restrictions on their ability to work in the mortgage industry and residential real estate related businesses. In addition, the defendants must return any vehicles in their possession that were leased by Bella Homes, Mark Diamond, Diamond and Associates or Diamond Corporation. Finally, money previously frozen in defendants’ bank accounts, as well as cash in a safe deposit box, and the proceeds of gold coins obtained by Bella Homes, will all be made available to the Department of Law at the state of Colorado to be returned to homeowner victims. To this amount, defendant Mark Stephen Diamond will add an additional $300,000 within the next 90 days. After that time, the defendants will make additional payments of approximately $200,000 over the next five years, for a total anticipated recovery of approximately $1.2 million.
   If you are a victim of Bella Homes, visit the website set up by the Colorado Department of Law at: www.coloradoattorneygeneral.gov/departments/consumer_protection/consumer_protection_cases/bella_homes.

   Source: Financial Fraud Enforcement Task Force

Settlement Reached Over Foreclosure Abuses

   WASHINGTON – 2/11/2012 - U.S. Attorney General Eric Holder, Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers announced on Feb. 9 that the federal government and 49 state attorneys general have reached a landmark $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. The agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future.

  Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers. At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth. At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs. Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.
   Mortgage servicers are required to fulfill these obligations within three years. To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months. Servicers must reach 75 percent of their targets within the first two years. Servicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts.
   In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments. $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct. Borrowers will not release any claims in exchange for a payment. The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general.

   The unprecedented joint agreement is the largest federal-state civil settlement ever obtained and is the result of extensive investigations by federal agencies, including the Department of Justice, HUD and the HUD Office of the Inspector General (HUD-OIG), and state attorneys general and state banking regulators across the country. The joint federal-state group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC).
   “This agreement – the largest joint federal-state settlement ever obtained – is the result of unprecedented coordination among enforcement agencies throughout the government,” U.S. Attorney General Holder said. “It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated.”
   The joint federal-state agreement requires servicers to implement comprehensive new mortgage loan servicing standards and to commit $25 billion to resolve violations of state and federal law. These violations include servicers’ use of “robo-signed” affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.
   The $5 billion includes a $1 billion resolution of a separate investigation into fraudulent and wrongful conduct by Bank of America and various Countrywide entities related to the origination and underwriting of Federal Housing Administration (FHA)-insured mortgage loans, and systematic inflation of appraisal values concerning these loans, from Jan. 1, 2003 through April 30, 2009. Payment of $500 million of this $1 billion will be deferred to partially fund a loan modification program for Countrywide borrowers throughout the nation who are underwater on their mortgages. 

    The investigation was conducted by the U.S. Attorney’s Office for the Eastern District of New York, with the Civil Division’s Commercial Litigation Branch of the Department of Justice, HUD and HUD-OIG. The settlement also resolves an investigation by the Eastern District of New York, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Housing Finance Agency-Office of the Inspector General (FHFA-OIG) into allegations that Bank of America defrauded the Home Affordable Modification Program.

   The joint federal-state agreement requires the mortgage servicers to implement unprecedented changes in how they service mortgage loans, handle foreclosures, and ensure the accuracy of information provided in federal bankruptcy court. The agreement requires new servicing standards which will prevent foreclosure abuses of the past, such as robo-signing, improper documentation and lost paperwork, and create dozens of new consumer protections. The new standards provide for strict oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court.
   The new servicing standards make foreclosure a last resort by requiring servicers to evaluate homeowners for other loss mitigation options first. In addition, banks will be restricted from foreclosing while the homeowner is being considered for a loan modification. The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials. Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.
   The agreement will also provide enhanced protections for service members that go beyond those required by the Servicemembers Civil Relief Act (SCRA). In addition, the four servicers that had not previously resolved certain portions of potential SCRA liability have agreed to conduct a full review, overseen by the Justice Department’s Civil Rights Division, to determine whether any servicemembers were foreclosed on in violation of SCRA since Jan. 1, 2006. The servicers have also agreed to conduct a thorough review, overseen by the Civil Rights Division, to determine whether any servicemember, from Jan. 1, 2008, to the present, was charged interest in excess of 6 percent on their mortgage, after a valid request to lower the interest rate, in violation of the SCRA. Servicers will be required to make payments to any servicemember who was a victim of a wrongful foreclosure or who was wrongfully charged a higher interest rate. This compensation for servicemembers is in addition to the $25 billion settlement amount.
   The agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia. Compliance with the agreement will be overseen by an independent monitor, Joseph A. Smith Jr. Smith has served as the North Carolina Commissioner of Banks since 2002. Smith is also the former Chairman of the Conference of State Banks Supervisors (CSBS). The monitor will oversee implementation of the servicing standards required by the agreement; impose penalties of up to $1 million per violation (or up to $5 million for certain repeat violations); and publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement.
   The agreement resolves certain violations of civil law based on mortgage loan servicing activities. The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers. The agreement does not prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group. The United States also retains its full authority to recover losses and penalties caused to the federal government when a bank failed to satisfy underwriting standards on a government-insured or government-guaranteed loan. The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits. State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.
   For more information about the mortgage servicing settlement, go towww.NationalMortgageSettlement.com. To find your state attorney general’s website, go towww.NAAG.org and click on “The Attorneys General.”

   Source: Financial Fraud Enforcement Task Force

Man Pleads Guilty to Mortgage Fraud Scheme

   CHARLESTON, W.Va. — 11/17/2011 - A Utah man pleaded guilty on November 10 in federal court before U.S. District Judge Thomas E. Johnston to charges connected to a multimillion-dollar mortgage fraud scheme involving properties at a Hurricane, W.Va., subdivision.
   Michael S. Hurd, 37, of Salt Lake City, pleaded guilty to conspiracy to commit wire fraud and bank fraud. The defendant also pleaded guilty to mail fraud arising out of his involvement in a similar scheme in Modesto, Calif.
   Hurd admitted that during the early and mid-2000's, he operated a company called "The Gift Program," which he described as a "seller funded down payment assistance program" used to provide home buyer's money to make the down payment and initial mortgage payments on real estate purchases. Hurd further admitted that he used The Gift Program to create an elaborate scheme to defraud lenders by concealing the transfer of loan funds to the borrower from the lender. In essence, through the use of The Gift Program, lenders unwittingly funded their own down payment and made the initial mortgage payments.
   Hurd admitted that in 2006 he became involved with Deborah and Todd Joyce of Hurricane in the "flipping" of homes in the Stonegate subdivision in that town. Deborah Joyce obtained inflated appraisals from two local appraisers, James Thornton and Mark Greenlee, and subsequently sent the appraisals on to another co-conspirator Raymond Morris in Salt Lake City. Morris identified investors to purchase those properties at fraudulently inflated prices. Morris then got those investors in contact with Hurd, who then used The Gift Program to conceal the transfer of a portion of the loan proceeds to the investor from the lender. Hurd admitted that he paid Morris an undisclosed "commission" for this referral.
   Hurd also admitted that during the scheme, he wired additional loan funds to the investor to make initial mortgage payments. Once those funds ran out, the investors defaulted on the loans and the properties went into foreclosure. All told, Hurd, Joyce and Morris illegally flipped six properties in the Stonegate subdivision. The respective lender losses total almost $2 million.
   At the same time, Morris and Hurd orchestrated a similar investment-type scheme in Modesto. Hurd acknowledged that he was involved in illegally flipping 20 properties with losses in excess of $5.5 million. As part of his plea agreement, Hurd agreed to transfer those charges from the Eastern District of California to the Southern District of West Virginia so the matters could be disposed of jointly.
   Hurd faces up to 60 years in prison and a $2 million fine when he is sentenced on Feb. 29, 2012.
   Deborah Joyce was sentenced in April 2011 to 46 months in prison for her role in the scheme. Todd Joyce received an 18-month prison sentence. Thornton and Greenlee are set to be sentenced in December 2011. Hurd's co-conspirator, Raymond P. Morris, was charged in September 2011 and his trial is set for Feb. 28, 2012.
   This case is being investigated by the FBI and the Internal Revenue Service – Criminal Investigation. Assistant U.S. Attorney Thomas Ryan from the Southern District of West Virginia is in charge of the prosecution.
   Source: Financial Fraud Enforcement Task Force, U.S. Department of Justice.

Higher Home Prices Reduce Housing Affordability

   LOS ANGELES - (BUSINESS WIRE) - 8/11/2011 - Housing affordability fell throughout most areas of the state in the second quarter of 2011, primarily due to a seasonal increase in home prices, the California Association of Realtors (C.A.R.) reported today.
   The percentage of buyers who could afford to purchase a median-priced, single-family home in California declined to 51 percent in the second quarter of 2011, down from 53 percent in first-quarter 2011 but was up from 46 percent in the second quarter of 2010, according to C.A.R.’s Traditional Housing Affordability Index (HAI).
    C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The Index is considered the most fundamental measure of housing well-being for home buyers in the state.
    “The pending cut in the Fannie Mae/Freddie Mac high cost loan limits will make it harder and more expensive for those who live in high cost areas to purchase a home,” said C.A.R. President Beth L. Peerce. “Buyers who plan to finance their home purchase with a mortgage of $625,500 or more will face higher interest rates, higher down payments, and tighter loan qualification requirements beginning Oct. 1. Those in a position to buy should act before the loan limits are reduced,” Peerce noted.
    Mortgage rates in the second quarter of 2011 were essentially unchanged from the first quarter of 2011, but were down from second-quarter 2010.
   Buyers needed to earn a minimum annual income of $63,080 to qualify for the purchase of a $293,580 statewide median-priced home in the second quarter of 2011. The monthly payment, including taxes and insurance, would be $1,580, assuming a 20 percent down payment and an effective composite interest rate of 4.85 percent.
    Regionally, housing affordability fell in the higher-priced areas of the state, such as the San Francisco Bay Area and Central Coast, but edged up in lower-priced areas, such as the Central Valley. At 77 percent, San Bernardino County was the most affordable, while San Mateo County was the least affordable, with only 21 percent of households able to afford the county’s median-priced home.
    Visit http://www.car.org/marketdata/data/haitraditional/ to see C.A.R.’s historical housing affordability data. For first-time buyer housing affordability data, visit http://www.car.org/marketdata/data/ftbhai/.

Twenty Seven Charged in Mortgage Schemes

   MIAMI – 8/4/2011 - Twenty-seven south Florida residents were indicted Aug. 2 on charges stemming from their participation in a series of mortgage fraud schemes that resulted in more than $30 million in fraudulent loans.
   The indictments were announced by Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge FBI, Miami Field Office; Michael K. Fithen, Special Agent in Charge, U.S. Secret Service (USSS); Hugo J. Barrera, Special Agent in Charge, Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF); and James K. Loftus, Director, Miami-Dade Police Department (MDPD), along with members of the Federal-State Mortgage Fraud Strike Force.
   Indictments were as follows:
United States v. Luis A. Oramas, et al.
   On Aug. 2, 2011, 17 defendants were charged in a 40-count indictment for their alleged participation in a scheme that resulted in approximately $20 million in fraudulent mortgage loans.
   Charged in the indictment were defendants Luis A. Oramas, 43, of Miami; Keskea Hernandez-Frei, 40, of Miramar. Fla.; Mariela Hernandez, 46, of Miami; Elayne Gutierrez, 32, of Miami; Ana Taveras, 33, of North Miami Beach, Fla.; Joaquin Gomez, 45, of Hialeah, Fla.; Manuel Valdes, 49, of Miami; Yudith Padilla, 38, of Hialeah; Ivan Padilla, 46, of Hialeah; Martha Fernandez, 43, of Hialeah; Maribel Diarth, 50, of Miami; Carlos Sanchez, 40, of Miami Lakes, Fla.; Ivett Lorenzo, 42, of Miami; Guillermo Rivero, 42, of Miami; Napoleon Cadalzo, 41, of Hialeah; Hisamara Esponda, 30, of Hialeah Gardens, Fla.; and Rafael Bonne, 61, of Miami.
   According to the indictment, from 2006 through 2008, Luis A. Oramas, Keskea Hernandez-Frei, Mariela Hernandez, Elayne Gutierrez, Ana Taveras Joaquin Gomez and Manuel Valdes identified residential properties in Miami-Dade County that were for sale and then recruited and paid individuals to act as straw buyers of the properties. Thereafter, defendant Hernandez-Frei used her companies, Kasa Mortgage, a mortgage brokerage firm, and New Line Realty, a real estate company, to conduct most of the transactions.
   The indictment alleges that Mariela Hernandez worked at Kasa as a loan processor, and Ana Taveras worked as a realtor for New Line. Through Kasa and New Line, Hernandez-Frei, Mariela Hernandez and Taveras, prepared fraudulent sales contracts and mortgage and home equity line-of-credit loan applications on behalf of complicit straw borrowers. The documents contained false information, including inflated sales prices, false employment verifications and pay stubs, false statements about income and funds on deposit and bogus cash-to-close checks. Yudith Padilla, Ivan Padilla, Martha Fernandez, Maribel Diarth, Carlos Sanchez, Ivett Lorenzo, Guillermo Rivero, Napoleon Cadalzo, Hisamara Esponda and Rafael Bonne, all acted as straw borrowers. In some instances, Mariela Hernandez, Taveras and Valdes also acted as straw borrowers.
   According to the indictment, the defendants used various methods to execute their scheme. In one method, commonly referred to as a “double-HUD” scheme, the defendants created and submitted to the lending institutions false duplicate Department of Housing and Urban Development (HUD) settlement statements, which grossly inflated the true purchase price of the properties. At other times, the defendants obtained multiple fraudulent mortgage loans from different lenders for the same piece of property.
   Once the mortgage applications were approved, the lenders wired the loan proceeds to title agents, such as Elayne Gutierrez, for closing. At closing, Gutierrez often sent the difference between the inflated mortgage loan proceeds and the actual selling price directly to Oramas, who then disbursed kickback payments to straw borrowers and other participants in the scheme.
   To perpetuate the scheme and avoid detection, the defendants failed to record or falsely recorded mortgage deeds and other mortgage documents with the state of Florida. In a further attempt to perpetuate the fraud, the defendants would make payments on the loans until the properties could be resold, often to another straw borrower, repeating the cycle of fraud. Eventually, the defendants stopped making payment on the loans and the properties went into foreclosure, often resulting in substantial losses to the lending institutions.
   The indictment charges the defendants with conspiracy to commit mail and wire fraud, and substantive mail fraud and wire fraud. If convicted, the defendants face a statutory maximum term of 20 years in prison on the conspiracy to commit mail and wire fraud and substantive mail fraud charges and 20 years in prison on the wire fraud charges.
   U.S. Attorney Ferrer commended the investigative efforts of the Federal-State Mortgage Fraud Strike Force, with special commendation to the U.S. Secret Service and the Miami-Dade Police Department. The case is being prosecuted by Assistant U.S. Attorney Sean T. McLaughlin.
United States v. Ghaith Al Nahar, et. al.
   On July 28, 2011, six defendants were charged in a six-count indictment for their participation in a nine-month mortgage fraud scheme that resulted in approximately $9.2 million in fraudulent loans. Charged in the indictment were Ghaith Al Nahar, 40, formerly of Boynton Beach, Fla.; Michelle Austin Wilks, 38, of Parkland, Fla.; Romy Defay, 28, of West Palm Beach, Fla.; Lucien Laguerre, 37, of Lauderhill, Fla.; Jeffery Gilbert, 53, of Miramar; and Philip Jay Newman, 58, of Miami.
   According to the indictment, from February to November 2007, Ghaith Al Nahar operated Best Decisions Home Mortgage Inc., located in Lake Worth, Fla. Al Nahar and Romy Defay identified residential properties in Palm Beach County that were for sale and then allegedly recruited and paid individuals to act as straw buyers of the properties. The straw buyers included Lucien Laguerre, Jeffery Gilbert and Philip Jay Newman.
   To execute the scheme, Al Nahar and Defay submitted loan applications and supporting documents containing false information to various mortgage lenders across the United States. Based on these false statements and documents, the mortgage lenders issued more than $9 million in loans.
After the lenders approved the fraudulent loans, Michelle Austin-Wilks, a title agent, prepared false HUD-1 Settlement Statements which, among other things, falsely represented to the lenders that the straw buyers were bringing their own money to closing. Austin-Wilks also falsely represented to the lenders that she had disbursed the loan proceeds in accordance with the lenders’ instructions. Instead, Austin-Wilks made unauthorized disbursements from the loan proceeds to one of her companies as “processing fees.”
   The indictment charges the defendants with conspiracy to commit wire fraud, and substantive wire fraud. If convicted, the defendants face a maximum statutory sentence of 20 years in prison on each count.
   U.S. Attorney Ferrer commended the investigative efforts of the Federal-State Mortgage Fraud Strike Force, with special commendation to the FBI. The case is being prosecuted by Assistant U.S. Attorney Armando Rosquete.
United States v. Gerardo Wilhelm, Juan J. Flores, and Alejandro Figueredo
   On July 26, 2011, three defendants were charged in an eight-count indictment for their participation in an arson, mortgage fraud and insurance fraud scheme that resulted in losses of more than $500,000. Charged in the indictment were Gerardo Wilhelm, 38, of Miami; Juan J. Flores, 39, of Ocala, Fla.; and Alejandro Figueredo, 30, of Miami.
   According to the indictment, Wilhelm, a real estate agent; Flores, a mortgage broker; and Figueredo, an insurance adjuster, engaged in a string of federal crimes involving a townhouse located in Miami-Dade County. In early 2006, Wilhelm obtained mortgage loans to purchase the property by misrepresenting his and his wife’s employment and falsely stating that they intended use of the property as their primary residence.
   Wilhelm then rented the townhouse until it no longer generated income. In late 2007, after foreclosure proceedings were initiated against him, Wilhelm hired Flores and Figueredo to burn down the townhouse. After the fire, defendant Wilhelm submitted a fraudulent insurance claim for the fire damage, and received approximately $180,000 in insurance proceeds, made payable to the lender. However, Wilhelm forged the endorsement on the insurance check and kept the money.
   After misappropriating the insurance money, Wilhelm allegedly obtained a loan modification, in the form of a short sale, from the defrauded lender that held the mortgage loans on the townhouse. In carrying out this short sale, Wilhelm hired a straw buyer to purchase the property. After the sale was completed, the straw buyer transferred the townhouse title to a company Wilhelm controlled. Thereafter, Wilhelm and his accomplices sold the townhouse for $240,000, resulting in a $500,000 loss to the financial institutions.
   The defendants were charged with conspiracy to commit arson and arson. Wilhelm was also charged with two counts of conspiracy to commit mail fraud, three counts of substantive mail fraud and one count of check fraud. If convicted, the defendants face a maximum statutory sentence of 20 years in prison on the conspiracy to commit mail fraud and substantive mail fraud charges and 20 years in prison on the conspiracy to commit arson and substantive arson charges.
   U.S. Attorney Ferrer commended the investigative efforts of the Federal State Mortgage Fraud Strike Force, with special commendation to ATF and Miami-Dade Police Department. The case is being prosecuted by Assistant U.S. Attorney Roger Cruz.
United States v. David A. Donet Sr.
   On Aug. 1, 2011, David A. Donet, Sr., 63, of Miami, was charged in a criminal information for his involvement in the misappropriation of mortgage loan proceeds and other client funds. According to the information, Donet, an attorney who handled real estate closings and other matters, caused various lenders and others to disburse loan proceeds and other funds into his attorney trust account. Instead of disbursing the funds appropriately, however, Donet improperly deposited the money into his law firm’s business account and then misappropriated the funds.
   The defendant was charged with eight substantive counts of mail and wire fraud. If convicted, Donet faces a maximum possible sentence of 20 years in prison on each count.
   U.S. Attorney Ferrer commended the investigative efforts of the Federal State Mortgage Fraud Strike Force, with special commendation to FBI. The case is being handled by Assistant U.S. Attorney Karen Rochlin.
   The cases announced today are also part of the Department of Justice’s Financial Fraud Enforcement Task Force. This national task force was established in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Mortgage fraud is a key focus of the Financial Fraud Enforcement Task Force’s efforts. 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.
   Reminder: An indictment is only an accusation and a defendant is presumed innocent until proven guilty.
   Source: U.S. Department of Justice release.

Loan Officer, Title Agent Charged in $2.5M Scheme

   WASHINGTON – 7/11/2011 - The Justice Department announced on July 6 the unsealing of a criminal case charging four defendants – Louis Gendason, 42, of Delray Beach, Fla.; Kimberly Mackey, 46, of Pittsburgh; John Incandela, 24, and Marcos Echevarria, 29, both of Palm Beach, Fla. – with conspiracy to commit wire fraud involving a nation-wide reverse mortgage scam that defrauded elderly borrowers, financial institutions and the Department of Housing and Urban Development (HUD).
   A reverse mortgage allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income, or a line of credit. Three of the defendants made their initial appearances at the federal courthouse in Fort Lauderdale, Fla., earlier in the day.
   If convicted, the defendants each face a statutory maximum term of up to 30 years in prison and a fine of up to $1 million. These charges coincide with the one-year anniversary of “Operation Stolen Dreams,” the department’s anti-mortgage fraud enforcement initiative announced by Attorney General Eric Holder last June.
    The scheme contains many of the characteristics common to mortgage fraud around the country. The information charges Gendason,  Incandela and Echevarria with using a Florida-based loan modification business known as Lower My Debts.com L.L.C. as a front to identify elderly borrowers who were financially-vulnerable. They are alleged to have in their capacity as loan officers at 1st Continental Mortgage LLC. solicited borrowers to refinance their existing mortgages with a reverse mortgage loan financed by Genworth Financial Home Equity Access Inc.
  To induce Genworth and HUD to fund and insure the reverse mortgage loans, the defendants allegedly changed the unwitting borrowers’ real estate appraisal reports to fraudulently represent equity in the properties. The information alleges that Gendason, Incandela and Echevarria originated fraudulent loans on properties located in seven different states between May 2009 and November 2010 exceeding $2.5 million.
    As a further part of the charged conspiracy, a fourth defendant, Kimberly Mackey, a licensed title agent and proprietor of the Pittsburgh title agency Real Estate One Land Services Inc., fraudulently closed the Genworth loans by failing to pay off the seniors’ existing liens. Instead, Mackey wired nearly $1 million in Genworth loan proceeds to the business checking account for Lower My Debts.com. She conspired to conceal the fraudulent loan closings from financial institutions by preparing written settlement documents which falsely represented that the borrowers’ existing mortgages had, in fact, been paid off.
   In some instances, after Mackey wired the loan proceeds to bank accounts in Florida controlled by her co-conspirators, she is alleged to have assisted them with defrauding the banks holding the borrowers’ first mortgages by negotiating fake short sales. This was designed to induce these banks to release their valid liens on the seniors’ properties at a fraction of their existing loan balance. All of the defendants are accused of pocketing the illegally-obtained loan proceeds.
    “Protecting Americans from financial fraud is one of our top priorities,” said Tony West, assistant attorney general of the Justice Department’s Civil Division. “With these charges, we are taking another important step in the effort we began with Operation Stolen Dreams by holding accountable those whom we believe lined their own pockets with money that should have gone to help vulnerable seniors.”
   This case was investigated by agents from the HUD-Office of Inspector General; the Internal Revenue Service-Criminal Investigation; the U.S. Postal Inspection Service; the FBI Miami Field Office; and the state of Florida’s Office of Financial Regulation. The case was prosecuted by Trial Attorney Kevin J. Larsen from the Civil Division’s Office of Consumer Protection Litigation, along with Assistant U.S. Attorneys Jeffrey H. Kay and Thomas P. Lanigan from the U.S. Attorney’s Office for the Southern District of Florida.
    Anyone with knowledge of such schemes is encouraged to contact the HUD hotline at 1-800-347-3735.
    Initiated in June 2010, Operation Stolen Dreams targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in confronting mortgage fraud.  Operation Stolen Dreams targeted 1,517 criminal defendants nationwide, included 525 arrests, and involved an estimated loss of more than $3 billion. The operation also resulted in 191 civil enforcement actions and the recovery of more than $196 million.
   Source: U.S. Department of Justice release.

Executive Faces 30 Years in $1.9 Billion Scheme

   WASHINGTON – 2/24/2011 – Desiree Brown, the former treasurer of a private mortgage lending company, Taylor, Bean & Whitaker (TBW), pleaded guilty today to conspiring to commit bank, wire and securities fraud for her role in a more than $1.9 billion fraud scheme that contributed to the failures of Colonial Bank and TBW.

    Brown, 45, of Hernando, Fla., pleaded guilty before U.S. District Judge Leonie M. Brinkema in the Eastern District of Virginia.

   Brown faces a maximum penalty of 30 years in prison when she is sentenced on June 10.  In a related action, the U.S. Securities and Exchange Commission (SEC) today filed an enforcement action against Brown in the Eastern District of Virginia.
   According to court documents, Brown admitted that from late 2003 through August 2009, she and her co-conspirators, including former TBW chairman Lee Farkas engaged in a scheme to defraud various entities and individuals, including Colonial Bank, a federally-insured bank; Colonial BancGroup Inc.; shareholders of Colonial BancGroup; investors in Ocala Funding LLC, including Deutsche Bank and BNP Paribas; the Troubled Asset Relief Program (TARP); and the investing public. One of the goals of the scheme to defraud was to obtain funding for TBW to assist it in covering expenses related to operations and servicing payments owed to third-party purchasers of loans and/or mortgage-backed securities.

   According to court documents, Brown and her co-conspirators referred to one aspect of the fraud scheme as “Plan B.”     

   “Plan B” generated money for TBW through the fictitious “sales” of mortgage loans to Colonial Bank.  The conspirators accomplished this by sending mortgage data to Colonial Bank for loans that did not exist or that TBW had already committed or sold to other third-party investors.  As a result, the Plan B loan data was recorded in Colonial Bank’s books and records, and gave the false appearance that Colonial Bank had purchased legitimate interests in mortgage loans from TBW. Brown admitted that she and her co-conspirators caused Colonial Bank to pay TBW for assets that were worthless to Colonial Bank.

    Brown admitted that, as part of the fraud scheme, she and her co-conspirators also caused TBW to sell fictitious trades, which had no pools of loans collateralizing them, to Colonial Bank. Brown and her co-conspirators caused false information about the trades to be entered on Colonial Bank’s books and records, giving the appearance that the bank owned interests in legitimate trades, when in fact the trades had no value and could not be sold.         

    Court documents indicate that the conspirators caused Colonial Bank to pay TBW more than $400 million for assets that in fact had no value, and caused Colonial Bank and Colonial BancGroup to hold these assets on their books as if they had actual value. Additionally, the conspirators caused TBW to misappropriate more than $1 billion in collateral from Ocala Funding LLC, a mortgage lending facility owned by TBW. 

    According to court documents, the fraud scheme also included an effort by the conspirators in the fall of 2008 to obtain $570 million in taxpayer funding through the Capital Purchase Program (CPP), a sub-program of the U.S. Treasury Department’s TARP program.   In connection with the application, Colonial BancGroup submitted financial data and filings that included materially false information related to mortgage loan and securities assets held by Colonial Bank as a result of the fraudulent scheme admitted to by Brown. Colonial BancGroup never received the TARP funding.

    In August 2009, the Alabama State Banking Department, Colonial Bank’s regulator, seized the bank and appointed the FDIC as receiver. Colonial BancGroup also filed for bankruptcy in August 2009.

    In June 2010, Farkas was arrested and charged in a 16-count indictment for his role in the fraud scheme.   His trial is scheduled to begin in April 2011.   An indictment is merely a charge and a defendant is presumed innocent until proven guilty.

   The guilty plea was announced today by Assistant Attorney General Lanny A. Breuer of the Criminal Division; U.S. Attorney Neil H. MacBride for the Eastern District of Virginia; Special Inspector General Neil Barofsky for the Troubled Asset Relief Program (SIGTARP); Assistant Director in Charge James W. McJunkin of the FBI’s Washington Field Office; Michael P. Stephens, Inspector General of the Department of Housing and Urban Development (HUD OIG); Jon T. Rymer, Inspector General of the Federal Deposit Insurance Corporation (FDIC OIG); Steve A. Linick, Inspector General of the Federal Housing Finance Agency (FHFA OIG); and Victor F. O. Song, Chief of the Internal Revenue Service (IRS) Criminal Investigation.

    The case is being prosecuted by Deputy Chief Patrick Stokes and Trial Attorney Robert Zink of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Charles Connolly and Paul Nathanson of the Eastern District of Virginia.  This case was investigated by SIGTARP, FBI’s Washington Field Office, FDIC OIG, HUD OIG, FHFA OIG and the IRS Criminal Investigation. The Financial Crimes Enforcement Network (FinCEN) of the Department of the Treasury also provided support in the investigation.

    Source: Financial Fraud Enforcement Task Force

Group Says Fannie Mae, Freddie Mac are Needed

   LOS ANGELES - (BUSINESS WIRE) - 2/14/2011 - In response to the White House’s recommendations last week to phase out Fannie Mae and Freddie Mac, the California Association of Realtors said the elimination of government involvement would raise borrowing costs for home buyers and severely restrict a safe and affordable flow of financing, further impeding the still-fragile housing market recovery.
   “A reduced government presence in the mortgage market will raise the cost of homeownership and make mortgages less available,” CAR President Beth L. Peerce said. “Moreover, Congress needs to understand that during economic downturns, the housing market needs government involvement to ensure capital stability. History has shown the private market is incapable and unwilling to step in during the hardest of times and meet the demands of the nation’s home buyers.”
   CAR, along with the National Association of Realtors, believes that Fannie Mae and Freddie Mac government-sponsored enterprises (GSEs) should be converted into government-chartered, non-profit corporations. Such an entity would ensure government’s role in a stable real estate finance system, while eliminating the conflict created by the GSE’s current charter allowing for a private profit and public loss structure. With a clear explicit guarantee by the government, these entities would continue to be able to offer low interest rate loans onto home buyers and assure investor confidence.
    The White House’s proposal to allow the maximum loan limit to drop back to $625,500 in high cost areas also would hamper California’s housing recovery
   “California dominates the jumbo loan market and cannot afford a reduced loan limit. The homeownership rate here consistently has lagged behind national figures for the last three decades,” Peerce said. “Any reduction to the conforming loan limit will prevent low- and moderate-income home buyers in high-cost areas from accessing low cost, low rate mortgages.”
    The conforming loan limit determines the maximum size of a mortgage that Fannie Mae and Freddie Mac can buy or “guarantee.” Non-conforming or “jumbo loans” typically carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.
    GSE key points:

• The national loan limit for Fannie Mae and Freddie Mac is $417,000. Only in areas where the median home price is above $417,000 does the higher loan limit apply, which allows all homebuyers to have equal and fair access to affordable capital.
• An efficient and adequately regulated secondary market is essential to providing affordable mortgages to consumers. The secondary market, where mortgages are securitized and/or combined into bonds, is an important and reliable source of capital for lenders, and therefore, for consumers.
• Without a secondary market, mortgage interest rates would be unnecessarily higher and unaffordable for many Americans. In addition, an inadequate secondary market would impede both recovery in housing and the overall economic recovery.
• Government-sponsored entities have a separate legal identity from the federal government but serve a public purpose. Unlike a federal agency, the entities will have considerable political independence and be self-sustaining, given the appropriate structure.
• The mission of the GSEs would be to ensure a strong, efficient financing environment for homeownership and rental housing, including access to mortgage financing for segments of the population that have the demonstrated ability to sustain homeownership. Middle class consumers need a steady flow of mortgage funding that only government backing can provide.
• The entities should guarantee or insure a wide range of safe, reliable mortgage products such as 30- and 15-year fixed-rate loans, traditional ARMs, and other products that have stood the test of time and for which American homeowners have demonstrated a strong ability to repay.
• There must be strong oversight of the entities (for example, by the Federal Housing Finance Agency – FHFA, or a successor agency) that includes the providing of timely reports to allow for continual evaluation of the entities’ performance.

Consumer Mortgage Fraud Conspiracy Alleged

Government lawsuit cites 15 complaints against 14 defendants
    NEW YORK - 12/16/10 - The United States government has filed a civil fraud lawsuit against 14 defendants  – including sellers, lenders and appraisers - alleged to have engaged in an elaborate conspiracy to commit mortgage fraud in New York that caused at least 17 home buyers to default on their mortgages and face foreclosure.  The complaint also requests the court to bar what the government alleges to be an on-going mortgage fraud by a number of the defendants.
   The lawsuit was announced today by Preet Bharara, U.S. Attorney for the Southern District of New York; Dave Stevens, Commissioner of the Federal Housing Administration (FHA); and Rene Febles, Special Agent-in-Charge of the Department of Housing and Urban Development Office of the Inspector General (HUD-OIG) New York Field Office.
   According to the allegations in the complaint filed today in Manhattan federal court, the sellers, lenders and appraisers allegedly conspired to commit mortgage fraud in connection with the sale of 17 residential properties in New York.  The sellers purchased the 17 homes and promptly re-sold, or “flipped,” them - without substantial improvement - to inexperienced, low-income buyers, duping them into buying properties they could not afford at falsely inflated prices. 
   The appraiser defendants then fraudulently overstated the value of these homes in their appraisal reports so that the buyers would take out home mortgage loans far in excess of the property’s true value.  Cambridge Home Capital LLC, a mortgage lender, then allegedly underwrote mortgages for the buyers knowing that the properties were not accurately appraised, and knowing that the buyers could not afford the mortgage payments.
   All 17 loans, which were insured by HUD, defaulted, often within just a few months after the closing, exposing HUD to millions of dollars in losses.  In addition to the losses to HUD, the fraud also left the buyers facing foreclosure and eviction from their homes.  The fraud affected two financial institutions, Citibank N.A. and Countrywide Bank FSB, whose bank affiliates purchased these mortgage loans from Cambridge on the secondary market.
   Mitchell Cohen acquired homes for his flip sales through three entities that he controlled: defendants Buy–A-Home LLC, Metropolitan Housing LLC and Gramercy Funding Group LTD.  Once Cohen duped these buyers into purchasing his properties at inflated prices, he steered these buyers to Cambridge, which was authorized to underwrite loans insured by HUD, to underwrite the mortgage. 
   Through its owners and senior officers, Cambridge underwrote these loans to finance Cohen’s flip sales, even though Cambridge and its principals knew - in each case - that the transaction, the home-buyers or both failed to meet HUD’s underwriting requirements. 
   Cambridge then falsely certified that the transactions met HUD’s requirements, knowing that they did not.
Cambridge also created false records to make the buyers appear more credit-worthy than they were, either by overstating their income or by understating their debts. 
  In one instance, Cambridge fraudulently revised a buyer’s loan application to change the buyer’s occupation from “security guard” to “head chef” at a restaurant, falsely overstating that buyer’s income by 50 percent. 
   Cohen and Cambridge conspired to make the buyers appear more credit-worthy in some cases by paying off the buyers’ personal debts, while concealing those side payments from HUD.
   The mortgage fraud conspiracy included the participation of several appraisers who allegedly submitted false appraisal reports that “hit the numbers” for Cohen or Cambridge, valuing the homes Cohen was selling at or about the inflated prices set by Cohen.
   “Schemes like the one alleged here helped contribute to the home mortgage crisis,” said U.S. Attorney Preet Bharara.  “In this particular case, not only did the alleged fraud victimize the home buyers themselves, who were duped into buying homes they couldn't afford and who now face foreclosure and eviction, but also the government, which insured these bad loans.  This office will use every weapon in its arsenal to fight mortgage fraud, including its powerful civil remedies, and will hold those who participate in and profit from these schemes accountable for their actions.”
   “Lenders that engage in the sort of activities outlined in this lawsuit not only pose a particular risk to FHA but to families struggling to do the right thing,” said FHA Commissioner Stevens.  “The vast majority of the lenders we work with are part of the solution to our nation’s housing crisis and we simply can’t do business with those who are so clearly part of the problem.”
   “It is very important that the HUD-OIG aggressively investigate allegations pertaining to mortgage fraud,” said HUD-OIG Special Agent-in-Charge Rene Febles.  “It is equally important that we identify instances where the integrity of the FHA program is compromised and ensure that those committing such acts are brought to the attention of the U.S. Attorney’s Office so that victims and the American taxpayer are protected.”
   The complaint seeks civil penalties pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), a statute enacted in the 1980s as a tool to address the savings and loan crisis.
   FIRREA authorizes the United States to seek millions of dollars in civil penalties for violations of, and conspiracies to violate, certain predicate criminal statutes involving financial fraud, including mail and wire fraud In this case, the complaint alleges 15 separate FIRREA violations against 14 separate defendants. 
   The defendants charged are: Buy-A-Home LLC; Metropolitan Housing LLC; Gramercy Funding Group LTD; Mitchell Cohen; Cambridge Home Capital LLC; Seth Kramer; Craig Hyman; Seth Lapidus; Jacqueline Derrell; Cambridge Funding Group, LTD.; James J. Goldberg, dba JJG Real Estate Appraisal Services; Premier Appraisal Service; William Buckley; and Robert Micheline, dba P&M Appraisals.
   The complaint also seeks both damages and civil penalties according to the False Claims Act (FCA), which imposes liability on any person who knowingly submits, or causes to be submitted, a false or fraudulent claim for payment to the United States.  In this case, the United States alleges that two of the 17 loans at issue involve false or fraudulent claims to HUD for mortgage insurance and therefore give rise to civil penalties and damages under the FCA.  
   The complaint seeks not only penalties and damages for past fraud, but also a court order enjoining on-going fraud by defendants Cohen and Buy-A-Home.  According to the complaint, these defendants are continuing to engage in fraudulent flip sales of properties at the expense of HUD.  This year alone, Cohen, through Buy-A-Home, has allegedly consummated more than 20 flip sales, typically pricing the homes at 60 percent to 160 percent more than what he had paid for them just weeks or months earlier.
U.S. Attorney Bharara thanked HUD-OIG for their assistance.
   The case is being handled by the U.S. Attorney’s Office’s Civil Frauds Unit.  U.S. Attorney Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating financial fraud, including mortgage fraud. 
Assistant U.S. Attorneys Li Yu and Cristine Irvin Phillips of the U.S. Attorney’s Office’s Civil Division are in charge of the case.
   Source: http://www.stopfraud.gov/

Men Charged in $7 Million Mortgage Fraud Scheme

   NEWARK, N.J. – 10/21/10 – A former mortgage broker and his purported co-conspirator in a mortgage fraud scheme were arrested recently on a criminal complaint which alleges they conspired to defraud various mortgage lenders of more than $7 million by conducting at least 50 fraudulent real estate transactions involving residential properties in New Jersey, U.S. Attorney Paul J. Fishman announced.
   Eddie Dukhman, aka Eddie Dukeman, 34, of Sewaren, N.J., and Frank Corallo, 37, of Maywood, N.J., were arrested recently by special agents of the FBI and the U.S. Secret Service on a charge of conspiracy to commit wire fraud. 
   Dukhman was arrested at his home. Corallo, who awaits sentencing after pleading guilty to conspiracy to commit wire fraud in an unrelated scheme, was arrested when he reported to pretrial services concerning that case. Both defendants were expected to appear before U.S. Magistrate Judge Michael A. Shipp in Newark federal court.
   According to the complain that was unsealed, Dukhman, supposedly in the real estate business, and Corallo, a former mortgage broker, engaged in a conspiracy to defraud mortgage lenders from January 2007 to December 2009.
   Dukhman, with the assistance of two attorneys, arranged to purchase properties owned by financial institutions – commonly referred to as real-estate-owned or REO properties.  Corallo recruited other individuals to purchase those same properties at around the same time, referred to in the complaint as the “borrowers.” 
   Dukhman, Corallo and other unidentified co-conspirators employed numerous fraudulent techniques to effect their scheme – including falsifying financial documents, HUD-1 settlement statements (HUD-1s) and residential loan applications; causing borrowers to apply and obtain loans on properties that they did not own; and failing to record deeds with the county clerk’s office. 
   Specifically, Dukhman and Corallo caused fraudulent loan applications and HUD-1s to be submitted to mortgage lenders claiming that the purchaser of the REO property was the borrower (rather than Dukhman); that the borrowers put money down at the closing; that the properties would be the primary residences of the borrowers; that the borrowers had more assets and earned more than they actually did; and that the purchase price was almost twice that actually paid by Dukhman.
   When the loans were approved, the two attorneys identified in the complaint as “GT” and “EF” furthered Dukhman’s scheme by depositing the proceeds of the loans in one of their respective attorney trust accounts.
   Either of the two attorneys would then act as closing agents for Dukhman, who would purchase a REO property using the proceeds of the mortgage fraud scheme. After paying the closing costs, the attorneys distributed the proceeds of the mortgage fraud to Dukhman, Corallo and their co-conspirators. 
   After the attorneys gave Dukhman the deed to an REO property, he had it altered to reflect a sale between the REO bank and the borrower for the purchase price listed in the fraudulent documents submitted to the lenders.   Altered deeds were filed in the county clerk’s office – leaving Dukhman out of the title history.
   Additionally, Dukhman set up shell companies to receive the proceeds of the fraud. To that end, proceeds were funneled through financial institutions in the United States and ultimately transferred to various foreign accounts, including an account in the Cook Islands.  The government is seeking to forfeit the money in that account. 
   In all, Dukhman and Corallo conspired to defraud numerous mortgage lenders out of more than $7 million.
The wire fraud conspiracy count with which each of the defendants is charged carries a maximum potential penalty of 30 years in prison and a $1 million fine.
   U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, and special agents of the Secret Service, under the direction of Acting Special Agent in Charge James Mottola, with the investigation leading to the criminal Complaint.
   The government is represented by Assistant U.S. Attorneys Stacey A. Levine of the U.S. Attorney’s Office Heath Care and Government Fraud Unit and Peter Gaeta of the office’s Asset Forfeiture Unit.
   Source: Financial Fraud Enforcement Task Force