Tag Archives: crime news

FBI Hits Mortgage Fraud with “Operation Malicious Mortgage” — 400+ Indictments and the Arrests of Two Bear Stearns Execs

The FBI announced today that the Justice Department’s crackdown on mortgage fraud has resulted in more than 400 indictments since March — including dozens over the last two days.

Those arrested run the gamut of players in the mortgage industry, including lenders, real estate developers, brokers, agents, lawyers, appraisers, and so-called straw buyers.

The Department of Justice’s name for the crackdown is “Operation Malicious Mortgage,” which it describes as “a massive multiagency takedown of mortgage fraud schemes.”

According to the FBI, the on-going “Operation Malicious Mortgage” focuses primarily on three types of mortgage fraud — lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes.

“To persons who are involved in such schemes, we will find you, you will be investigated, and you will be prosecuted,” said Federal Bureau of Investigation Director Robert Mueller. “To those who would contemplate misleading, engaging in such schemes, you will spend time in jail.”

In its statement, the FBI said that “Among the 400-plus subjects of Operation Malicious Mortgage, there have been 173 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has secured more than $60 million in assets.”

While most of those indicted so far are relatively small players in the industry-wide fraud crisis, Mueller today repeated his earlier promise that federal authorities are not ignoring the major players in the mortgage industry, but are investigating some “relatively large corporations” as part of its sweeping mortgage-fraud probe, including some 19 large companies, including mortgage lenders, investment banks, hedge funds, credit-rating agencies and accounting firms.

Most of these corporate fraud investigations, said Mueller, deal with accounting fraud, insider trading, and the intentional failure to disclose the proper valuations of securitized loans and derivatives.

The FBI’s announcement of Operation Malicious Mortgage coincided with the indictment and arrest in New York on Thursday of two former Bear Stearns managers, Ralph R. Cioffi and Matthew Tannin, who are charged with nine counts of securities, mail and wire fraud resulting in $1.4 billion in losses on mortgage-related assets.

According to the New York Times,  Cioffi and Tannin “are the first senior executives from Wall Street investment banks to face criminal charges, and the investigation by federal prosecutors based in Brooklyn is likely to become a test case of the government’s ability to make successful prosecutions of arcane financial transactions.”

“This is not about mismanagement of a hedge fund investment strategy,” said Mark J. Mershon, the head of the New York office of the Federal Bureau of Investigation at a news conference Thursday afternoon. “It’s about premeditated lies to investors and lenders. Its about the defendants prostituting their client’s trust in order to salvage their personal wealth.”

 

FBI Expands and Intensifies Criminal Investigation of Mortgage Industry

The New York Times reported today that the federal taskforce established in January to investigate the mortgage industry is intensifying its efforts. 

The initial purpose of the taskforce, comprised of the Federal Bureau of Investigation and the criminal division of the Internal Revenue Service, as well as federal prosecutors in New York, Los Angeles, Philadelphia, Dallas and Atlanta, was to examine mortgages that were made with little or no documentation of the earnings or assets of the borrowers. 

The investigation is now also focusing on how these loans were bundled into securities.

The taskforce began with an investigation of 14 unnamed mortgage companies; in March, FBI Director Robert Mueller said that the FBI’s probe into potential mortgage fraud had grown to include investigations into 19 separate mortgage companies and involved an estimated 1,300 home mortgage fraud cases.

It is now believed that the investigation has expanded even further.

According to an unnamed official, the expansion of the probe was triggered by the financial industry’s disclosure last week of additional billions of dollars in write-downs from bad mortgage investments.

“This is a look at the mortgage industry across the board,” the official said, “and it has gotten a lot more momentum in recent weeks because of the banks’ earnings shortfalls.”

 

 

 

Mortgage Fraud Scammers Plead Guilty in US Foreclosure Capitol

Stockton, California, has been hit harder by the subprime mortgage crisis than any other US city. 

With a population of just over 280,000, Stockton had 22,000 foreclosure filings in 2007 (1 in 27 households), the highest foreclosure rate of any city in America. 

And as home prices continue to fall, the foreclosure crisis in Stockton is getting worse.

Stockton was an agricultural community, the seat of San Joaquin County, the fifth largest agricultural county in the United States and one of the most productive agricultural regions in the world.  In the past decade, however, Stockton experienced a population boom due to thousands of people settling in the area to escape the higher cost of living in San Francisco and Sacramento. 

Although the median income for a household in Stockton was only $35,453, the per capita income for the city was only $15,405, and 18.9% of families and 23.9% of the population were below the poverty line, subprime loans made houses in Stockton available to thousands who had very little income.

Home construction boomed, house prices soared, and subprime loans kept expanding the bubble further and further. House flippers, speculators and subprime lenders made millions.   

Then, in 2007, the bubble burst.

Few people were more active in profiting from the booming subprime housing market than a young immigrant from Pakistan named Iftikhar Ahmad. 

Between 2003 and 2005, Ahmad made millions of dollars buying and selling more than 100 homes and other properties in the Stockton area.  His company, I & R Investment Properties, LLC, was thriving.  Ahmad deposited at least $8.6 million from escrow closings and was able to send at least $484,000 back home to his native Pakistan.

Ahmad purchased a home at 327 N. Pilgrim Street in Stockton in 1997 for $22,000, then sold and repurchased the same property twice before ultimately selling it a third time in 2005 for $236,000. A house at 2228 E. Stadium Drive in Stockton was bought by Ahmad for $99,000; just 18 months later, he sold the house for $330,000.  In another series of transactions, a house bought and resold several times by Ahmad appreciated in value more than tenfold over an eight-year period.

It sounds like Iftikhar Ahmad was a very smart real estate investor.

The trouble was that Ahmad’s real estate empire was built on fraud.

On October 25, 2007, Ahmad was indicted on federal charges of mail fraud and money laundering, and on April 28, 2008, he pled guilty in federal court to mortgage fraud. 

Ahmad admitted that from July 2003 through October 2005, he participated in a scheme to defraud Long Beach Mortgage, a wholesale lender, in connection with the sale of 10 residential real properties. Between July 2003 and January 2005, Ahmad, through I & R Investment Properties, fraudulently sold 10 residential real properties, obtaining in excess of $1.5 million in loan proceeds.

In each of these transactions, the purchaser financed the property with money borrowed from Long Beach Mortgage.  The scheme involved the use of straw purchasers who lent their name and credit to real estate transactions in which they in fact had no interest. The scheme also involved false statements on loan documents, including those that related to income and occupation, and undisclosed payments by Ahmad of the down payment on behalf of the purchasers.

Many of the mortgages came from subprime lenders and in some cases the buyers used stolen identities. 

And in many of the real estate transactions, the buyers defaulted within a year.

In addition to Ahmad, three other defendants in the scheme have also pled guilty.

John Ngo, 27, of San Ramon, California, a former Senior Loan Coordinator for Long Beach Mortgage, pled guilty to perjury for falsely stating in testimony before the grand jury that he had not received money from a mortgage broker who referred borrowers to Long Beach Mortgage, including borrowers involved in transactions with Ahmad, when in fact he had received more than $100,000 from the mortgage broker.

Manpreet Singh, 24, of Stockton, California, entered a guilty plea to mail fraud for acting as a straw purchaser and borrower in connection with two properties that she purchased from I & R Investments in late 2004 and early 2005. She further admitted that Ahmad paid her in excess of $22,300 for her participation in the scheme.  The properties went into foreclosure within months of the purchase.

Jose Serrano, 44, of Stockton, California, pled guilty to a single count of mail fraud. As part of his plea, Serrano admitted that Ahmad had paid Serrano to recruit straw purchasers, and that Ahmad and Serrano caused several other purchasers to be paid for participating in the scheme.

The case against Iftikhar Ahmad and his co-conspirators was brought by US Attorney McGregor W. Scott, who also indicted mortgage fraud scammer Charles Head

Scott said: “This prosecution begins to bring into focus the ways that fraud occurred in the subprime lending market in the Stockton area in the 2003 to 2005 time frame. False representations were made in loan documents; down payments were secretly made by the seller on behalf of borrowers; buyers and recruiters were paid to participate in the scheme; and a loan coordinator working for a wholesale subprime lender was paid by a mortgage broker handling the transactions. The investigation continues.”

Singh’s sentencing date is set for June 9, 2008.  Sentencing for Ahmad, Ngo, and Serrano is set for July 14, 2008.

 

 

Mortgage Fraud Reports Up 50% in 2007

The latest report from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) covering the period from March 2006 to March 2007 shows a 50 percent increase in suspicious activity reports (SARs) indicating possible mortgage fraud.

The previous study had examined a statistical sample of SARs reporting mortgage fraud filed between April 1996 and March 2006.

FinCEN’s analysis of the most recently studied time period indicates a 50 percent increase in the number of SARs intercepting suspected fraud prior to funding a mortgage.

FinCEN also noted a 44 percent increase in SARs reporting mortgage fraud in 2006.

Analysis of the more recent data indicates that many identified trends continued and certain suspicious activities showed marked increases.

For example, reports of identity theft in conjunction with mortgage fraud SARs increased 96 percent from the previous study. In 2006, there were 37,313 mortgage fraud SARs filed. The final total for mortgage fraud SARs filed in 2007 was 52,868, an increase of 42 percent.

Mortgage loan fraud was the third most prevalent type of suspicious activity reported, after Bank Secrecy Act/structuring/money laundering and check fraud.

According to FinCEN, this tremendous increase in SARs relating to possible mortgage fraud does not necessarily mean that mortgage fraud has increased, but rather “indicates growing vigilance and awareness in the financial community.”

“FinCEN’s analysis indicates that the financial community is becoming increasingly adept at spotting and reporting suspicious activities that may indicate mortgage fraud,” said FinCEN Director James H. Freis, Jr. “This exemplifies how compliance with Bank Secrecy Act regulations is consistent with a financial institution’s commercial concerns.”

The purpose of the Suspicious Activity Report (SAR) is to report known or suspected violations of law or suspicious activity observed by financial institutions subject to the regulations of the Bank Secrecy Act (BSA).

FinCEN requires a SAR report to be filed by a financial institution when the financial institution suspects insider abuse by an employee, violations of law aggregating over $5,000 or more where a subject can be identified, violations of law aggregating over $25,000 or more regardless of a potential subject, transactions aggregating $5,000 or more that involve potential money laundering or violations of the Bank Secrecy Act, computer intrusion, or when a financial institution knows that a customer is operating as an unlicensed money services business.

There has been a tremendous increase in the number of SARs in the wake of the 9/11 terrorist attacks, and banks have been extremely diligent in filing such reports.

Incidentally, it was through the use of SARs that former New York Governor Eliot Spitzer’s liasons with prostitutes were exposed. Spitzer was snared when the FBI intitiated a money laundering investigation based on SARs that his bank filed due to Spitzer’s suspicious financial transactions.