Tag Archives: mail fraud

Windfall for Lender – Or Will Natural Gas Discovery Benefit Victims of Ed Okun’s 1031 Tax Group Scam?

There’s a new ripple in the story of indicted 1031 exchange scammer Edward Okun, the 1031 Tax Group, and their victims.

Cordell Funding is a Miami-based hard money mortgage lender. Last fall, Cordell Funding sued Okun to recover $17 million it had loaned to Okun before his fraud-riddled real estate empire collapsed into bankruptcy actions and criminal indictments.

Cordell Funding initially sued Okun in a New York state court, but a federal judge transferred the suit to the U.S. Bankruptcy Court in Manhattan, where Gerard McHale, the court-appointed Chapter 11 trustee of Okun’s 1031 Tax Group, was selling off Okun’s assets.

As part of that bankruptcy case, McHale turned over the rights to several Okun properties to Cordell. One of the properties that McHale turned over to Cordell was the Shreveport Industrial Park, a nearly empty 42-year-old, 956,735-square-foot Class C industrial distribution building at 9595 Mansfield Road in Shreveport, Louisiana.

It wasn’t worth much — certainly not the $17 million that Cordell said it was owed by Okun.

Then natural gas was discovered in the area. 

In fact, it was discovered that under the Shreveport Industrial Park is the largest onshore natural gas field in North America.   It could hold as much as 20 trillion cubic-feet equivalent of natural gas reserves.

The mineral rights lease for the Sheveport Industrial Park is now valued at somewhere between $30 and $60 million.

And property values for the area have soared.

It looks like Cordell Funding got a windfall from the bankruptcy court. 

But when the natural gas field was discovered, bankruptcy trustee McHale went back to court to have the bankruptcy judge of the 1031 Tax Group vacate the order giving Cordell Funding rights to the Shreveport property. At the same time, McHale has asked the bankruptcy judge to approve a mineral rights lease with PetroHawk Energy for the benefit of the 1031 Tax Group victims.

Now whether Cordell Funding or the hundreds of creditors of the 1031 Tax Group gets the millions of dollars from the Shreveport natural gas discovery will be determined by the bankruptcy court.

UPDATE:

For the latest on Ed Okun (new federal indictments, plus the indictments of Laura Coleman and Richard B. Simring), click here.

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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.”

 

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.

 

 

Property of 1031 Exchange Scammer Ed Okun Goes on Sale

High-end retail complex properties in Kansas and Texas owned by the notorious Edward H. Okun have been put up for sale by a federal bankruptcy trustee.

The properties are the 1.1 million square foot West Oaks Mall in Houston, Texas, and the 587,512 square foot Salina Central Mall in Salina, Kansas.

Okun is alleged to be behind the 1031 exchange scam run by The 1031 Tax Group (1031TG) that defrauded thousands of people out of millions of dollars.

Okun was arrested in Miami, Florida, last month and charged with mail fraud, bulk cash smuggling, false statements, and forfeiture from a scheme to defraud and obtain millions of dollars in client funds held by The 1031 Tax Group. 

Those who were defrauded by Okun’s 1031 Tax Group had hoped to recoup some of their missing funds from Okun’s remaining assets — including the West Oaks Mall and the Salina Central Mall — which were purchased from monies allegedly taken from victims in the 1031 exchange scam.

But the Okun-controlled companies that owned the malls declared Chapter 11 bankruptcy in October. 

It is now unclear whether the proceeds from the sale of the properties would go Okun’s 1031 exchange scam victims.

Both properties apparently have a long line of creditors.

The trustee in the bankruptcy case has hired Keen Consultants, the new real estate division of KPMG Corporate Finance, to market both properties.

You can read our earlier post on Okun and his 1031 exchange scam here.

 

 

Man Behind 1031 Exchange Scam Indicted for Fraud

The long awaited indictment of Edward H. Okun took place yesterday. 

Okun is alleged to be behind the 1031 exchange qualifed intermediary (QI) scam run by The 1031 Tax Group (1031TG) that defrauded thousands of people out of millions of dollars.

Okun was arrested last week in Miami, Florida, and charged yesterday by a federal grand jury in Richmond, Virginia, with one count of mail fraud, one count of bulk cash smuggling, and one count of false statements and forfeiture.

According to the indictment, from August 2005 through April 2007, Okun used 1031TG and its subsidiaries, all owned by Okun, in a scheme to defraud clients of millions of dollars through false pretenses.

The indictment alleges that 1031TG promised clients that their money would be used solely to effect 1031 exchange as outlined in the exchange agreements. Instead, Okun is alleged to have misappropriated approximately $132 million in client funds to support his lavish lifestyle, pay operating expenses for his various companies, invest in commercial real estate, and purchase additional qualified intermediary companies to obtain access to additional client funds.

The indictment also alleges that Okun instructed employees to withdraw $15,000 in cash from Investment Properties of America’s (IPofA) bank account, a company owned by Okun, and smuggle the cash to his personal yacht on Paradise Island in the Bahamas to avoid federal currency reporting requirements; and that Okun made material false statements under oath before the U.S. District Court for the Eastern District of Virginia relating to conversations he had with the chief legal officer of IPofA.

Federal prosecutors are seeking the forfeiture of all funds and assets owned by Okun that were derived from or connected to the misappropriation of approximately $132 million in funds held by 1031TG and of all funds and assets traceable to the $15,000 in cash he instructed to be smuggled to his yacht in the Bahamas.

If convicted of all the charges in the indictment, Okun will face a maximum of 30 years in prison and fines.

1031TG is only one of several QIs that have been in legal trouble in the past year, leaving investors with millions of dollars of losses.

The Federation of Exchange Accommodators, the qualified intermediaries’ industry-trade group, requires background checks of all members except those that are subsidiaries of publicly traded parent corporations. The FEA says it is working with the states and may reach out to federal regulators about enhancing oversight of the business. 

Especially in light of the erosion of investor confidence in the credit, banking, and mortgage industries, we think that oversight of 1031 exchange QIs is long overdue.

UPDATE:

For our post on the sale by a bankruptcy trustee of Okun’s West Oaks Mall in Houston, Texas, and Salina Central Mall in Salina, Kansas, click here.